VALUATION HIGHLIGHTS

1. Company Operated Restaurants constitute 98% of the Trefis price estimate for Chipotle's stock.

WHAT HAS CHANGED?

Chipotle Q3 Snapshot

CMG reported mixed quarterly results as earnings beat expectations but revenue fell short in Q3. The company's top line grew 13% year-over-year (y-o-y) to $2.8 billion. It reported third-quarter net income of $387.4 million, or 28 cents per share, up from $313.2 million, or 23 cents per share, a year earlier. Same-store sales rose 6%, just shy of StreetAccount estimates of 6.3%. Traffic to restaurants increased by 3.3% in the quarter, continuing the chain’s streak of bucking an overall slump in foot traffic across the industry. Also, the company's digital sales accounted for 34% of the chain’s quarterly food and beverage revenue. The tex-mex chain opened 86 new locations during the quarter, 73 of which included a “Chipotlane” dedicated to online order pickup.

Note:Chipotle's FY'23 ended on December 31, 2023. Q3 FY'24 refers to the quarter that ended on September 30, 2024.

Looking Ahead

For the full year, Chipotle reiterated its outlook that same-store sales will grow by a mid- to high-single-digit percentage. The company also anticipates it will open between 285 and 315 new restaurants this year.

Looking to 2025, Chipotle plans to open between 315 and 345 new locations. More than 80% of those restaurants will include a Chipotlane.

50-for-1 Stock Split

Chipotle stock underwent a 50-for-1 split after markets closed on Jun 25, with investors gaining 49 new shares for each one they owned before the split. This split will not change the total value of investors' Chipotle holdings or the company's market capitalization. The company wants to make its stock more accessible to a wider range of investors, especially Chipotle employees, by trading at a lower price. The chain also said it planned to offer a special one-time equity grant, a type of stock compensation, to general managers and employees with more than 20 years at Chipotle to promote employee ownership of the stock.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Chipotle's value that present opportunities for upside or downside to the current Trefis price estimate for Chipotle:

Company Operated Restaurants

Number of Restaurants : The company is still able to add new restaurants, and increase its in-restaurant sales - illustrating that the additions are not cannibalizing existing locations. The company saw the addition of net 471 stores between the end of 2021 and 2023. We continue to expect an average of 5% growth in stores each year over our forecast period.

Average Revenue Per Restaurant : We expect the company's revenues to grow at a steady pace over our forecast period, with average restaurant sales growing at around 7% over our forecast period.

For additional details, select a driver above or select a division from the interactive Trefis split for Chipotle at the top of the page.

BUSINESS SUMMARY

Chipotle Mexican Grill is a chain of restaurants operating in the casual dining segment, which specializes in serving Mexican cuisine. As of Dec 31, 2023, the company operated 3,371 restaurants, almost all of which are located within the U.S. All the restaurants are company-operated with no franchises.

Chipotle's menu comprises Mexican fare with a few things that can be mixed and matched with various sauces and ingredients such as salsa, guacamole, cheese, and lettuce, to make one's dishes. The menu primarily consists of Tacos, Burritos, Salads, and Burrito Bowls (Burritos without the Tortilla).

Chipotle operates on the "Food with Integrity" principle, offering naturally raised pork, chicken, and beef. Naturally raised implies that the animals are raised in open pastures and are fed on a purely vegetarian diet without any added hormones or antibiotics.

Chipotle's objective is to provide a fine-dining experience in a quick-service setup and to provide quality food and ambiance without having the customer wait too long. Some Chipotle restaurants can serve up to 300 customers an hour.

Chipotle competes with restaurants in the casual dining segment such as Applebee's, Qdoba, Taco Bell, and Chili's, among others. It also competes with fast-food restaurants such as McDonald's, Burger King, Subway, and KFC.

SOURCES OF VALUE

Chipotle's business is wholly dependent on company-operated restaurants, which explains the significance of this division to its stock.

Higher average spend per customer than competitors

Chipotle enjoys a higher average spend per customer than most of its competitors, given its high quality of food. For example, in McDonald's, the average spend per customer is around $9, whereas the corresponding figure in Chipotle is about $11-12. The company has successfully marketed itself as a restaurant serving natural, hygienic, and organic food in an upscale ambiance, for which the consumers are often ready to pay a slight premium.

Another reason why the company enjoys a higher average spend per customer is that it has restaurants only in developed countries, where the average spend is usually higher than in developing countries. Most of the fast-food restaurant chains have a mix of restaurants in developed and developing countries, which has a lowering effect on the overall spending per customer.

KEY TRENDS

Organic and healthier food gaining importance in the U.S.

Consumers have become more health-conscious, and there is an increase in demand for natural and healthier food. Using its 'Food with Integrity campaign, Chipotle has aggressively marketed itself as a restaurant using only naturally raised meat.