Brian Niccol’s debut earnings report as Chipotle’s chief executive officer turned out to be a Wall Street-busting one. Shares of the burrito chain surged more than 9 percent in after-hours trading Wednesday as the company sailed past analyst expectations in the first quarter of fiscal 2018. Chipotle earned $2.13 per share on $1.15 billion in revenue, which easily passed Thomson Reuters’ estimate of $1.57 per share on $1.147 billion in revenue.
Comparable same-store sales climbed 2.2 percent, year-over-year, topping StreetAccount’s call of 1.3 percent.
While Niccol assumed the role March 5, and this report covers the three months ended March 31, having a solid base to introduce his initiatives certainty can't hurt. The revenue increase is a 7.4 percent lift over the prior-year period, as Chipotle opened 35 new units and closed two others, bringing the total to 2,441 units.
“Chipotle is a purpose driven brand with loyal customers, passionate employees, industry-leading economic potential, along with incredible brand equity, and craveable food with integrity, all built over the last 25 years," Niccol said in his first prepared remarks. “While the company made notable progress during the quarter, I firmly believe we can accelerate that progress in the future.”
The optimism is surging. Chipotle’s stock has lifted 36 percent since February’s announcement that Niccol, a marketing maven who directed Taco Bell’s turnaround and transformed it into a lifestyle juggernaut, was taking the spot vacated by founder Steve Ells. Ells shifted into a chairman role focused on innovation.
Chipotle said higher menu prices boosted check averages. The company started raising prices 5–7 percent last April before adding the rest of the system in January.
“Comparable restaurant sales increases were attributable to an increase in average check, including a 4.9 percent benefit from menu price increases that have been taken in almost all our restaurants over the past twelve months, partially offset by fewer transactions in our restaurants,” Chipotle said.
The increase in revenue was driven by new restaurant openings and to a lesser extent from an increase in comparable restaurant sales, the company said.
“We are in the process of forming a path to greater performance in sales, transactions, margins and new restaurants. This path to performance will be grounded in a strategy of executing the fundamentals while introducing consumer-meaningful innovation across the business,” Niccol said.
He also spoke about changing Chipotle’s culture, an important note given the negative press that has trailed the brand since its food safety outbreaks in 2015 that affected hundreds of customers and sliced the brand’s stock value in half.
“It will also require a structure and organization built for creativity, action and accountability. Finally, Chipotle will have a culture that is centered on running great restaurants, putting the customer first, innovating for today and tomorrow, supporting each other, and delivering on commitments. The future will be meaningful at Chipotle,” he said.
Chipotle has already made several executive changes, including bringing on Chris Brandt, formerly the executive vice president and chief brand officer at Bloomin’ Brands’ Outback Steakhouse, Carrabba’s, Bonefish Grill, and Fleming’s, as chief marketing officer to replace Mark Crumpacker. Brandt and Niccol worked together at Taco Bell as well. Brandt was chief brand and marketing officer at the chain, and oversaw some of Taco Bell’s most successful innovations, including the Doritos Locos Tacos and the quesalupa. He also directed the Happier Hour daypart push and breakfast, as well as digital initiatives such as the Taco Bell app. Just last week, Niccol announced that Marissa Andrada was stepping in as chief human resources officer. Andrada held several senior-level positions in human resources at Starbucks, including senior vice president, partner resources for the Americas, where she led innovation and strategy for retail employee programs, including employee experience, management, and compensation. Most recently, Andrada was senior vice president of human resources and chief human resources officer at Kate Spade & Company.
Food costs were 32.4 percent of revenue, a decrease of 140 basis points as compared to the first quarter of 2017, Chipotle said. The benefit from menu price increases and decreased paper cost and usage were partially offset by higher costs associated with preservative-free tortillas.
Restaurant level operating margin was 19.5 percent in Q1, an increase of 180 basis points, year-over-year, due to more employees and higher bonus expenses.
Chipotle said it expects same-store sales to increase in the low-single digits for full-year 2018; open 130–150 restaurants; and appreciate an estimated effective full year tax rate of approximately 32.5–33.5 percent, with quarterly tax rates of around 29 percent in the second and third quarters and up to as high as 38.5 percent in the fourth quarter as a result of an additional anticipated write-off of deferred tax assets associated with stock-based compensation awards.
Chipotle reported comparable same-store sales growth of 0.9 percent in the fourth quarter.