In this weekly article, we highlight a company that reported earnings that came outside analyst expectations, emphasizing what the beat or miss says about consumer demand and economic activity.
Takeaways
- Restaurant chain Chipotle reported better-than-expected third-quarter profits and revenue.
- Consumers have been splurging on burritos and popular items despite pricier menu prices and still-high inflation. Chief Financial Officer (CFO) John Hartung said during an earnings conference call that customers at all income levels are “resilient very well.”
- However, executives mentioned that with inflation for certain food categories like beef and queso, profitability has declined somewhat, while rising food and labor costs The work could impact Chipotle's results in the current quarter.
Restaurant chain Chipotle Mexican Grill (CMG) posted higher-than-expected profits and revenue in the third quarter as consumers splurged on burritos despite higher menu prices.
Revenue rose 11.3% from last year to $2.46 billion as Chipotle opened more restaurants while same-store sales rose 5% thanks to more of transactions. Net income rose nearly 13% to $313.2 million, equivalent to $11.32 diluted per share and well above analyst estimates. The company's operating margin, at 16%, improved by almost a percentage point compared to the same quarter last year.
These strong results suggest that Chipotle remains a popular choice with consumers at a time of high inflation and high food prices, and reflect the robust consumer spending that fueled GDP growth in the third quarter.
Chief Financial Officer (CFO) John Hartung said during the company's quarterly earnings conference call that customers of all income levels are “resilient very well,” and noted that people choose to dine at Chipotle “because we're very affordable “.
Inflation remains a headwind, say the leaders
However, executives mentioned that inflation in certain food categories like beef and queso had dented profitability somewhat, offsetting price increases that Chipotle began implementing two years ago. years and had taken a break last year. Chipotle raised its menu prices again in early October for the first time in more than a year, in an effort to offset persistent inflation.
Hartung warned that rising cheese and avocado prices could increase the company's costs in the fourth quarter, while rising labor costs due to ;wage inflation could also affect results. Despite this, executives expect sales growth for the fourth quarter and 2023 as a whole to be in the mid-to-high single-digit range.
Chipotle shares rose by 4.5% on Friday. They are up nearly 40% this year, far outperforming the AdvisorShares Restaurant ETF (EATZ), a gauge of restaurant industry performance, which has been roughly flat since the start of the year. year.
