The Ratings Game: Chipotle’s menu is losing carne asada but queso blanco is coming

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Chipotle Mexican Gill Inc.’s menu is going to get a revamp in 2020, and analysts said it will be one of the factors that will continue to move same-store sales in a positive direction.

Chipotle’s CMG, -2.09% carne asada, which launched in September and has been a success for the fast-casual chain, is going to be coming off the menu by the end of the first quarter, according to Chief Executive Brian Niccol.

“This premium steak continues to exceed our expectations,” he said, according to a FactSet transcript. “As a result our supply chain team is exploring options to see if we can add this as a permanent menu item at some point in the future, contingent of course on us finding enough supply of high-quality ingredients that meet our ‘Food With Integrity’ standards.”

Carne asada added 150 basis points to the average check, according to Chief Financial Officer John Hartung. The price of carne asada increased by a quarter during the quarter and Hartung said demand did not decline.

Coming to the menu soon is a new queso blanco, that Niccol said has made it through the “stage-gate” testing process and will replace the existing queso. And Chipotle is testing quesadilla and beverages.

Read: Chipotle menu relaunch will help extend sales momentum into 2020

SunTrust Robinson Humphrey analysts say carne asada will make a comeback in the fall, or there will be another premium meat added to the menu. And they think quesadillas will launch in the second half of 2020 after a year-and-a-half of testing.

SunTrust rates Chipotle stock buy with a $1,010 price target, up from $940.

“[W]e expect the first half of 2020 to benefit from carne asada, leap day and the lapping of materially higher avocado prices last year,” wrote BTIG analysts led by Peter Saleh.

But Niccol was clear that carne asada wasn’t the only reason that Chipotle exceeded expectations in the most recent quarter. He credited smooth operations and digital advancements as drivers of the beat, with more to come. The company had just 66 drive-through ‘Chipotlanes’ at the end of 2019, and there are plans to add them to more than half of the 150-to-165 planned restaurants for 2020. Chipotle is testing restaurant designs that focus on digital, with a walk-up window now located across from Chicago’s Wrigley Field.

“Now that we have many of these digital tools in place, 2020 will be about using them more efficiently and really leveraging our rewards program,” said Niccol, who said the loyalty program has 8.5 million members.

Digital sales grew 78.3% during the fourth quarter to $282 million. That represents 19.6% of total sales of $1.44 billion, beating the FactSet consensus of $1.40 billion. Adjusted earnings per share of $2.86 exceeded the FactSet consensus of $2.76. And same-store sales increased 13.4%, “with no net impact from loyalty deferral,” according to the earnings release.

Also: E-commerce surge sparks questions about reliability of same-store sales metric

Chipotle stock dipped 2.8% in Wednesday trading, but the stock has rallied 63.6% over the last year. The S&P 500 index SPX, +0.75%   has gained 21.4% for the period.

“We believe the deliberate shift to more personalized marketing for loyalty members this year has the potential to materially increase frequency and spend, while at the same time reducing promotions such as free delivery,” BTIG said.

BTIG rates Chipotle stock buy with a $1,010 price target.

“We continue to view the ongoing growth in digital and delivery, supported by loyalty and marketing spend as ongoing drivers of mid-to-high single-digit same-store sales growth in 2020,” wrote Wedbush analysts led by Nick Setyan.

Analysts also think innovations like Chipotlanes and will provide “additional layers” of same-store sales through 2021.

Wedbush rates Chipotle stock outperform with a $980 price target.

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