Chipotle Mexican Grill Inc. kicked off restaurant earnings season after market close Thursday, reporting transaction growth through its third quarter, despite swirling concerns about consumer spending.
“We believe CMG will stand out from the crowd when restaurant earnings season is finalized with a 3Q23 beat on SSS, margins and EPS,” Oppenheimer analyst Brian Bittner wrote in a note released Friday.
Chipotle’s
CMG,
+4.49%
third-quarter operating margin was 16%, up from 15.1% in the prior year’s quarter. The company’s restaurant-level operating margin was 26.3%, compared with 25.3% in the same period last year.
Related: Chipotle shares climb on Q3 earnings beat, strong comparable sales
Set against this backdrop, Oppenheimer reiterated its outperform rating for Chipotle. “Traffic trends are solidly positive with built-in operational accelerators still unfolding over the next several quarters,” he added. “Longer-term, CMG possesses a compelling opportunity to further enhance throughput and build traffic as automated tools (e.g. Hyphen) are implemented across the system.”
Speaking during a conference call to discuss the results Thursday, Chipotle CEO Brian Niccol said that the company’s transaction throughput showed improvement every month during the third quarter.
Chipotle shares rose 3.5% in premarket trades Friday, while McDonald’s Corp.
MCD,
-0.03%
stock rose 0.5% and Wendy’s Co.
WEN,
-0.47%
rose 1.7%. Earlier this month, McDonald’s stock suffered its longest weekly losing streak in four years amid consumer-spending worries. McDonald’s reports third-quarter results on Oct. 30. Wendy’s reports third-quarter results on Nov. 2.
Related: McDonald’s and Chipotle set to continue dominance amid consumer-spending worries, research shows
Raymond James reiterated its outperform rating for Chipotle in a note released Friday. “Combined with accelerating unit growth in 2024 (+8.5-9.0%) on its way towards 10% into 2025E, we continue to view CMG as one of the more compelling secular growth stories within the restaurant (and broader consumer) sector,” wrote Raymond James analyst Brian Vaccaro.
Stifel maintained its buy rating for Chipotle in a note released Thursday, with analyst Chris O’Cull highlighting the company’s third-quarter transactions. “Transactions increased more than 4%, exceeding expectations and accelerating during the quarter, with the momentum continuing into October,” he wrote. “We believe Chipotle’s transaction results will stand out among restaurants reporting 3Q results over the next few weeks.”
“Based on mobile location data and recent conversations with operators, we believe industry sales slowed through 3Q and into October,” he added. “Chipotle’s strong value proposition and improving throughput should position it well to continue outperforming.”
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Truist Securities also highlighted Chipotle’s “impressive” traffic growth in a note Thursday. “Traffic is being driven by the 9/13 launch of Carne Asada (sales are surpassing internal expectations), improving throughput (a top focus of management), easy year ago comparisons (troughed in 4Q22 after significant menu price increases) and an attractive value proposition (traffic is consistent across income cohorts),” wrote Truist Securities’ Jake Bartlett. Truist Securities maintained its buy rating for Chipotle.
Wells Fargo analyst Zachary Fadem said he expects Wells Fargo to trade higher Friday, boosted by the third quarter results. In a note released Thursday, Fadem cited Chipotle’s improving transactions, its margins, which “beat handily,” and its fourth quarter comparable restaurant sales guide, which “met the high water mark.”
“All in, we like the setup into FY24, w/ a unit growth step up, throughput drivers & price/RLM [restaurant level margin] levers,” Fadem added. Wells Fargo has an overweight rating for Chipotle.
Of 35 analysts surveyed by FactSet, 25 had an overweight or buy rating and 10 had a hold rating for Chipotle. Shares of Chipotle have risen 30.2% in 2023, outpacing the S&P 500 index’s gain of 7.8%.
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