Chipotle Mexican Grill (NYSE: NYSE:CMG) shares jumped more than 4% in premarket trading Thursday after the company reported a robust second quarter, surpassing Wall Street expectations with an earnings beat and a significant increase in margins.
The fast-casual restaurant chain announced an adjusted EPS of $0.34, edging out analyst projections of $0.32. Revenue also exceeded forecasts, coming in at $3 billion against the estimated $2.94 billion.
The company's revenue surged 18.2% compared to the same quarter last year, propelled by an 11.1% uptick in comparable restaurant sales and a 32.0% increase in adjusted diluted earnings per share.
The growth in comparable sales was attributed to an 8.7% rise in transactions and a 2.4% hike in the average check. Digital sales remained a strong contributor, accounting for 35.3% of total food and beverage revenue.
Chairman and CEO Brian Niccol attributed the successful quarter to effective brand marketing and improved service efficiency, noting, "Our focus and training around throughput paid off as we were able to meet the stronger demand trends with terrific service and speed driving over 8% transaction growth in the quarter."
Operating margins climbed to 19.7%, up from 17.2% in the previous year, while restaurant-level operating margins increased to 28.9%, a 140-basis point improvement. The margin expansion reflects the positive impact of sales leverage, despite facing wage and ingredient inflation.
For the full year 2024, management expects comparable restaurant sales to grow in the mid to high-single digit range and plans to open between 285 to 315 new restaurants, with over 80% featuring a Chipotlane.
Following the report's release, KeyBanc Capital Markets reiterated an Overweight rating on CMG shares, saying the company's digital capabilities, brand positioning and innovation expertise "provide for best-in-class unit returns and a unique level of resilience that is worth a premium relative to its peers."
However, the firm trimmed its price target from $68 to $66 and 2024E/2025E EPS estimates to $1.09/$1.32, "embedding slightly lower margin flow- through vs. our prior estimates in the second half of this year."
Similarly, TD (TSX:TD) Cowen analysts also slashed their target price on the stock from $72 to $65 and 2024 EPS estimates by $0.02.
"We appreciate mgmt's attention to improving publicity surrounding portion sizes via operational changes at affected restaurants (10% of fleet) and margin investment to ensure
more consistent portioning," analysts wrote.
"We believe the issue can resolve and that 7% full year comps will be achieved, aided by demonstrable progress with 1H24 speed of service."