Chipotle stock is bucking the restaurant trend, having recently shattered new all-time highs despite the ongoing pandemic.
Although most stocks are still trading 20% lower since the coronavirus pandemic hit, there have been a handful of winners that soared to new highs. The majority of those stocks came from the technology sector, with a few others from the consumer product and medical segments.
But one stock stands out from the rest because it operates in one of the hardest-hit industries—Chipotle (NYSE:CMG). CMG stock is trading at all-time highs despite the pandemic’s crushing blow to the food industry.
So how can CMG stock be lumped in with the likes of Amazon (NASDAQ:AMZN) during a global pandemic? Preparation.
Unlike the majority of its peers, Chipotle was well prepared for this disaster, and that’s meant the damage to CMG’s results has been minimal by comparison. Management has long been investing in online order technology, and its partnership with Uber Eats means there was no interruption when in-store dining closed.
There was no additional investment and no rushed push to find a way to set up delivery and take out. It was a seamless transition and one that investors quickly noticed.
Only a small percentage of Chipotle’s restaurants closed amid the pandemic, mostly in malls and shopping centers. And 98% of its locations were already offering delivery.
While Chipotle’s Q1 results showed that same-store sales declined in March, revenue was in-line with analysts’ expectations. But where CMG truly shined was online sales, which were up a whopping 81% during the first quarter.
Chipotle has been so successful in growing its online platform because of its rewards program, which now boasts 11.5 million members. In March, the number of new signups rose exponentially, and 65% of those new members were using Chipotle for the first time.
That’s a massive deal for Chipotle because it means the firm has been able to hold on to its customers throughout the pandemic. But more importantly, it means the firm has been able to reach new customers who might not have sampled the burrito chain otherwise. That could translate into better sales post-pandemic.
With CMG stock trading at all-time highs, it’s challenging to consider the stock a buy. After all, there’s a lot of uncertainty in the months ahead. But it’s worth noting that Chipotle looks well equipped to handle it.
Chipotle’s zero debt is a massive advantage as we march into an economic downturn. It also has a respectable $909 million worth of cash and short-term investments. Management says it has enough cash to maintain operations for more than a year.
That strong cash position has given Chipolte the ability to reward staff and pay bonuses, an essential step toward retaining employees post-pandemic.
Plus, evidence points to improving sales in April despite the strict lockdowns around the country. Comparable sales were down more than 30% at the end of March when the shutdowns began, but by mid-April, that number had halved.
Our strong brand, business model and balance sheet give us the confidence to not only weather this downturn but continue to judiciously invest in key areas so that when we come out the other side, we will emerge even stronger
Chipotle CEO Brian Niccol said “cooking fatigue” would contribute to strong take-out and delivery demand, and he seems to be right. He sees the firm emerging from the coronavirus pandemic even stronger, and so far, the data suggest he’s right.
The author holds no investment position in Chipotle at the time of writing.
Last modified: September 23, 2020 1:55 PM