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Chipotle shares jump after company crushes earnings estimates, as pace of turnaround accelerates

Key Points
  • Chipotle reports fourth-quarter earnings after the bell Wednesday.
  • The Mexican food chain crushes earnings estimates.
  • CEO Brian Niccol credits increasing foot traffic for the earnings and revenue beats.
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Chipotle reports very strong fourth quarter

Chipotle on Wednesday reported quarterly earnings and revenue that beat analysts' expectations, thanks to increasing foot traffic and menu price increases.

Shares of the company jumped 10 percent.

"I'm very pleased to report strong fourth quarter results with 6.1 percent comparable restaurant sales growth that included 2 percent transaction growth," CEO Brian Niccol said in a statement.

Thanks to Niccol's popularity with investors, Chipotle's stock had its best year since 2013 last year, with shares soaring nearly 50 percent. Since taking the reins in March, Niccol, who previously led Yum Brands' Taco Bell, has been pushing digital and marketing investments to bring the company back to stable growth. Digital orders typically mean a higher check for restaurants, not to mention reducing in-store lines.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.72, adjusted, vs. $1.37 expected
  • Revenue: $1.23 billion vs. $1.194 billion expected
  • Same-store sales growth: 6.1 percent vs. 4.49 percent expected

In the fourth quarter, digital orders rose 65.9 percent, accounting for $158.6 million in revenue, or 12.9 percent of sales. To cope with a rising number of digital orders, Chipotle is updating its kitchens with a second assembly line solely for those orders. It has more upgrades, like pickup shelves to display online orders, in the works. Those shelves are in 1,000 of its restaurants so far.

The company is also testing "Chipotlanes," drive-through windows for customers to pick up their online orders. So far, 10 of its locations have the feature. Niccol told analysts on the conference call that Chipotlanes are helping both digital and overall sales for those stores, but that it is still in the testing phase. Going forward, the company is largely planning to add online order pickup lanes to new restaurants instead of remodeling older stores.

In September, the company started a new advertising campaign called "For Real" to showcase its fresh ingredients and food preparation. The company also saw a bump at the end of the quarter when it ran a free delivery bowl campaign to promote its partnership with Doordash. Niccol said new or infrequent customers made up nearly half of the people taking advantage of the offer.

The company also reiterated its intention to launch a loyalty program nationwide this year. It began testing the program in October in several U.S. cities to win back customers. The program is yet another way to drive diners to order their Chipotle burritos digitally. Niccol said the company is still in the early days of understanding the implications of its pilot but that it is building on momentum.

The Mexican food chain reported fiscal fourth-quarter net income of $32.0 million, or $1.15 per share, declining from $43.8 million, or $1.55 per share a year earlier.

Excluding restaurant closure costs, corporate restructuring and other undisclosed costs, Chipotle earned $1.72 per share, topping the $1.37 per share expected by analysts surveyed by Refinitiv.

Net sales rose 10.4 percent to $1.23 billion, topping expectations of $1.19 billion, helped by strong same-store sales. Stores open at least a year saw sales increase by 6.1 percent during the quarter. Prices increased by 3.3 percent during the quarter.

The company is planning for "modest" price increases this year, which the company said will be lower than prior increases. It plans for the increases to offset labor inflation of 4 to 5 percent.

"The biggest challenge is going to be labor inflation," Niccol said.

The Mexican food chain said it began more efficiently scheduling its employees during the third quarter, and it hopes to see those changes continue to help the profit margins throughout the year.

During 2019, Chipotle is forecasting same-store sales growth in the mid-single digits. It is also planning to open between 140 and 155 new locations, largely in the second half of the year.

The company also announced Wednesday that its board approved an additional $100 million of stock buybacks. The buyback authorization adds to its previous authorization of $57.6 million. During 2018, the company spent $161 million on buybacks.