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Chipotle's Great Numbers Should Be Taken With a Grain of Salt

It would be hard to classify the second-quarter report that Chipotle Mexican Grill (NYSE: CMG) delivered earlier this week as anything less than a blowout. Revenue soared 38.7% year over year to $1.89 billion, fueled partly by the opening of new stores, but primarily by a 31.2% increase in comps.

The news on the bottom line was even better. Chipotle's profit of $6.60 a share was a better-than-20-fold increase over the $0.29 a share it posted a year ago. On an adjusted basis, we're looking at per-share earnings of $7.46 against a $0.40 showing in 2020's second quarter. The fast casual chain is clearly moving in the right direction -- and doing many things right -- but everything is going to be relative this earnings season in the restaurant space given the easy year-over-year comparisons.

Image source: Chipotle Mexican Grill.

We got the beat

Wall Street somewhat saw this coming. As great as $1.89 billion in total revenue may be, the analyst consensus was for $1.88 billion on the top line. The bottom-line beat was better, but Wall Street pros weren't that far off, perched at a consensus profit forecast of $6.49 a share.

There's no denying the dramatic turnaround at Chipotle. The expectations were high, and it flew higher. However, don't be spoiled -- or perhaps even tricked -- by a nearly 39% burst in revenue growth.

The pandemic was painful for the whole restaurant industry, particularly early on. Chipotle's April 2020 comps plummeted by 24.4%. The chain did bounce back more quickly than most of its burrito-rolling peers -- its monthly comps turned positive in June of last year. However, total comps for 2020's second quarter declined by 9.8%. Run the math, and this period's monster comps showing is just 25.1% higher than what the reading was in the second quarter of 2019. That gives it annualized comps growth of 11.9% over those two years, which is still healthy, but looking at the longer timeline does frame things in a slightly different light. The 38.7% year-over-year increase in revenue that is so impressive on its own is actually 14.9% on a compound annual growth basis if we draw the starting line at the second quarter of 2019.

For now, investors better get used to numbers that, on the surface, look too good to be true. Compare every restaurant chain to where it was in 2019. And I hate to be a party pooper, but even next year, you're going to want to be using three-year growth -- keeping 2019 as the baseline -- to get a fair read. This will be particularly true if you're looking at publicly traded eateries beyond Chipotle, since most of them did not have the luxury of posting positive comps by 2020's third quarter.

None of this should take away from Chipotle's stellar navigation of these challenging waters. Its timely push into digital sales and the decision to double its assembly lines to compensate for the shift in its sales model is making the chain even more efficient. A host of changes are paying off, from drive-thru Chipotlanes to a CEO who is picking up the cadence on menu moves. Chipotle finally nailed a customer loyalty rewards program and improved its app, at last putting it ahead of the pack on those fronts instead of chasing what once were more tech-savvy competitors. It also went all-in on partnering with third-party delivery services, helping its brand stand out even more.

Chipotle had a great quarter. It beat expectations. It continues to be the class act among fast casual concepts. And at least 13 analysts jacked up their price targets on the stock following this week's report. Chipotle delivered the goods, but deep down, you knew that was exactly what was going to happen.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.


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