You Won’t Believe What the CEO of Chipotle Just Said

It’s usually a useful activity to listen to quarterly earnings calls for stocks in your portfolio. This can provide clues as to how management and Wall Street analysts view a company’s recent performance and future prospects.

For Chipotle Mexican Grill (GCM -2.13%), the comments recently made by the CEO deserve serious attention. Let’s see what he said that should get shareholders excited about where the company is headed.

The road to 7000

Brian Niccol, CEO of Chipotle, recently reiterated the company’s long-term plans during the second quarter 2022 earnings call. average units and reach at least 7,000 restaurants in the United States and Canada,” he said.

Not only is that number more than double the 3,052 locations Chipotle currently operates in the United States and Canada, but it is up from a previous target of 6,000 announced after the third quarter of 2021; the management team became even more optimistic about the company’s potential. This is impressive given the current macroeconomic environment, with the possibility of a recession on investors’ minds, and major corporations lowering their financial forecasts for the rest of the year and laying off employees.

There are reasons to believe that the target of 7,000 stores is a realistic target. The number of Chipotle stores over the past 10 years has skyrocketed from 1,316 at the end of Q2 2012 to 3,052 today. This kind of expansion is hard to rule out.

Additionally, Chipotle’s outlook appears to have been bolstered by the COVID-19 pandemic. The company’s incredibly popular rewards program launched in March 2019 and now has over 29 million members. It was part of the company’s growing focus on its digital infrastructure. When on-site dining was no longer an option during the height of the pandemic, hungry customers could order their favorite menu items through the company’s mobile app or website. This led to rapid sales growth as much of the industry struggled to survive.

One of the key lessons learned from the pandemic is that if Chipotle is able to increase accessibility and convenience, customers will come. Of the 235-250 new stores planned for 2022, 80% will be built with a drive-thru option, aptly called Chipotlane. Experimenting with new store formats like Chipotlane, as well as digital-only outlets, will help the company break into different markets.

With in-person dining popular again, accounting for 61% of the company’s sales last quarter, it will be interesting to see how the balance between digital and in-person revenue evolves. Nevertheless, Chipotle’s strong momentum should help it continue its expansion in North America.

And generating greater sales per store will certainly support Niccol’s other goal of increasing average unit volume to $3 million from $2.7 million today. “I’m really confident that we’re going to go over $3 million, and I’m sure we’ll probably talk about how we’ll get to $4 million at some point,” he said during the interview. call for results. The $3 million target – with 7,000 stores – would mean $21 billion in annual revenue for the company, compared to 12-month sales of $8.1 billion today.

Is Chipotle stock a buy?

Despite the clearly favorable characteristics underlying Chipotle’s business right now, coupled with the growth outlook that Niccol reiterated on the conference call, I don’t actually think the stock is a buy right now. Assessing the quality of a business is one side of the equation. The other half looks at the valuation of the company.

That being said, Chipotle shares are currently trading for a price-earnings ratio of over 61, which is expensive even given the company’s outlook. This strong valuation is higher than that of other popular restaurant stocks like McDonald’s, Dominos Pizzaand Starbucks.

With Chipotle shares carrying this multiple and having risen more than 450% over the past five years, optimism seems to be fully priced in at this time. I think it’s best for investors to be patient and wait for a pullback before buying the stock.

Neil Patel holds positions at Starbucks. The Motley Fool has posts and recommends Chipotle Mexican Grill, Domino’s Pizza and Starbucks. The Motley Fool recommends the following options: Short Calls October 2022 at $85 on Starbucks. The Motley Fool has a disclosure policy.

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