Chipotle stock (CMG) fell early on Wednesday as investors digested third quarter results that missed Wall Street's sales estimates after a string of winning quarters.
The burrito chain reported $2.78 billion in revenue on Tuesday, up 13% year over year but under the expected $2.82 billion, according to Bloomberg consensus data. Adjusted earnings per share of $0.27 represented a 17.4% jump from a year ago and beat estimates of $0.25.
Same-store sales grew 6%, missing estimates of 6.38%. CFO Adam Rymer told Yahoo Finance the quarter started a "little bit soft" due to seasonality, but sales picked up in August and into September.
Chipotle stock dropped 6% in morning trading on Wednesday.
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Interim CEO Scott Boatwright said Chipotle's food, service, and the return of smoked brisket drove check size, foot traffic, and margins on a call with investors. Rymer said other limited-time offerings like honey chicken are being tested in Sacramento and Nashville.
Chipotle is seeing growth "across all income cohorts" as the company's value proposition is resonating with diners. "People come to Chipotle for what it is that we offer, which is premium ingredients at a really fair price point," Rymer said.
The average chicken burrito is under $10, which Boatwright said is a 15% to 30% discount compared to Chipotle's peer group.
The results come as investors await the naming of a permanent CEO after former chief executive Brian Niccol was poached by Starbucks (SBUX) in August.
Initiatives around throughput, or the speed of service, are yielding results, Wedbush analyst Nick Setyan wrote in a note to clients.
Adding an expo role — a crew member between the salsa station and cash register who helps expedite the bagging and payment process — helped add five more orders in a restaurant's peak 15 minutes. About 60% of the locations have been able to staff the expo position, up from 50% in Q2.
Boatwright said it's possible to grow Chipotle orders in peak 15 minutes to 30 orders from its current mid-20s pace. Five more orders in that time period could lead to a roughly 1% sales growth, per Setyan.
The company is also testing tools that help with prep work, like a new produce slicer, which Rymer said is going to "drive efficiencies within our restaurants, so it's really a win-win across the board."
Its dual-sided grill, which cooks chicken and steak faster, will also be added to 74 more restaurants by the month's end.
Its robotic makeline, in collaboration with Hyphen, and guacamole prep robot, Autocado, are currently being piloted at restaurants in California. Boatwright said both are "highly customized technologies that could provide big unlock for us in the future."
Chipotle ended Q3 with 3,615 locations. In the quarter, it added 86 locations, 73 of which contained a drive-through, which Rymer said continue to outperform with higher sales and margins. It expects to open 285 to 315 new locations this year and 315 to 345 in 2025 — less than the 358 Wall Street expected.
Long term, the company plans to operate 7,000 restaurants in North America. As it expands, it's been investing in promoting staff from within.
An employment sign is seen on the window of a Chipotle store on Aug. 2, 2024, in New York City. (Michael M. Santiago/Getty Images) ·Michael M. Santiago via Getty Images
Wall Street is also keeping an eye out for ongoing ingredient inflation that could potentially justify another price increase in Q4, TD Cowen analyst Andrew Charles wrote in a note to clients prior to results.
Food, beverage, and packaging costs increased nearly 30% from a year ago, driven by higher costs of avocado and dairy. Plus, the company said, there was a "higher usage of ingredients" in the quarter after it "focused on ensuring consistent and generous portions." The company said this was partially offset by menu price increases last year.
Labor costs made up nearly 25% of total revenue, in line with last year. "The benefit from sales leverage was offset primarily by wage increases for our restaurants in California" following the enactment of the state's fast food minimum wage law, the company said.
Many on Wall Street expect Boatwright to be named CEO permanently. He joined Chipotle as COO in 2017 after a 10-year stint at Arby's.
If he secures the top job, he'll likely keep Chipotle on the same path.
"We are a high-growth organization, both from same-restaurant sales as well as new-restaurant development, and we need purpose-driven, passionate people for us to hit our long-term goals," he told Yahoo Finance shortly before being named interim CEO.
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Boatwright said on the earnings call that he wants to "continue to push Chipotle to be more of an iconic global brand ... in the coming years and coming months" should his appointment become permanent.
Here's what Chipotle reported in its Q3 results, compared to Wall Street estimates per Bloomberg consensus data:
Revenue: $2.78 billion versus $2.82 billion
Adjusted earnings per share: $0.27 versus $0.25
Same-store sales growth: 6.0% versus 6.38%
For 2024, the company reiterated that it expects sales growth in the mid- to high-single digits for the full year, which was up from the previous guidance of mid-single-digit growth set in Q4 of the last fiscal year.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
