Chipotle Mexican Grill (CMG) shares surged higher Wednesday after the restaurant chain posted stronger-than-expected fourth quarter earnings that defied a host of rising input costs.
Chipotle said adjusted earnings were pegged at $5.58 per share, firmly ahead of Street forecasts, with revenues rising 22% to $2 billion. Same-store sales were up 15.2% from last year, although that trend is likely to slow over the the first three months of this year to a 'mid-to-high' single-digit range.
A 4% price hike in December helped soften the impact of higher beef and pork prices, the company said, as overall food, packaging and beverage costs were up 31.6% from last year, holding operating margins at around 20.2%.
The group also noted higher wages costs over the quarter that CEO Brian Niccol said will likely continue into this year.
"Besides ongoing labor pressures, our Q4 margin was impacted by a higher level of commodity inflation than we originally expected, primarily due to elevated beef and freight costs," CFO John Hartung told investors on a conference call late Tuesday. "As a result, we took a 4% menu price increase in the middle of December to help offset these headwinds."
"We believe we still have pricing power to use as needed if inflation continues to rise going forward," he added "Of course, we’ll be thoughtful and patient as we consider these actions to make sure we continue to deliver an excellent value and dining experience to our guests."
Chipotle shares were marked 8.75% higher in late morning trading to change hands at $1,590.35 each, a move that would trim the stock's six-month decline to around 15.2%.
"Like all restaurant chains, Chipotle was severely impacted by the Covid outbreak, but the company’s business model demonstrated resilience by leveraging its digital assets and marketing expertise," said KeyBanc Capital Markets analyst Eric Gonzalez, who carries an 'overweight' rating and an $1,850 price target on the stock.
"We believe a premium valuation is warranted as Chipotle is poised to exit this crisis in a position of strength, in our view, given its strong balance sheet, technology leadership, and preferred tenant status that should allow it to have its pick of available real estate sites in the future," he added.
