Chipotle (CMG) investors are digesting Q3 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 was a 17.4% jump from a year ago, and beat estimates of $0.25.
Same-store sales grew 6%, missing estimates of 6.38%. Its shares dropped 5% after market close.
In the release, interim CEO Scott Boatwright said its food, service, and the return of smoked brisket led to “another quarter of strong results.”
The results come as investors are awaiting the naming of a permanent CEO, after former head honcho Brian Niccol was poached by Starbucks (SBUX) in August.
Speed of service initiatives on Chipotle’s make line is yielding results, per Wedbush analyst Nick Setyan in a note to clients. In Q2, Niccol said the company was using improved tools and training to increase throughput and optimize “cadence of digital orders during peak periods.”
Adding expo — a crew member between salsa and cash register who helps expedite the bagging and payment process — helped add five more orders in a restaurant’s peak 15 minutes. Right now, a little over half of locations have been able to staff the position. Setyan believes that those five more orders could lead to a roughly 1% sales growth.
He also said near- and medium-term transaction growth drivers include maturing new units, customers joining the loyalty program, and increased marketing.
Chipotle ended Q3 with 3,615 location. In the quarter, it added 86 locations with 73 containing a drive through. 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, it plans to operate 7,000 restaurants in North America. As it expands, it’s been investing in promoting from within.
Wall Street is also keeping an eye out for ongoing ingredient inflation that could potentially justify another price increase in Q4, TD Cowen 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 FAST ACT, the company said.