Chipotle Mexican Grill (CMG) Q2 2023 earnings

Chipotle Mexican Grill on Wednesday reported quarterly earnings that crushed expectations, but the burrito chain’s sales fell short.

The stock fell more than 9% in extended trading. Shares were up 50% this year through Wednesday’s close.

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

• Earnings per share: $12.65 adjusted vs. $12.31 expected
• Revenue: $2.51 billion vs. $2.53 billion expected

Chipotle reported second-quarter net income of $341.8 million, or $12.32 per share, up from $259.9 million, or $9.25 per share, a year earlier. 

Excluding restructuring costs, closure expenses and other items, the burrito chain earned $12.65 per share.

Restaurant-level operating margins expanded to 27.5% from 25.2% in the year-ago period. Avocado prices were lower this quarter, but higher prices for tortillas, dairy, beef and other ingredients put some pressure on the company’s profits.

Last quarter, Chipotle said it was done raising menu prices after hiking them earlier to mitigate rising labor and commodity costs. But executives seemed more open on Wednesday to another round of price increases.

“As we get closer to that fourth quarter, we’ll make a decision exactly on what we want to do on the pricing front,” CEO Brian Niccol said.

Chipotle’s net sales rose 13.6% to $2.51 billion in the second quarter. The company’s same-store sales grew 7.4%, falling shy of StreetAccount estimates of 7.5%. But Niccol said the chain isn’t seeing weaker demand from low-income or high-income consumers.

In March, Chipotle introduced Chicken al pastor. Executives said the menu item brought new customers to its restaurants in the second quarter, but the limited-time item will wrap up in August. However, Chipotle already has plans to release a new menu item for later in the quarter.

The company has also been training employees to improve how many burritos, bowls and tacos they can make during a shift. Niccol also shared that the company is rolling out a dual-sided grill, which can cook chicken three times faster and steak four times faster. Chipotle has added the new grills to 10 high-volume restaurants.

Digital sales accounted for 38% of the company’s food and beverage revenue this quarter. 

Chipotle opened 47 new locations, 40 of which included drive-thru lanes to pick up digital orders. The company also shut down its remaining Pizzeria Locale restaurants during the quarter. Founder Steve Ells, then still chief executive of Chipotle, partnered with two Colorado entrepreneurs on the fast-casual chain more than a decade ago.

The company recently reorganized its corporate structure, according to Niccol. Changes included more investment in digital marketing and its international expansion and putting Chief Customer and Technology Officer Curt Garner in charge of product design, analytics and the customer experience.

The company reiterated its full-year forecast of same-store sales growth in the mid- to high-single digit range. However, for the third quarter, Chipotle anticipates same-store sales growth in the low- to mid-single digit range. Wall Street is anticipating same-store sales next quarter of 5.9%, according to StreetAccount.

Read the earnings release.