A customer carries a Chipotle Mexican Grill Inc. bag outside a restaurant in San Francisco, California, the United States, Monday, July 20, 2020.
David Paul Morris | Bloomberg | Getty Images
Chipotle Mexican Grill on Thursday reported quarterly profits that crushed Wall Street estimates as price increases on its menus helped the chain cope with higher costs.
The company’s shares rose more than 1% in extended trading.
Here’s what the company reported compared to what Wall Street expected, based on an analyst survey conducted by Refinitiv:
- Earnings per share: $ 7.02 adjusted vs. $ 6.32 expected
- Turnover: $ 1.95 billion against $ 1.94 billion expected
The company reported third-quarter net income of $ 204.4 million, or $ 7.18 per share, from $ 80.2 million, or $ 2.82 per share a year earlier.
Beef and freight costs were higher, but menu price increases offset the impact of these increased expenses. In June, the chain announced that menu prices would rise about 4% to cover the cost of rising restaurant workers‘ wages to an average of $ 15 an hour.
Excluding the tax benefit, restructuring costs and other items, Chipotle earned $ 7.02 per share, exceeding the $ 6.32 per share expected by analysts polled by Refinitiv.
Net sales rose 21.9% to $ 1.95 billion, beating expectations of $ 1.94 billion. Same-store sales increased 15.1%, beating StreetAccount’s estimate by 14%.
Digital sales rose 8.6% after more than tripling a year ago. The company’s loyalty program has gained 24.5 million members in two and a half years, helping Chipotle get to know its customers better and encourage more frequent visits.
“There is no doubt that the loyalty program has moved from the crawl stage to the walking stage, and we still have a lot of room to grow,” CEO Brian Niccol said on the conference call.
Chipotle is still experiencing staffing issues amid the labor shortage plaguing the entire industry. But CTO Curt Garner said in an interview that Chipotle was able to prevent this from affecting its sales largely by keeping its restaurants open. When a location is understaffed for a shift, they can turn off their digital orders to focus on restaurant transactions. Delivery orders will be fulfilled from a nearby restaurant, while digital customers looking to pick up their orders will be directed to the order from a nearby location.
At the end of the quarter, the chain launched smoked brisket as a limited-time menu option. Strong demand for the item means availability will end in November, slightly earlier than initially expected. Under the leadership of Niccol, who previously ran Yum Brands‘ Taco Bell, the company has accelerated the addition of new menu items through a process it calls the front door test. The chain has been strategic with new releases, making many of them time-limited options to drive customer traffic to their restaurants and keep the menu from getting bloated.
The company opened 41 new restaurants during the quarter. Only five of those locations did not include a “Chipotlane,” a designated drive-thru lane to retrieve digital controls. Executives said the company was still grappling with building material inflation, labor and equipment shortages from contractors, and delivery delays from homeowners.
Looking ahead to the fourth quarter, the company expects same-store sales growth in the low to mid double-digit range. Chipotle noted several uncertainties hanging over the company, such as inflation, pressures on staff and Covid-19.
“Despite these challenges, we remain confident in our ability to increase restaurant margins as our average unit volumes increase,” said CFO Jack Hartung.
Chipotle also announced that its board of directors has approved an additional $ 100 million in share buybacks, bringing its total authorization to $ 209.8 million as of September 30. The company repurchased $ 98.7 million of shares during the third quarter.
Read the full publication of the results here.