Chipotle's biggest advantage: burrito pricing power

Brian Sozzi
Editor-at-Large

One of Chipotle’s biggest advantages versus fast food rivals right now (and good news for investors) is that it could basically charge consumers whatever it wants to eat its better-for-you burritos, salad bowls and tacos.

That much was apparent in yet another blowout quarter from Chipotle (CMG) on Tuesday.

  • Revenue: $1.44 billion vs. $1.4 billion expected

  • Adjusted earnings per share: $2.86 vs. $2.73 expected

  • Same-store sales: +13.4% vs. +9.8% expected

As evidence of that pricing power, Chipotle executives told analysts on a conference call it raised the price on its limited-time carne asada steak option by 25 cents during the fourth quarter. At a 75-cent total up-charge, Chipotle said it saw no “degradation” in demand “at all” to the higher carne asada pricing. This is on top of broader menu price increases implemented in late in 2018 for other items that saw relatively no pushback by consumers.

In other words, consumers think they are getting a ton of value eating at Chipotle, even if it costs a bit more.

“When you go to Chipotle, you will pay the same price as when you go to other restaurant companies that’s not serving responsibly raised, organic food the way that we are,” Chipotle CFO Jack Hartung said on Yahoo Finance’s “The First Trade.” “When we raise prices, we don’t see any resistance,” Hartung said, adding he thinks Chipotle does having pricing power.

(AP Photo/Gene J. Puskar, File)

That pricing power was reflected in other parts of Chipotle’s 2019 financial report.

Same-restaurant sales surged 11.1%. Operating profit margins rose 180 basis points from the prior year. Adjusted earnings per share popped 55.1% year over year. And digital sales were up 90% for the year, crossing the $1 billion mark.

Chipotle’s stock is up a cool 65% over the past year, but it’s down more than 2% in late-morning trading Wednesday.

“We don’t see many holes to punch in CMG’s 4Q19 results or 2020 outlook and expect the stock to maintain its premium valuation vs. peers,” wrote Wells Fargo restaurant analyst Jon Tower in a note to clients.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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