Chipotle entered the first quarter of 2020 in a strong financial position (with $909.2 million in cash, restricted cash, and short-term investments as of March 31, 2020), with other notable highlights including revenue increasing to $1.4 billion (an increase of 7.8% compared with the same quarter in 2019), driven by a 3.3% increase in comparable restaurant sales, and digital sales growing 80.8% year over year to $371.8 million (the Company’s highest ever quarterly level), representing 26.3% of sales. This indicates Chipotle had effectively moved swiftly towards driving investments into digital and delivery, designed to reduce friction while increasing convenient access. This included reprioritizing marketing efforts by offering free delivery from March 15 til at least early May, shifting media spend from live sports to more online and streaming platforms and announcing a national delivery partnership with Uber Eats. As a result, digital sales for the month of March grew 102.6% year over year and represented 37.6% of sales.
Into the second quarter and Chipotle continued to maintain its strong financial position (with an increased $934.6 million in cash, short-term investments and restricted cash, along with a $600 million untapped credit facility). Digital sales continued to grow 216.3% year over year to $829.3 million (breaking the Company’s highest ever quarterly level from the previous quarter), representing 60.7% of sales. Chipotle stated that it had raised its digital awareness further via advertising, new delivery partnerships with Uber Eats and Grubhub, as well as expanding its digital capabilities into Canada to attract new customers. Notably, partnering with all the major third-party delivery aggregators had led to an increase in orders, a reduction in delivery time and cancellations and an improvement in overall customer ratings. While its revenue remained at $1.4 billion (though was a decrease of 4.8% compared to the same quarter of 2019 and included a decline of 9.8% in comparable restaurant sales), cadence of monthly comparable restaurant sales during the quarter had markedly improved month-to-month (i.e. April at -24.4%, May at -7.0% and June at +2.0%). Also, comparable restaurant sales in July had continued to improve and were up 6.4% month to date including about a 1.4% positive impact from the July 4th weekend and about a 2.7% negative impact due to under-performing restaurants in the Northeast and international markets, as well as restaurant closures due to Covid-19.
In having reasonable enough financials overall, Chipotle is worthy of investment interest but with the caveat that its current stock price is well over 2.5 times that of its mid-March pandemic low, meaning there is a need to question its valuation. Furthermore, as of mid-September, shares were up 53% year to date, extending the rally that has seen the stock gain over 300% in the past three years. The trailing price-to-earnings ratio was also a very high 141, which would be considered excessive by most traditional measures. However, that premium also shows great confidence in the company’s future, of there being confidence in building new locations, of developing new order fulfillment methods and in finding new ways to connect with diners. In attesting that it has enough cash to sustain itself if the recovery takes longer than expected, making additional adjustments as needed, in the long-term Chipotle is indicative of a relatively safe bet of an investment despite the somewhat volatile nature of the industry it operates in.