Chipotle Mexican Grill witnessed stronger-than-expected earnings for the second quarter thanks to customers spending more and avocados costing lower, sending the restaurant business’s shares higher after the close.
Shares ballooned almost 7 percent after the company topped Wall Street estimates, as some of the changes that were outlined by new CEO Brian Niccol in the previous month appear to be taking effect, giving the company more solid footing in the food sector.
The burrito chain said that a huge part of its growth was due to the 34 new restaurants that it opened during the quarter, making its total number of locations at 2,467. The company added that people spent more per check. Chipotle said that more customers now preferred to add queso on their meals, boosting same-store sales. On the flip side, foot traffic lowered 1.8 percent.
Food expenses as a percentage of revenue also slipped 32.6 percent, lower by 1.5 percent from the previous year as Chipotle increased menu prices and got “some relief on avocado prices,” according to the company.
The company’s revenue increased 8.3 percent to $1.27 billion from $1.17 billion in the second quarter of last year. This was slightly better than $1.26 billion, which was what analysts had expected.
Niccol announced a new aggressive strategy last month in order to lure customers back to the food chain. The company is still in the process of recovery from a string of outbreaks of E. coli, salmonella, and norovirus that began in 2015 and that were tied to its branches. Food safety scandals slammed its sales and cut its market value to half.
“It takes time to build a culture of accountability,” Niccol stated during an earnings conference call after the earnings were released. “We know that when the food is delicious, the feel of the restaurant is great, and we remove the friction from the flow of order processes, no matter the channel, we delight customers.”
The company also stated that its digital sales swelled 33 percent during the second quarter, presently accounting for 10.3 percent of the total sales. Additionally, its delivery sales swelled four times. The delivery service is currently available at 1,700 stores, though the company expects 2,000 locations will be armed for delivery by the end of this year.
Digital and delivery orders are becoming more and more important for the industry since they tend to generate larger checks. On average, online orders are $16 to $17 at Chipotle. In-restaurants checks average nearly $12, according to the company.
The company’s net income dropped around 30 percent to $46.9 million from $66.7 million during the previous year. It included $33.4 million in charges related to restaurant closures. Without the charges, the company recorded adjusted earnings of $2.87 per share, compared to $2.80 per share that was predicted by analysts.
Same-store sales grew at 3.3 percent. It also topped estimates of 2.7 percent ,based on StreetAccount. Chipotle increased its guidance sales for comparable restaurants from “low single digit expectations” to “low to mid-single digits.”