Chipotle (NYSE:CMG) Misses Q3 Revenue Estimates, But Stock Soars 5.23%

Mexican fast-food chain Chipotle (NYSE:CMG) fell short of analysts' expectations in Q3 FY2023, with revenue up 11.3% year on year to $2.47 billion. Turning to EPS, Chipotle made a non-GAAP profit of $11.36 per share, improving from its profit of $9.51 per share in the same quarter last year.

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"Chipotle's value proposition including customized, delicious culinary served quickly with great hospitality, is stronger than ever which is translating to great results including sustained positive transaction growth. We remain focused on developing exceptional people, preparing delicious food and fast throughput which will further strengthen our brand and continue to position us for long term growth," said Brian Niccol, Chairman and CEO, Chipotle.

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.

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.

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 15.4% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was excellent as it added more dining locations and increased sales at existing, established restaurants.

This quarter, Chipotle's revenue grew 11.3% year on year to $2.47 billion, falling short of Wall Street's estimates. Looking ahead, the analysts covering the company expect sales to grow 12.9% over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

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. Chipotle's restaurant count increased by 231, or 7.48%, over the last 12 months to 3,321 locations in the most recently reported quarter.

Over the last two years, Chipotle has rapidly opened new restaurants, averaging 7.18% 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

Same-store sales growth is an important metric that tracks organic growth and demand for a restaurant's established locations.

Chipotle's demand has outpaced the broader restaurant sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 8.85% year on year. With positive same-store sales growth amid an increasing number of restaurants, Chipotle is reaching more diners and growing sales.

In the latest quarter, Chipotle's same-store sales rose 5% year on year. This growth was a deceleration from the 7.6% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.

Key Takeaways from Chipotle's Q3 Results

Sporting a market capitalization of $50.8 billion, more than $1.45 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Chipotle is attractively positioned to invest in growth.

It was great to see Chipotle beat analysts' adjusted EPS estimates, driven by higher-than-expected same-store sales growth. On the other hand, it didn't open as many restaurants as Wall Street was hoping for, leading to a revenue miss. Overall, the results could have been better. The company is down 1.58% on the results and currently trades at $1,832.13 per share.

Chipotle may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.