The Mexican fast-casual chain Chipotle Mexican Grill Inc. reported weaker-than-expected quarterly sales trends and said that trying to offer more uniform portion sizes had caused costs to rise. This caused shares of the company to fall after hours on Tuesday.
After Brian Niccol left to work for Starbucks Corp. SBUX -0.64%, Scott Boatwright took over as temporary CEO of Chipotle. The results came in as Chipotle tries to find faster ways to process orders for burritos, tacos and bowls in the midst of a fast-food discount war.
Still, the chain said that demand was still strong across all of its customer groups, unlike some of the fast-food giants whose price hikes have kept low-income eaters away. It also said that there were “strong transaction trends” in October. The return of smoked brisket helped it keep carne asada’s success last year.
During the company’s earnings call on Tuesday afternoon, Boatwright said, “We’re still seeing strength across all income cohorts even in this competitive environment. This gives us the belief that we are still delivering extraordinary value for the consumer.”
A chicken burrito costs less than $10 on average, he said. “We think this is still a 15% to 30% discount compared to our peer group.” We’ll keep leaning into that as we go forward.
The main goal of the call was to get faster service. Boatwright said that in some places, worker bees who got there at 6 or 7 a.m. were still making food during busy times. He said that the company was trying to speed up service times by putting in more two-sided grills, testing new fruit and vegetable slicers, and trying out avocado-scooping equipment. They were also training staff and processing orders and payments more quickly. He also talked about how AI could be used to speed up the hire process and make promotions more relevant to each customer.
Boatwright said, “By automating this administrative task, our general managers will have more time to coach and develop their teams and give our guests great service.” It also gives us an edge over other food chains in the market for hiring a lot of people quickly, giving us a competitive edge.
Chipotle’s net income for the third quarter was $387.4 million, or 28 cents per share. This is up from $313.2 million, or 23 cents per share, in the same quarter last year. It made 27 cents a share after adjustments.
Sales went up 13% from one year to the next, to $2.79 billion. Sales at the same stores went up 6%.
FactSet asked analysts and found that they thought Chipotle would report adjusted earnings per share of 25 cents, with sales of $2.82 billion and 6.3% growth in same-store sales.
Chipotle also said that the prices of food, drinks, and packaging made up 30.6% of all sales during the quarter, which is a little more than a year ago. The chain said that the price of avocados and dairy had gone up, and that they had to use more ingredients to make sure that servings were always big, and they changed the protein mix because of the success of their limited-time offer on smoked brisket.
This year, some people on social media have said that Chipotle is cutting back on portion amounts. During the summer, Chipotle said it was taking steps to “ensure correct and generous portions.”
Chipotle kept its guess for same-store sales growth in the “mid- to high-single-digit range” for the whole year. Many people on Wall Street think that same-store sales will go up by 7.5%.
Tuesday after market hours, shares fell 5.3%.
The stock price of Chipotle has gone up 32.3% so far this year as of Tuesday night. As prices have steadily gone up at fast-food and full-service restaurant chains, some customers say they feel like their money goes further at fast-casual places, which try to serve food quickly and with good ingredients.
Before the results came out, Baird experts said that Boatwright would be the main focus.
Analysts said, “Since the upcoming report will be the first since the CEO change was announced in August, investors will likely be looking for interim CEO Scott Boatwright to give them confidence that Chipotle can continue to do well under his leadership.”
“We have long thought of Boatwright as a strong operator who could do a good job as CEO. We expect his main focus will be on following the same playbook that has worked well in the past few years rather than setting new strategic priorities,” they said.
