Chipotle Earnings Snapshot: Rising Costs, Shortage of Employees Hamper Fourth Quarter Growth
Chipotle Mexican Grill (NYSE: CMG) is expected to report its results for the fourth quarter of fiscal 2021 on February 8. Since the start of the pandemic, society has done an excellent job of adapting to changing consumer habits.
As a result, its sales increased in 2020 despite Chipotle having to temporarily close its restaurants for in-person dining. As economies reopen, the fast-food chain grapples with new challenges such as rising costs and a shortage of employees.
Customers can’t get enough of Chipotle, but can it satisfy their appetite?
Fortunately, customer demand remains robust for Chipotle. In its most recent quarter, ended Sept. 30, comparable restaurant sales rose 15.1% from the same period a year earlier. Note that comparable restaurant sales represent revenue from locations open for at least 13 full calendar months. This measure aims to eliminate the impacts of restaurant openings and closings.
At the start of the pandemic, Chipotle moved quickly to provide a solid range of options for customers newly unable to dine at its restaurants. People could still take advantage of Chipotle by ordering through its website and picking it up in person or having it delivered. The management has also partnered with third-party services such as DoorDash and Uber, create another channel where customers could enjoy Chipotle’s menu items.
Even as economies reopen and people can dine at its premises, digital sales remain robust for Chipotle. In its most recent quarter, digital sales grew 8.6% and accounted for 42.8% of overall sales. Interestingly, more than half of all digital sales were orders placed online to be picked up in person. This is the most profitable type of transaction for Chipotle. Online orders free up staff to prepare food instead of taking a customer order and processing payment.
Reducing pressure on staff and increasing productivity per employee becomes especially vital now that the economy is facing vast labor shortages. Occupational health risks are exponentially higher than before the pandemic, while employee salaries are gradually increasing. Not surprisingly, fewer people are willing to accept these jobs. In the company’s third quarter earnings press release, management said it was confident in overcoming these near-term challenges to maintain momentum through the fourth quarter: “For the fourth quarter, so While uncertainty remains on multiple fronts, including the potential impact of COVID-19 as well as inflation and staffing pressures, we are encouraged by our strong underlying business momentum, and if this trend continues , we expect our comparable restaurant sales to be in the low to mid-double digit range.”
Yet growth could have been better without the shortages. Not only is Chipotle working diligently to adequately staff existing locations, but it also has ambitions to add new restaurants at a rate of 200 per year. It will be interesting to hear management discuss the impact on new store growth rate of labor shortages.
What this could mean for Chipotle investors
Wall Street analysts expect Chipotle to post revenue of $1.96 billion and earnings per share of $5.29. If it meets these projections, there would be increases of 22% and 52%, respectively, compared to the same period the previous year.
Chipotle’s stock is down nearly 20% since the start of 2022, possibly due to material and labor shortages. The company has already implemented wage increases and menu price increases. If management reports that labor shortages persist despite these increases, further increases may be needed to attract enough staff. Either that or the company must scale back its near-term new store growth ambitions.
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Parkev Tatevosian owns Chipotle Mexican Grill and Uber Technologies. The Motley Fool owns and recommends Chipotle Mexican Grill and DoorDash, Inc. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.
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