Chipotle Mexican Grill (CMG) released first-quarter earnings Tuesday after the market closed, and what a quarter it was.
Earnings per share of $10.50 handily beat the $8.95 Wall Street consensus estimate, while the top line of $2.4 billion was $60 million ahead of consensus. Same-store sales rose 10.9%, and operating margins of 25.6% widened 490 basis points.
All in all, it was a great quarter, and CMG shares are up more than 7% in early Wednesday trading as I write this.
Chipotle also opened another 41 locations during the quarter, bringing the total to 3,224. The company expects to open a total of 225 to 285 new restaurants during the year. While Chipotle is still in growth mode, the stock currently trades at 35x and 28x 2024 and 2025 earnings estimates, respectively.
Restaurants have been rallying so far in 2023, but as I reported two weeks ago, that rally has been led by smaller names, and rebound stories such as Red Robin Gourmet Burgers (RRGB) (up 130% year to date) and Potbelly (PBPB) (up 83%).
With the S&P 500 up 6.6%, and Russell 2000 down 0.4% year-to-date, a basket of 40+ restaurant names I follow is up about 21.5% (equal weighted). Meanwhile, The "Big Five" a self-coined group that includes McDonald's (MCD) (up 11% YTD), Chipotle (up 28%), Yum Brands (YUM) (up 8%), Domino's Pizza (DPZ) (down 4%) and Darden Restaurants (DRI) (up 8%), are up an average of about 10%.
Obviously, consumers are not cutting back eating outside the home, despite rising food and labor costs that have pushed menu prices higher. Admittedly, I am sometimes shocked by what a fast-food meal costs these days, but it does not seem to be much of a deterrent.
I've had a theory for many years -- that post 9/11, consumers became more-lax with their food budgets, and eating outside the home became more recreational, and an escape of sorts. I have no proof to back that up, but anecdotally am noticing that the kids who were growing up during that era and are now out of school and working, seem to frequent restaurants more than my generation did at that same age. Perhaps it was a learned behavior, if there is any truth to it. However, this is definitely the case with our own kids.
In any event, you've got to hand it to Chipotle. A very simple and limited menu has helped create a powerhouse. I wonder if that's one of the secrets to restaurant success -- quality food but keeping it simple.
That brings to mind Raising Cane's, considered to be the fastest-growing chicken brand, which also has a very simple menu, focused on chicken fingers. A handful have opened in our area, and the drive-thru lines have been formidable. We finally tried a meal from there, and it was impressive. Best chicken fingers I've ever had, and we'll be back. Unfortunately, Raising Cane's is a private company, and is said to have no plan of going public.
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