Chipotle delivered an EPS surprise in the third quarter.

Fast food chain Chipotle Mexican Grill (KMG -0.18%)on Tuesday, October 29, reported third-quarter earnings that missed revenue estimates but beat net income. The company reported adjusted earnings per share (EPS) of $0.27, beating analysts’ consensus estimate of $0.25. Revenue reached $2.8 billion, up 13% from the prior year, although it fell slightly below the $2.82 billion forecast.

The quarter demonstrated Chipotle’s ability to effectively execute on strategic growth initiatives, although rising costs are a factor to watch closely.

Source: Chipotle Mexican Grill Note. Analyst consensus estimates for the quarter are courtesy of FactSet. YY = Year after year. bps = basis points.

Business overview

Chipotle Mexican Grill more than 3,600 fast food establishments operate restaurants worldwide, with a focus on serving high-quality, responsibly sourced Tex-Mex style food. Key to the company’s success is its commitment to “Food with Integrity”, highlighting its commitment to sustainable practices. Chipotle strategically uses technology to enhance the customer experience, primarily through its app and innovative drive-thru concept, Chipotlane.

Recent strategies include expanding restaurants and deepening engagement with digital platforms. This dual focus is critical to Chipotle’s market share and sales growth. Management emphasizes that innovation, efficient operating practices and a strong corporate culture are critical to maintaining a competitive advantage.

Quarterly indicators

In the third quarter I saw Chipotle prioritizing expansion and opening 86 new restaurants, most of which are represented by Chipotlanes. This drive-thru model not only improves convenience, but also increases sales revenue. Digital sales now account for 34% of revenue, indicating continued growth in digital engagement.

Innovative menu offerings such as limited-time smoked brisket have increased transaction growth. Moreover, Chipotle maintained a stable labor cost structure at 24.9% of revenue, offsetting wage increases. However, rising ingredient costs led to a slight decline in operating margin at the restaurant level to 25.5% from 26.3% a year earlier.

From a financial perspective, Chipotle’s operating margin increased from 16% to 16.9%, indicating improved efficiency. Revenue for the nine months ended September 2024 reached $8.47 billion, up 15.1% year-over-year.

Management pointed to one-time impacts such as food inflation affecting avocado and dairy prices. Increased wage costs due to expansion into states with high labor costs also presented problems. However, Chipotle effectively addressed these pressures through strategic operational adjustments.

Looking to the future

Chipotle Management maintained its full-year forecast for comparable restaurant sales growth in the mid- to high-single digits, consistent with current consumer trends. The company plans to open a total of 285 to 315 new locations throughout the year, and 315 to 345 new company-operated locations in 2025. The company expects at least 80% of new locations to include Chipotlanes as it continues to focus on expanding customer access. and convenience.

Future results are expected to improve through continued menu innovation and technology investments in operations. Despite inflationary pressures, Chipotle’s strategic orientation points to stable growth. Investors should monitor changes in food prices and efficiency gains as these factors will significantly impact future profitability.