Chipotle (NYSE:CMG) Exceeds Q4 Expectations

Full Report / February 06, 2024

Mexican fast-food chain Chipotle (NYSE:CMG) reported Q4 FY2023 results topping analysts' expectations, with revenue up 15.4% year on year to $2.52 billion. It made a non-GAAP profit of $10.36 per share, improving from its profit of $8.29 per share in the same quarter last year.

Chipotle (CMG) Q4 FY2023 Highlights:

  • Revenue: $2.52 billion vs analyst estimates of $2.49 billion (1.1% beat)
  • EPS (non-GAAP): $10.36 vs analyst estimates of $9.73 (6.5% beat)
  • Free Cash Flow of $93.53 million, down 73.2% from the previous quarter
  • Gross Margin (GAAP): 40.1%, up from 39.6% in the same quarter last year
  • Same-Store Sales were up 8.4% year on year
  • Store Locations: 3,437 at quarter end, increasing by 250 over the last 12 months
  • Market Capitalization: $67.81 billion

Born from a desire to offer quick meals with fresh, flavorful ingredients, Chipotle (NYSE:CMG) is a fast-food chain known for its healthy, Mexican-inspired cuisine and customizable dishes.

The company was founded in 1993 by Steve Ells, a classically trained chef, who recognized a gap in the market for fast food that didn’t compromise on taste or quality. To execute this vision, Chipotle exclusively uses top-notch ingredients like responsibly raised meats and organic produce in its burritos, bowls, tacos, and salads.

At its restaurants, each customer has the freedom to craft their meal exactly to their liking, choosing from a range of proteins, salsas, and toppings. This allows for endless combinations, ensuring that every visit to Chipotle is unique and tailored. It’s a personalized dining experience that other fast-food competitors simply don’t offer.

The average Chipotle store is designed with an open kitchen layout, allowing customers to witness the food preparation process firsthand. The assembly line-style setup ensures efficiency as customers move along, selecting their desired ingredients and watching as their creation comes to life.

In response to the digital age, Chipotle has established a strong online presence. The company's website and mobile app offer seamless ordering options, providing features such as real-time tracking, exclusive offers, and the convenience of skipping the line.

Modern Fast Food

Modern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.

Some fast-food competitors with similar concepts include CAVA (NYSE:CAVA), Noodles & Company (NASDAQ:NDLS), Potbelly (NASDAQ:PBPB), and Sweetgreen (NYSE:SG).

Sales Growth

Chipotle is one of the most widely recognized restaurant chains in the world and benefits from brand equity, giving it customer loyalty and more influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 15.3% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was impressive as it added more dining locations and increased sales at existing, established restaurants.

Chipotle Total Revenue

This quarter, Chipotle reported robust year-on-year revenue growth of 15.4%, and its $2.52 billion in revenue exceeded Wall Street's estimates by 1.1%. Looking ahead, Wall Street expects sales to grow 13% over the next 12 months, a deceleration from this quarter.

Number of Stores

When a chain like Chipotle is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Since last year, Chipotle's restaurant count increased by 250, or 7.8%, to 3,437 locations in the most recently reported quarter.

Chipotle Operating Retail Locations

Over the last two years, Chipotle has rapidly opened new restaurants, averaging 7.3% annual increases in new locations. This growth is among the fastest in the restaurant sector. Analyzing a restaurant's location growth is important because expansion means Chipotle has more opportunities to feed customers and generate sales.

Same-Store Sales

Chipotle's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 8% year on year. With positive same-store sales growth amid an increasing number of restaurants, Chipotle is reaching more diners and growing sales.

Chipotle Year On Year Same Store Sales Growth

In the latest quarter, Chipotle's same-store sales rose 8.4% year on year. This growth was an acceleration from the 5.6% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Gross Margin & Pricing Power

Gross profit margins tell us how much money a restaurant gets to keep after paying for the direct costs of the meals it sells.

Chipotle's gross profit margin came in at 40.1% this quarter. in line with the same quarter last year. This means the company makes $0.40 for every $1 in revenue before accounting for its operating expenses. Chipotle Gross Margin (GAAP)

Chipotle has great unit economics for a restaurant company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see above, it's averaged an impressive 39.9% gross margin over the last eight quarters. Its margin has also been trending up over the last 12 months, averaging 4.3% year-on-year increases each quarter. If this trend continues, it could suggest a less competitive environment where the company has better pricing power and more stable input costs (such as ingredients and transportation expenses).

Operating Margin

Operating margin is an important measure of profitability for restaurants as it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

In Q4, Chipotle generated an operating profit margin of 14.4%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.

Chipotle Operating Margin (GAAP)

Zooming out, Chipotle has managed its expenses well over the last two years. It's demonstrated solid profitability for a restaurant business, producing an average operating margin of 14.6%. On top of that, its margin has improved, on average, by 2.3 percentage points each year, a great sign for shareholders.


These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.

In Q4, Chipotle reported EPS at $10.36, up from $8.29 in the same quarter a year ago. This print beat Wall Street's estimates by 6.5%.

Chipotle EPS (Adjusted)

Between FY2019 and FY2023, Chipotle's adjusted diluted EPS grew 219%, translating into a remarkable 33.7% compounded annual growth rate. This growth is materially higher than its revenue growth over the same period and was driven by excellent expense management (leading to higher profitability) and share repurchases (leading to higher PER share earnings).

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 18.8% year-on-year increase in EPS.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Chipotle's free cash flow came in at $93.53 million in Q4, down 63.7% year on year. This result represents a 3.7% margin.

Chipotle Free Cash Flow Margin

Over the last two years, Chipotle has shown strong cash profitability, giving it an edge over its competitors and the option to reinvest or return capital to investors while keeping cash on hand for emergencies. The company's free cash flow margin has averaged 11.1%, quite impressive for a restaurant business. Furthermore, its margin has averaged year-on-year increases of 2.6 percentage points. This likely pleases the company's investors.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company's revenue growth was profitable. But was it capital-efficient? If two companies had equal growth, we’d prefer the one with lower reinvestment requirements.

Understanding a company’s ROIC (return on invested capital) gives us insight into this because it factors the total debt and equity needed to generate operating profits. This metric is a proxy for not only the capital efficiency of a business but also a management team's ability to allocate limited resources.

Chipotle's five-year average ROIC was 14.8%, beating other restaurant companies by a wide margin. Just as you’d like your investment dollars to generate returns, Chipotle's invested capital has produced robust profits.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Chipotle's ROIC has averaged a 11.8 percentage point increase each year. Chipotle has historically shown the ability to generate good returns, and its rising ROIC is a great sign. It could suggest its competitive advantage or profitable investment opportunities are growing.

Key Takeaways from Chipotle's Q4 Results

We enjoyed seeing Chipotle beat analysts' revenue, same-store sales, and EPS estimates this quarter. The company's outperformance was driven by strong year-on-year unit growth of 7.4%. It also got a pricing tailwind of 1.0% and opened more restaurants in the quarter than expected (121 vs estimates of 117). A highlight of Chipotle's 2023 was that it formed its first international partnership with franchisee Alshaya Group in the Middle East. Looking ahead, Chipotle expects same-store sales growth in the mid-single digits for 2024 along with 300 new store openings. We think this was a fantastic quarter that should have shareholders cheering. The stock is up 2.1% after reporting and currently trades at $2,546 per share.

Is Now The Time?

Chipotle may have had a good quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

There are several reasons why we think Chipotle is a great business. For starters, its revenue growth has been impressive over the last four years. On top of that, its new restaurant openings have increased its brand equity, and its unparalleled reputation makes it a household name consumers consistently turn to.

Chipotle's price-to-earnings ratio based on the next 12 months is 46.8x. Looking at the consumer landscape today, Chipotle's qualities as one of the best businesses really stand out, and despite the higher valuation, we still like it at this price.

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