CEO says faster service and the return of Chicken Al Pastor helped second-quarter results. But signs of easing sales growth have appeared this summer, as holiday vacations evolve.
As the restaurant industry faces a fast-food discount war and questions about diner demand, Chipotle Mexican Grill Inc. executives on Wednesday emphasized all the ways they're trying to get the mechanics of service and prices right.
They said efforts to speed up service - something they discussed in April as well - had helped second-quarter results, which beat expectations and sent shares higher after hours. Chipotle said more people across low-, middle- and high-income brackets were buying burritos and other items from its restaurants. The current value deals from rivals, executives said, hadn't had any impact.
And after some people on social media accused the company of skimping on portions, they said they were taking steps to "ensure correct and generous portions" as well.
Chief Executive Brian Niccol said on Chipotle's $(CMG)$ earnings call that it had to "train up" around 10% of its restaurant network to address the portion-size issue and offer more consistent service. But he said there was "never a directive" to serve customers less.
"The thing I want to emphasize is for 90% of our restaurants, they're doing business as usual," he said.
And as restaurants fight for customers following two years of inflation for both shoppers and businesses, Chief Financial Officer Jack Hartung said he hoped to avoid any further menu-price increases this year, as the chain juggles higher costs for avocados and dairy products.
"We love the idea of being able to get through the rest of this year without a price increase," he said. "Where we would feel better in terms of the timing of a price increase is in an environment where the economy is robust and healthy."
Still, he said that there had been a "pullback in spending" at some restaurants in California in the wake of the state's minimum-wage increase to $20 an hour for fast-food workers. And executives said that same-stores sales growth eased in June, and that trends in July could be similar.
They said the impact of last week's technology blackout was unclear. However, they also said that remote work might be allowing people to stretch out vacations around summer holidays, potentially translating to more time away from their usual takeout habits.
"Now it just seems like the holidays that used to be three or four days or so, seems like they're stretching out a little bit," Hartung said. "We even saw for the first time ever on Juneteenth, we saw a little softness there as well."
Still, the company held to its full-year outlook for a same-store sales increase "in the mid- to high-single-digit range." And shares were up 4.4% after hours, after rallying more initially after the closing bell.
Chipotle reported second-quarter net income of $455.7 million, or 33 cents a share, compared with $341.8 million, or 25 cents a share, in the same quarter last year. Adjusted for the impact of a loss on an investment and higher legal reserves, Chipotle earned 34 cents a share.
Revenue jumped 18.2% to $2.97 billion. Same-store sales climbed 11.1%.
Analysts polled by FactSet expected Chipotle to report adjusted earnings per share of 32 cents on revenue of $2.94 billion and same-store sales growth of 9.2%.
Niccol, in Chipotle's earnings release, attributed the results to the return of Chicken Al Pastor and a renewed focus on training workers to serve food faster. Along with those efforts, the company is rolling out faster-cooking dual-sided grills and testing automated digital make lines.
While shares of Chipotle are up 13% so far this year, they had fallen from record highs recently, after a long ascent over the past 12 months.
Over that time, dining out and ordering food to go got more expensive at many restaurants as the industry juggled higher costs for ingredients and higher wages for staff. At times, menu-price increases helped boost sales figures. But more recently, fast-food chains have thrown themselves into a discount battle in an effort to attract - or at least not lose - inflation-weary customers seeking cheaper options.
But William Blair analysts, in a note last week, said fast-casual chains like Chipotle that tend to work with higher-quality ingredients would likely take the least damage amid the discounting fray.
Of the restaurant industry overall, they said: "We believe sales trends in the second quarter were mixed, with concepts that have traditionally competed on price appearing more vulnerable to consumer pushback after several years of outsized price hikes and those competing more on quality and service more unscathed."
"That said," they continued, "overall restaurant trends appeared to remain fairly similar to the first quarter, albeit with some signs of softening in the month of June. By industry subsector, sales trends appear to have fared best in fast-casual, which may be benefiting from both trade-down from casual dining and trade-up from fast food as the pricing gap has narrowed."
Chipotle this month said Hartung, would retire on March 31. A massive stock split announced by the company earlier was carried out in June.
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