The burrito chain’s double-digit revenue growth from 2023 has carried over into 2024 — and there’s no sign of a slowdown.
Expectations were high for fast-casual burrito chain specialist Chipotle Mexican Grill (CMG 0.40%) going into 2024. Its sales jumped 14.3% year over year in 2023, with growth accelerating to 15.4% in the final quarter of the year. Additionally, earnings per share soared as the company’s full-year operating margin expanded from 13.4% in 2022 to 15.8%. To top it off, the stock soared 65% last year.
With this backdrop, you’d be forgiven if you thought some cooling off was in order in 2024. But this year’s performance from both the business and the stock has been anything but. It turns out the company is easily living up to investors’ high expectations, helping shares soar about 28% year to date. Business performance remains spectacular, as seen in the company’s first-quarter earnings release this week.
Double-digit growth and margin expansion
Chipotle kicked off 2024 with a stellar first quarter. Revenue rose 14.1% year over year to $2.7 billion. This is some incredible growth when investors consider that it’s stacked on top of 17.2% year-over-year revenue growth in the same quarter last year.
Fueling the quarter’s growth was the opening of 47 new restaurants and comparable restaurant sales growth of 7%. Measuring the change in total revenue at restaurants in operation for at least 13 full calendar months, comparable restaurant sales trends provide insight into growth trends at existing stores. An impressive 7% growth rate for this key metric for Q1 shows how well the company is executing on its plans to attract more customers to its stores and to convince them to come back more frequently. Some of the ways Chipotle has been driving strong growth in comparable restaurant sales include strategic marketing initiatives, the rollout of drive-thru lanes, and its continued effort to create exceptional digital experiences for its customers.
Unsurprisingly, a sharp increase in sales at existing stores helped profits. Chipotle was able to report an operating margin of 16.3%, up from 15.5% in the year-ago quarter. This meant earnings per share rose faster than sales. The important per-share profit metric increased 23.9% year over year to $13.01.
Management was upbeat about its business. In the company’s first-quarter earnings release, Chipotle CEO Brian Niccol said that the quarter’s strong performance gave him confidence in the burrito maker’s long-term goal to double its North American business and expand overseas.
Strong growth looks poised to persist
With such impressive momentum, management provided an optimistic full-year outlook.
Chipotle raised its outlook for 2024 comparable restaurant sales growth. Previously, it was expecting a growth rate in the mid-single digit range, but now management forecasts “comparable restaurant sales growth in the mid to high-single-digit range,” Chipotle said in its first-quarter earnings release.
However, growth will come from more than strong comparable restaurant sales increases. Management reiterated that it expected to open a total of 285 to 315 new restaurants during 2024, of which 80% will have a drive-thru.
All of this should translate to a sharp increase in Chipotle’s reported bottom line for the year. A high growth rate for comparable restaurant sales means the company can earn greater sales per store and ultimately increase its operating margin, as it did in Q1. With both revenue growing and operating margin expanding, earnings-per-share growth should outpace revenue growth for the year.
Adding to the reasons for investors to be optimistic, Chipotle told investors in its first-quarter earnings call that it has continued to see strength in its business in April. So, double-digit year-over-year growth in quarterly revenue is all but in the bag for Q2 at this point.
At some point, Chipotle’s growth will likely come down to more reasonable single-digit levels. But, based on the company’s momentum in Q1 and continued strength in the first month of Q2, it doesn’t look like things will start cooling off for Chipotle anytime soon.
Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
