610 Newport Center Drive
Suite 1300
Newport Beach, CA 92660
United States
949 524 4000
http://www.chipotle.com

Sector(s): Consumer Cyclical
Industry: Restaurants
Full Time Employees: 97,660

Why is Chipotle Stock So High

On April 26, Chipotle (CMG -1.12 percent) released its first-quarter earnings report, which revealed both rising sales and profits. In response to increased costs for ingredients and labor, the company has exercised its pricing power and increased the prices of its dishes.

Customers continued to be willing to pay these higher prices, presumably because they have witnessed price increases across a broad spectrum of goods and services. Therefore, even after its price increases, Chipotle is not perceived to offer a lower relative value.

Quarterly comparable store sales for Chipotle increased by 9 percent year over year. As Chipotle opened new locations in the United States, its overall sales increased by 16 percent. As the risks associated with the pandemic have diminished, diners have returned to restaurants, contributing to the revenue growth.

With readily available COVID-19 vaccines and treatments, people are more confident to resume their pre-pandemic activities. Chipotle’s first-quarter restaurant sales increased by 33.1% as a result. Notably, digital sales remained strong at 41.9% of total sales. People are not substituting in-person visits with digital takeout orders. Instead, they are engaging in both activities. This trend contributed significantly to Chipotle’s sales increase from $5.6 billion in 2019 to $7.5 billion in 2021.

In addition, food and packaging costs have increased by double-digit percentages. These higher costs are reducing Chipotle’s restaurant-level operating profit margin, which decreased by 160 basis points in the first quarter. The chain has implemented several rounds of menu price increases to offset these higher expenses, with the most recent, a 4 percent increase.