Restaurant chain Chipotle Mexican Grill (NYSE: CMG) The company capped an incredible run-up in its stock price this year with a 50-for-1 stock split in June. It was one of the largest stock splits in the history of the New York Stock Exchange.
Explaining why the company made the decision, Chief Financial Officer Jack Hartung said: “We believe the stock split will make our shares more accessible to our employees as well as a broader spectrum of investors.”
Now that the historic stock split is complete, is it time to invest in Chipotle? Let’s take a look at the company to answer that question.
Chipotle’s best-seller
Chipotle’s stock price has already risen substantially in recent months, nearly doubling from a 52-week low of $35.37 last October to a high of $69.26 in June. This is a testament to the company’s excellent financial performance.
In 2023, Chipotle generated $9.9 billion in revenue, up 14% from $8.6 billion in 2022. Additionally, its net income increased a whopping 37% year-over-year to $1.2 billion. These results boosted Chipotle’s 2023 diluted earnings per share (EPS) to $44.34, up 38% from $32.04 in the prior year.
Last year’s success continued into 2024. Its first-quarter revenue reached $2.7 billion, representing a 14% year-over-year growth, while net income increased 23% to $359.3 million from $291.6 million in 2023. Chipotle’s first-quarter earnings per share increased 24% year-over-year to $13.01.
To put this performance into context, the competitor Mmm! BrandsYum! Brands, the owner of several restaurant chains including Pizza Hut and Taco Bell, posted $1.6 billion in sales, $314 million in net income and an EPS of $1.10 in the first quarter. Yum! Brands is an interesting rival to compare itself to because Chipotle CEO Brian Niccol was once the CEO of Taco Bell.
Chipotle’s sales strategy
Niccol, who took over as CEO in 2018, summed up the strategy used to produce Chipotle’s strong financial results when he said, “Our strong sales trends were driven by our focus on improving performance in our restaurants.”
This strategy helped Chipotle’s first-quarter sales at its existing stores reach a 7% year-over-year increase. Same-store sales growth is critical to the company’s ability to grow revenue, hence the importance of strengthening customer management.
Chipotle uses a variety of tactics to increase the number of customers it can drive to each location. For example, the restaurant chain makes it easy for customers to order online through its website or mobile app. Digital sales accounted for 37% of the company’s food and beverage revenue in the first quarter.
Another Chipotle tactic is combining online ordering with a new store format called a Chipotlane. A Chipotlane is a drive-through dedicated specifically for customers to pick up online orders.
This evolution of the traditional drive-thru concept allows customers to get their food quickly and easily, further increasing throughput per location. Chipotlane was introduced in 2018 under Niccol’s tenure.
The company described the success of the Chipotlane format, stating that “new restaurant openings that feature this digital order pickup line have demonstrated higher volumes and higher returns than a traditional Chipotle restaurant format.” The company expects at least 80% of new stores in 2024 to include a Chipotlane.
Deciding on Chipotle stock
New store openings are another factor that has contributed to Chipotle’s revenue growth. In the first quarter, the company opened 47 locations and plans to open a total of at least 285 new restaurants in 2024. Last year, it opened 271 stores.
Chipotle’s goal is to reach 7,000 locations in North America. At the end of the first quarter, it was about halfway to its goal with nearly 3,500 restaurants.
Thanks to new store openings and increased same-store sales, Chipotle’s revenue has grown substantially under Niccol, doubling since the start of his tenure.
Niccol’s leadership, Chipotle’s success in increasing customer revenue, and its store expansion plans position the company for sustained revenue growth, which can boost the potential for its stock to increase in value. In fact, the current consensus among Wall Street analysts is an overweight rating with an average share price of Chipotle at $67.69.
Now that the stock has fallen from its 52-week high reached in June following the historic stock split, it’s a good time to buy Chipotle stock.
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Robert Izquierdo has positions in Chipotle Mexican Grill. The Motley Fool has positions in Chipotle Mexican Grill and recommends it. The Motley Fool has a disclosure policy.
Is Chipotle Stock a Good Buy After Its Historic Stock Split? was originally published by The Motley Fool