Chipotle's turnaround looks legit

Chipotle's blowout year continues.Sales at stores that have been open for at least a year grew 3.3% last quart...

Posted: Jul 27, 2018 8:21 AM
Updated: Jul 27, 2018 8:22 AM

Chipotle's blowout year continues.

Sales at stores that have been open for at least a year grew 3.3% last quarter, exceeding Wall Street's expectations and sending shares of Chipotle up 6% during after-hours trading.

After struggling for much of the past three years, Chipotle has been on a tear under Brian Niccol, the former Taco Bell CEO who took over in March. Chipotle's stock is up close to 55% this year.

Related: How Chipotle plans to win you back

Chipotle said that higher prices and customers adding queso to their orders lifted sales growth last quarter. Although traffic was down from a year earlier, Chipotle increased menu prices by 4%.

Niccol said Chipotle had not seen evidence that the price increases turned away customers.

Higher prices and a reduction in spending on marketing and promotions helped increase Chipotle's operating margins. Chipotle also got a boost last quarter from lower avocado prices, even though beef prices were up from a year ago.

The menu price hike also helped offset wage inflation.

Related: What higher wages means for Domino's and McDonald's

Chipotle has been raising wages to reduce employee turnover. Analysts say it's been a lingering problem for Chipotle, and increasing pay is one way to attempt to keep workers.

Labor costs are rising at the company. Chipotle spent upwards of $341 million on labor last quarter, a 12% increase from the same time last year.

"We are doing a better job staffing our restaurants," Niccol said. "We have lower year-over-year hourly turnover, which tells us we are making progress on training and building great teams."

Digital sales, including delivery orders, increased 33% last quarter and now make up a tenth of total sales.

Chipotle believes that getting more customers to order on the app will shorten lines. Customers also spend around $5 more when they order off their phones than in the store.

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