Chipotle Q3 Earnings: Here’s What Investors Need to Know

Chipotle Mexican Grill (NYSE:CMGThe company will report fiscal third-quarter earnings Oct. 21. The company is enjoying the reopening of economies and people returning to restaurants for their meals.

Surprisingly, Chipotle managed to retain a large portion of its digital sales during the pandemic-induced lockdown in which most people spent their time at home. It is certain that it will be able to report third-quarter earnings. There is a lot of momentum behind it. Here are some things investors need to know before the announcement.

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Chipotle combines the best of both the worlds

First, Chipotle saw an increase in total revenue of 38.2% in its second-quarter that ended June 30, compared to the same period last year. The boost was due to a combination of factors, including the reopening restaurants for in-person dining. Management reported that 70% of in-restaurant sales had been recovered from pre-pandemic levels. Although this is a significant improvement, there is still much to be done to recover from pandemic-caused disruptions. Investors should be aware of in-person dining figures.

Second, the decline in digital sales was not as severe as expected. In-person dining has slowly returned. The total 49% of sales in Q2 was digital, which grew 11% compared to the year-ago quarter. Digital sales can include either delivery of food to a customer’s home or pick-up at the restaurant (usually via a dedicated drive through lane called a “a”). “Chipotlane”After placing an order online, you will receive a confirmation email. This is the most profitable option for the company and has been growing in popularity since the lockdown. Investors should check whether momentum in digital sales continues when Chipotle reports its quarterly results. Chipotlanes have been used in the majority of the company’s new restaurants. 

Management also stated that the fast-casual restaurant chain would open at least 200 new restaurants in fiscal 2021. There is plenty of growth potential with approximately 2,850 stores currently in operation. The stated goal to reach 6,000 stores in North America is also possible. Management raised its adjusted unit volume (sales at each location) target to $3 million during the second quarter conference call. 

However, this goal will face challenges in the short term. Supply chain bottlenecks (including labor and materials) could hinder new store growth or even reduce sales at existing stores. The company recently increased the average hourly wage to $15 for its employees. It will be interesting to see whether that is enough to attract sufficient staff to its restaurants.

Chipotle implemented price increases ranging from 3% to 4 percent on its menu items in an effort to offset costs. However, consumers have not decreased their purchases. Management believes it has more pricing power than others and can raise prices again if necessary. Investors need to be aware of management’s comments about costs during next week’s earnings. 

Chipotle stock did well

Wall Street analysts expect Chipotle will report total revenue of $1.93billion and earnings per share at $6.31 for the third-quarter.  If the company meets its revenue estimates, it will be 20% more than the $1.6 billion reported in Q3 2013. 

Chipotle stock is expected to be a market darling by 2021. It has already risen 35% year to-date compared with the S&P 500’s only 18%. The stock could fall if investors are not happy with the Q3 results.

This article is the author’s opinion. “official”Motley Fool Premium Advisory Service recommends the following: We’re motley! We are all different!

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