Chipotle shares rally on earnings beat as diners spend more 

Diners at Chipotle Mexican Grill spent more and avocados cost less during the second quarter, driving better-than-expected earnings at the burrito chain that sent shares soaring after the market closed Thursday.

Shares surged by almost 7 percent after the company beat Wall Street estimates. The company’s revenue jumped 8.3 percent to $1.27 billion from $1.17 during the second quarter of last year, slightly better than the $1.26 billion analysts surveyed by Thomson Reuters expected.

Net income fell almost percent to $46.9 million, from $66.7 million the year before. It included $33.4 million in charges related to restaurant closures. Without the charges, the company reported adjusted earnings of $2.87 a share, compared with $2.80 a share forecast by analysts.

Same-store sales, which grew at 3.3 percent, also beat estimates of 2.7 percent, according to StreetAccount.

The company attributed much of its growth to the 34 new restaurants it opened, bringing its total to 2,467. The company also said people spent about more per check, as more customers opted to add queso to their meals, which helped bolster same-store sales. However, traffic decreased 1.8 percent.

Food costs as a percentage of revenue also dropped to 32.6 percent, down by about 1.5 percent from last year as the company raised menu prices and paid less for avocados, the company said.

“I’m pleased to report a solid second quarter with sales and restaurant margins ahead of expectations,” Brian Niccol, Chipotle’s CEO, said in a statement. “While we made progress during the quarter with particular strength in digital sales, I firmly believe we can accelerate that progress by executing our reorganization and our strategy to win today and cultivate tomorrow.”

Based on these results and the expectation that sales will continue to improve in the third quarter, Chipotle increased its full-year sales guidance to a mid-single digit range from a low single digit range.

The company said its digital sales grew 33 percent in the quarter and now account for 10.3 percent of total sales.In addition, its delivery sales quadrupled. Currently delivery is available at 1,700 stores, but the company expects 2,000 locations will be equipped for delivery by the end of the year.

Digital and delivery orders are an increasingly important part of restaurants’ business as they tend to generate larger checks. On average, online orders are $16 to $17 at Chipotle while in-restaurant checks average around $12, the company said.

It’s been about a month since the company announced plans to spend up to $135 million to win back customers and reposition Chipotle as a lifestyle brand. The expenses will cover a new ad campaign, digital investments to speed mobile and online orders as well as the costs of closing up to 65 underperforming locations.

“It takes time to build a culture of accountability,” Niccol said on an earnings conference call Thursday. “We know that when the food is delicious, the feel of the restaurant is great, and we remove the friction from the flow of the order process,es no the matter the channel, we delight customers.”

The hope is that Niccol, who joined the company on March 5, can revitalize the brand. He has a reputation for marketing and technology innovation, two key areas that have not been a top priority for Chipotle. At Taco Bell, he introduced mobile order and pay, repositioned the Mexican chain as a lifestyle brand and pushed for more ingenuity in the kitchen.

Shares of the company are up more than 50 percent since January, a sign that investors are banking on Niccol’s changes revitalizing the brand.

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