CMG’s (NYSE:CMG) first quarter results continued to demonstrate the significant progress that CEO Brian Niccol and his team have made in dramatically improving performance and positioning the company for long-term sustainable growth. Same-store sales grew 10% in the quarter led by transaction growth of approximately 6%, a significant acceleration in sequential growth – better than that of any other large publicly traded restaurant company.
Management raised its full year same-store sales guidance to mid-to-high single-digit growth from mid-single- digit growth. Digital sales doubled from the prior year quarter to nearly 16% of sales, including robust growth in delivery, which has driven incremental sales and improved margins. Key drivers for continued same-store sales progress in the coming quarters include the new loyalty program launched in March, the completion of the rollout of the digitized second make line by the end of 2019 from half to all stores, and a continued focus on improving speed of service and store employee retention.
Restaurant margins expanded 150 basis points in the quarter to 21%, the highest since 2015. Management estimates that every $100,000 increase in average restaurant sales should translate into a one percentage point increase in restaurant margins, implying margins of 25% once Chipotle gets back to peak average restaurant sales of $2.5 million, which were previously achieved with essentially no contribution from digital or delivery.
Chipotle’s store count exceeded 2,500 stores in the quarter, with management reiterating the opportunity for up to 5,000 stores on the earnings call, and Brian citing the potential for up to 7,000 stores in a recent interview. Despite the 63% year-to-date increase in the share price, we believe that Chipotle is in the early innings of its transformation, and that its robust pipeline of initiatives in the stage gate process, accelerated footprint expansion, and a world-class management team should drive superlative growth in sales and profits for years to come.
From Bill Ackman (Trades, Portfolio)'s first-quarter 2019 Pershing Square shareholder letter.
