Leading fast-casual restaurant chain Chipotle Mexican Grill Inc. (NYSE: CMG) executed a 50-to-1 stock split on June 26, 2024. It was the retail/wholesale sector company's first stock split and the largest stock split ever performed on the New York Stock Exchange. The stock has since sold off after hitting a post-split high of $66.31. Chipotle carries a premium valuation, trading at 50.98X forward earnings.
1) Chipotle Has Industry High Same Store Sales at 11.1%
Chipotle reported Q2 2024 same-store sales (SSS) growth of 11.1% YoY, crushing estimates for 7%. This beats Texas Roadhouse Inc. (NASDAQ: TXRH) at 9.3%, Sweetgreen Inc. (NYSE: SG) at 9%, and CAVA Group Inc. (NYSE: CAVA) at 2.4% YoY SSS growth.
Revenues rose 18.2% YoY to $2.97 billion, beating $2.94 billion consensus estimates. Same-store transactions grew 8.7% YoY, as the average check size grew 2.4% YoY. Digital sales rose to 35.3% of total sales as customers continued to use the Chipotle app for its seamless and frictionless convenience.
Operating income rose to 19.7% of sales, up from 17.2% in the year-ago period. Operating margin was 16.3%. Restaurant-level margin rose 140 bps YoY to 28.9%, beating the 27.5% consensus estimates. Sales leverage, offset by ingredient and wage inflation, drove the margin improvement. Chipotle has grown its sales in the past decade at a 12% compound annual growth rate (CAGR).
Management has guided full year 2024 SSS growth will remain in the mid-single to high single digit range. Management had also noted the Q2 2024 SSS growth of 11.1% would be its highest quarter for the year. Chicken Al Pastor helped drive the SSS growth, but it will conclude at the end of summer. Chipotle plans to bring back the Smoked Brisket for a limited time in the fall. The company is also going to be increasing portion size to address social media accusations of shrinking food portions.
2) Chipotle Continues to Expand at a Rapid Pace
Chipotle has been in a rapid expansion phase as the company opened 52 new locations in its Q2 2024 quarter, bringing the total to 3,479 locations. Of these, 46 locations now have a drive-thru called a Chipotle. Management expects to grow its store count between 285 to 315 new stores with 80% having a drive-thru. Annual store count growth is around 5%. They are also growing their revenue per store, which was $2.96 million in 2023. The forecast is $3.04 million in 2024.
3) Chipotle is 100% Company-Owned
Chipotle has no franchises. It owns 100% of its locations, which keeps solid control over quality issues that most franchise restaurants tend to have over time. Brand consistency and quality are the two main factors that apply when restaurants are company-owned. This ensures a unified customer experience. It also enables centralized purchasing and marketing efforts, which can lead to cost savings. Food costs remained at 29.4% of sales in Q2 2024, unchanged from the year-ago period. Chipotle doesn't suffer at all, passing on cost increases to its customers. It also helped to stomach the 50% spike in avocado prices earlier in the year. Rising costs will impact margins in the coming quarters.
4) Chipotle Stock is Trading Down 20% From Its Highs
Chipotle stock rose to all-time highs, getting bid up into its 50-for-1 stock split on June 26, 2024. The stock ran up to a post-split high of $66.31 the following day. The stock is trading down 20% from its high of $69.26, made on June 18, 2024. Rather than chasing at highs driven by the fear of missing out (FOMO), it's more prudent to wait for a pullback. Investors looking for an entry should pay attention to the pullback support levels at $52.63, $49.41, $46.16 and $42.80.
CMG Stock is Facing an Ascending Triangle Breakout or a Bear Flag Breakdown
The daily candlestick chart for CMG illustrates a potential for an ascending triangle or a bear flag pattern which will resolve in time. The bull case will occur if CMG breaks through the flat-top upper trendline resistance at $57.61, as the lower ascending trendline indicates higher lows on pullbacks. The bear case would occur if CMG stock fell below the lower trendline at $54.55, triggering a bear flag breakdown. The daily relative strength index (RSI) is rising to the 51-band. Pullback support levels are at $52.63, $49.41, $46.16 and $42.80.
Chipotle analyst ratings and price targets are at MarketBeat. There are 27 Wall Street analyst ratings on CMG stock, comprised of 17 Buys and 10 Holds. The consensus analyst price target is 13.2% higher at $62.88.
