Chipotle Mexican Grill, Inc. (NYSE:CMG) has been one of the few restaurant stocks that have been on a steady growth trajectory. Despite having a good share of negative publicity, owing to food-borne illness, Chipotle’s viable business strategy and the appointment of Brian Niccol as the CEO have significantly aided its earnings in the past few quarters.
Backed by a range of efficient growth strategies, shares of Chipotle have gained 53.4% in the past year, outperforming the industry’s 6.3% rally. For 2019, the consensus estimate pegs earnings at $11.98, suggesting year-over-year growth of 41.4%.
Let’s find out if investors may want to hold the stock in the near-term.
Sales-Building Efforts to Reap Benefits
Chipotle’s increased focus on food safety and enhancing customer experience, along with various sales-building initiatives, has been driving top-line growth. Notably, robust marketing activities, including a combination of brand-building efforts, along with transaction-driving promotions and advertising, are resulting in a steady inflow of new customers.
Meanwhile, the company redesigned and simplified its online ordering site, enabled online payment for catering, online meal customizations and collaborated with several well-known third-party providers for delivery. Till the end of the third quarter, it progressed with digitizing second make-lines in roughly 7500 restaurants. The digital pick-up shelves are currently available in 350 restaurants while the company expects all of its restaurants to have pick-up shelves by mid-2019.
High Costs Hurt
While Chipotle’s continued efforts to retrieve customer trust and loyalty call for appreciation, high marketing and promo expenses related to such initiatives have been hurting profitability. Moreover, costs to support the company’s newly-designed food safety program can weigh on margins. Further, the implementation of food safety practices increased the amount of labor required to prepare and serve food, resulting in higher labor costs, which may continue to keep profits under pressure. In the third quarter, general and administrative expenses were 8.9% of total revenues, reflecting an increase of 10 bps year over year.
The fast-casual restaurant space is highly competitive. Chipotle is facing intense competition from the likes of McDonald’s (NYSE:MCD) , El Pollo Loco (NASDAQ:LOCO) and BJ’s Restaurants (NASDAQ:BJRI) . Unless the company makes pragmatic use of advanced technologies to innovate across value chains, it has high chances of fading out like many other restaurant retailers.
Chipotle currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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