Chipotle Mexican Grill is projected to maintain a robust performance in same-store sales for the second quarter, with expectations of revenue exceeding forecasts continuing through 2024, according to insights from UBS Securities. The burrito chain is set to unveil its second-quarter results on Wednesday, and UBS anticipates comparable sales growth of 9%.
This growth is attributed to an increase in transactions and pricing, though slightly tempered by changes in the product mix. Wall Street forecasts an 8.9% growth rate, as noted by the brokerage in their client correspondence. Earnings per share are predicted to reach $0.32 for the quarter, compared to the Street's estimate of $0.31. Key drivers of traffic and sales are likely to include the successful introduction of Chicken Al Pastor, enhanced restaurant throughput, and effective digital marketing strategies, as stated by UBS analyst Dennis Geiger.
The firm estimates a second-quarter restaurant margin of 28.6%, surpassing the Street’s projection of 28.3%, attributed to pricing strategies, sales leverage, and substantial flow-through. Geiger further reiterated that cost inflation should remain manageable, notwithstanding the impacts of wage increases in California. The company’s effective marketing strategies, loyalty programs, and positive value perceptions are expected to bolster continued traffic growth in the latter half of the year, even as comparison trends may become more challenging.
As avocado prices rise in the second half of the year, Chipotle is anticipated to remain insulated from volatility in Mexican prices, primarily sourcing avocados from Colombia and Peru. UBS suggests that Chipotle's margin is poised for further expansion in the second half of the year, driven by operational efficiencies and sales leverage, despite the expectation of no additional pricing adjustments in the fourth quarter.
Overall, the firm views Chipotle favorably, positioning it well for maintaining traffic momentum and outperforming sales amidst consumer spending challenges. "Chipotle stands out as one of the best-positioned brands to sustain sales momentum even in a tough macroeconomic environment, owing to its strong customer brand affinity and solid value proposition," Geiger asserted.
The brokerage has issued a buy rating for the company with a price target of $70 per share. Following recent trading, Chipotle shares experienced a decline of 4.8% by late afternoon on Thursday. Moreover, analysts believe that there is potential for share price enhancement due to consistent positive traffic trends and avenues for margin improvement, despite the wage-related challenges in California.
With the pace of unit growth accelerating and stock valuation becoming less prohibitive, opportunities abound for the company’s continued success. In a significant executive shift, Chipotle last week announced the appointment of Adam Rymer as the new chief financial officer, effective January 1, succeeding retiring CFO Jack Hartung, who will conclude his tenure on March 31.
Rymer previously held the position of vice president of finance within the company..