Chipotle Just Had an Awesome Quarter, But I'm Still Not Buying the Stock
Many restaurants are struggling with the effects of the coronavirus, but Chipotle's (NYSE: CMG) business is doing better than most. Its easy-to-use digital ordering app and delivery partnerships have enabled the burrito maker to actually increase comparable restaurant sales and grow overall revenue year over year in its most recent quarter. But the stock is trading close to all-time highs, despite numerous challenges still ahead. Let's dive into the details of its most recent quarterly results and why I'm buying burritos instead of the stock.
Looking at the top-line numbers for this brick-and-mortar establishment, you would be hard-pressed to guess that we are in the middle of a pandemic. The top line grew 14.1% year over year for its third quarter ending Sept. 30, 2020, on the strength of price increases and solid comparable restaurant sales of 8.3%. Its digital sales were a highlight, coming close to 50% of its revenue and tripling from its level from a year ago. It added a net 41 restaurants to bring its total to 2,710, but costs due to the coronavirus threw a wrench in store-level margins and the bottom line.
Restaurant operating margins dropped to 19.5%, a decline of 1.3 percentage points from the year-ago, non-coronavirus-affected quarter. Even though digital ordering is a benefit to labor costs, employees are instructed to stay home if they are sick, driving additional expense for sick pay and the cost for the person who has to cover the shift. Increased marketing spend and subsidizing delivery costs also affected margins. As a result, net income decreased from 7% of revenue in Q3 2019 to 5% of revenue this quarter.
Source Fool.com
