Chipotle Mexican Grill (CMG) reported fiscal second quarter earnings results on Wednesday, July 26, after the market close that showed sales rose less than expected, sending the company's stock down as much as 6.5% in after-hours trading.
Revenue grew 13.6% to $2.5 billion as same-store sales rose 7.4%, slightly lower than analyst estimates for sales to rise 7.67% from a year ago. Operating margins also rose last quarter to 17.2%, up from 15.3% a year ago but slightly lower than analyst estimates for margins closer to 17.55%.
The company did manage to post a bottom-line beat, with adjusted earnings per share coming in at $12.32, more than the $12.25 expected by analysts.
In the third quarter, Chipotle execs expect same-store sales to grow in the low- to mid-single-digit range and 2023 full-year sales to grow in the mid- to high-single-digit range.
In the company's earnings release, CEO Brian Niccol said the quarter reflected Chipotle's "ability to drive strong performance by focusing on exceptional food and exceptional people."
Chipotle stock has gained about 50% so far this year through Wednesday's close.
In-restaurant sales, as opposed to online orders, also moved higher last quarter, up 15.8% compared to last year while digital sales made up 38% of total food and beverage revenue.
Food, beverage, and packaging costs made up 29.4% of total revenue last quarter, down 100 basis points compared to Q2 2022, in part due to the "benefit of menu price increases taken in the prior year" and lower avocado costs, which offset higher prices for other food items such as beef, tortillas, dairy, salsa, beans, and rice.
Beef and avocados make up 20% and 9% of Chipotle's food basket, respectively.
Its limited-time offering, the Chicken al Pastor, which debuted back in March, also gave a boost this past quarter.
In a call with investors, following the results, Chief Financial Officer John Hartung said "We got a benefit because chicken Al Pastor has really shifted some of our customers from the more expensive beef to the less expensive chicken. That's been a benefit as well."
Restaurant-level operating margins came in at 27.5%, slightly higher than estimates of 27.17% and up from last year's second quarter results, at 25.2%.
"The improvement was primarily due to the benefit of sales leverage and, to a lesser extent, lower avocado prices. These decreases were partially offset by higher inflation across several food costs, and to a lesser extent, wage inflation," the company said in the release.
Chipotle is also seeing "some inflationary pressure" on the labor front. In Q3, the company expects labor costs to be around 25% compared to 24.3% last quarter.
Menu price increases may be on the horizon. Earlier this year the company put a pause on price hikes.
"I think we've proven time and time again that the brand is very strong and the value proposition is very strong, and we have that pricing power to use," said CEO Niccol on the call. "As we get closer to that fourth quarter, we'll make a decision on exactly what we want to do on the pricing front."
Chipotle is also investing in expansion.
Last quarter, the company opened 47 new restaurants with 40 locations including a Chipotlane — what it calls its drive-thrus. In 2023, it plans to open a total of 255 to 285 new restaurants, and 10-15 existing locations will add a Chipotlane.
Last week, the company announced its first-ever development agreement to open restaurants in the Middle East and accelerate its international efforts early next year.
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].
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