Chipotle: Spotlight on Digital as Online Orders Surpass In-Store Sales

Digital sales helped propel earnings far above Wall Street's expectations

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Margaret Moran
Apr 21, 2021
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After the market closed on April 21, Chipotle Mexican Grill Inc. (

CMG, Financial) reported its earnings results for the first quarter of fiscal 2021, which ended on March 31.

The stock was down 1.6% during the trading day as investors awaited the earnings announcement. In after-hours trading, the stock spiked briefly in response to the news before dropping again.

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Earnings results

Chipotle recorded revenue of $1.7 billion for the quarter, an increase of 23.4% compared to the prior-year quarter. Diluted earnings per share came in at $4.45 (up 64.8% year over year), while adjusted earnings per share were $5.36 (a 74.0% increase). Analysts had been expecting revenue of $1.7 billion and adjusted earnings of $4.89.

Comparable restaurant sales were up 17.2%, while the restaurant-level operating margin improved 470 basis points to 22.3%. Digital sales grew an astonishing 133.9% and accounted for 50.1% of sales, meaning that more than half of Chipotle's revenue was from online rather than in-store orders.

In terms of the restaurant count, Chipotle opened 40 new restaurants and closed five restaurants during the quarter, bringing the total count to 2,803. Of the new restaurants, 26 include a "Chipotlane" to facilitate online order pick-up.

Food, beverage and packaging costs were 30% of revenue, down 280 basis points from the first quarter of 2020, due mainly to menu price increases and a mix shift toward higher margin proteins.

"Chipotle is off to a great start in 2021 thanks to our employees and their incredible level of collaboration and tireless dedication," Brian Niccol, Chipotle's chairman and CEO, said. "As vaccines roll out and we get closer to moving past this pandemic, I believe Chipotle is well positioned for growth. I'm excited about our future as we remain focused on innovating in culinary, leading in food with integrity, and providing convenient access inside our restaurants and through our expanding digital ecosystem."

Looking forward

In terms of outlook, management said it expects around 200 new restaurant openings in 2021, but it declined to provide further full-year guidance, citing Covid-19 risks.

For the second quarter, Chipotle expects that new menu items such as quesadillas and cauliflower rice as well as the strong digital channel and marketing strategies will help drive earnings higher. It estimates comps will fall in the range of the high 20s% to 30%.

Valuation

As of market close on Wednesday, Chipotle shares traded at $1,507.62 apiece for a market cap of $42.49 billion. The price-earnings ratio stands at 120.61, which is higher than 81% of competitors as well as the company's own 10-year median price-earnings ratio of 52.62. According to the GuruFocus Value chart, the stock is significantly overvalued.

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If the company can continue exceeding analyst expectations and achieving market-beating growth with the help of its winning digital strategy, the price could also continue growing. The stock also traded at higher earnings multiples at many points during 2020, so multiples expansion is not out of the question either. However, the stock would likely be incredibly volatile in the case of bad news or a slowdown in growth.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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