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Chipotle Q1 earnings blows away Wall Street's estimates, boosted by digital surge

Brooke DiPalma
·Associate Producer
·4-min read
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Chipotle (CMG) on Wednesday posted a first-quarter earnings report that outperformed market expectations, with the fast-food giant's digital sales more than doubling as pandemic-fueled app purchases overtook in-person buying.

Here’s what the California-based company reported, compared to Wall Street’s expectations, according to a Bloomberg consensus estimate:

  • Revenue: $1.74 billion versus $1.75 billion expected

  • Adj. earnings per share (EPS): $5.36 versus $4.91 per share expected

  • Same-store sales: 17.2% versus 17.18% expected

Compared to a year ago, digital sales grew to $869.8 million dollars and were primarily driven by order ahead transactions by guests and the addition of drive-through “Chipotlanes." In fact, digital buying spurred by COVID-19 social distancing accounting for 50.1% of sales.

"As vaccines roll out and we get closer to moving past this pandemic, I believe Chipotle is well positioned for growth," Brian Niccol, Chipotle Chairman and CEO said in the report.

"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," he added.

Chipotle's stock, which closed over 1% lower in Wednesday's session at 1,507.62, rose modestly in after-hours trading.

This past quarter, the company introduced the Hand-Crafted Quesadilla, but diners can only order it online. The move is part of an effort to drive customer loyalty with a combination of cheap eats and app-based deals.

The first quarter played host to a number of initiatives designed specifically to court Gen Z consumers. In March, the company announced a collaboration with e.l.f. Beauty (ELF) to serve up a makeup collection dubbed 'e.l.f x Chipotle,' which includes a make up set with names designed to reference Chipotle's menu. 

Chipotle then followed up with an effort to ride the Bitcoin bonanza with plans to give away $100,000 in free burritos and $100,000 in Bitcoin (BTC-USD), coinciding with another April 1st holiday: National Burrito Day.

'Middle stages' of a turnaround

Chipotle's Hand-Crafted Quesadilla is folded and pressed using a new custom oven in Chipotle’s Digital Kitchen, which melts the cheese perfectly and enables restaurants to make Quesadillas more quickly and conveniently. The menu item is cut into triangular pieces and served in 100% compostable packaging that allows guests to pick three salsas or sides, including fresh tomato salsa, sour cream, or hand-mashed guac for a little extra.
Chipotle's Hand-Crafted Quesadilla (Courtesy: Chipotle).

This report comes as Wall Street was eager to learn if a combination of new menu items and digital bargains directed toward younger consumers could sustain the momentum that propelled the company through the COVID-19 crisis.

And indeed, those factors did work to Chipotle's benefit. During the quarter, the company opened 40 new restaurants, 26 of which include drive-thru 'Chipotlanes,' while five locations closed — bringing the total restaurant count to 2,803.

In a note earlier this month, John Ivankoe of J.P. Morgan remains neutral on Chipotle, with a price target of $1,460.00. He expects the company to post double-digit store margins on $20 billion in sales, but doesn't see much impetus for a big move higher.

"Chipotle still has opportunity to grow comps in full-year 2021, due to dining rooms re-opening and pricing," the analyst said. "The company seems to be “teasing” some higher revenue targets in the United States."

Yet Peter Saleh of BTIG is more bullish on the stock, reiterating it as a "Buy" last month with a price target of $1,600, largely in part to the potential of the quesadilla. 

"We believe the launch of Quesadilla will translate into continued same-store sales momentum and will support healthy digital sales mix. We expect this product to attract new customers to the brand as it has been the most requested menu item with upwards of 20 million unfilled orders per year," ultimately expanding the the customer base, the analyst wrote.

Saleh added that he sees the food chain in the "middle stages" of its economic turnaround as it looks to rebound from the coronavirus pandemic. 

Nicholas Johnson of Morningstar is also optimistic about the long-term potential of the fast casual chain. In a note from earlier February, following Chipotle's fourth-quarter earnings, he notes "In our view, it's clear that [Niccol] has restored Chipotle's foundation and positioned the company for above-industry growth for years to come." 

Brooke DiPalma is a producer and reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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