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Chipotle’s Charge: $56B Valuation, OC’s Top Public Co.

Break out the guac: Orange County’s base of public companies has a new leader.

Late last month, Newport Beach’s Chipotle Mexican Grill Inc. (NYSE: CMG) surpassed Edwards Lifesciences Corp. (NYSE: EW) to become the most valuable publicly traded company based in OC, with a market cap nearing $57 billion as of last week. It’s the first time Chipotle’s held that distinction.

After reporting first-quarter revenue and profit that topped analysts’ consensus estimates on April 25th, shares of the restaurant chain jumped 15% to $2,038 during midday trading the following day.

That day, Chipotle’s market cap reached $56 billion, climbing $3 billion over Edwards, which counted a roughly $53 billion valuation as of last week. Shares of the Irvine-based heart valve maker are trading around $87, and are up some 20% this year.

Chipotle shares are up around 48% since the beginning of the year and have increased nearly eightfold since the chain hired Brian Niccol as its CEO a little more than five years ago.

More’s in store going forward, according to Niccol, whose first big move as CEO was to relocate the company’s base from Denver to Orange County. “2023 is off to a great start with first-quarter sales and margins ahead of our expectations,” he told analysts last month.

The chain reported first-quarter revenue climbed 17% to $2.4 billion while same-store sales surged 11%.

Chipotle’s boost in value can be seen in new updates across the chain’s 3,200 stores, including new menu additions, robotics partnerships and innovative marketing strategies.

Such success allowed Niccol to reiterate the company’s goal to hit 7,000 stores over the next few years at an opening rate between 8% to 10%, with about 280 openings planned for 2023.

“We’ve not seen any slowdown in our performance,” Niccol said during the call. “So, all the restaurants we’re opening, they’re opening with strength.”

Culinary Gems

Promotional menu innovations made a large splash during the first quarter, according to Niccol.

For the first time, Chipotle added a new protein option to menus globally across all locations in the U.S., Canada and Europe. The company anticipates the chicken al pastor dish to outperform what was previously its most successful limited time offer (LTO), the pollo asado.

“Transaction trends were positive throughout the quarter,” Niccol said.

Another new LTO has become a permanent menu item.

Creators on TikTok launched a viral video in which fajita veggies were added to the company’s steak quesadilla, and then dipped in a combination of the honey vinaigrette and sour cream. Chipotle then added it as a digital-only menu item, partnering with two of the top food creators on TikTok, Keith Lee and Alex Frost.

“During the launch, we nearly doubled our quesadilla business and had two of our top digital sales days of all time,” Niccol said.

He noted that future limited-time menu options using the same strategy of existing ingredients would be beneficial to its culinary strategy.

“I do believe there’s still a lot of hidden gems within the Chipotle menu,” he added.

Stronger Basics

Digital systems continue to support sales growth, with online transactions making up 39% of Chipotle’s total food and beverage revenue in the first quarter.

Chipotle restaurants have two meal prep lines, including one for in-store customers and those ordering through online channels.

It’s looking to increase efficiency for those lines to accommodate demand, such as a partnership with robotics company Hyphen to automate the digital prep line, similar to the recently introduced the “Chippy” robot that cooks and seasons the restaurant’s tortilla chips.

Challenges still remain. A key Chipotle goal is to keep the restaurant fully stocked and operational from open to close, especially during peak periods of the day. This involves better management of ingredients and better training for employees.

The chain was “experiencing too many times where we’re out of guac, we were out of chips, we were out of chicken, so we’ve made tremendous progress on that front,” Niccol said.

Chipotle has been reiterating a recent strategy dubbed Project Square One to help, which Niccol described as the company’s priority of “going back to the basics” of its operations.

“I’m confident having innovation in this space is a big unlock for our brand in the long run,” Niccol said.

Other in-store priorities include integrating a new grill to improve the cooking process, and an updated restaurant model to add more sustainable features to its stores, such as rooftop solar panels, all-electrical equipment and electric vehicle charging stations.

All these new features and systems are set to be included in upcoming restaurants.

Digital Ceiling

Chipotle has added incentives for customers to order through its app, such as exclusive menu items and a rewards program.

“I don’t know where the ceiling is on this thing, but we’re going to continue to push towards getting as many people involved and then work very hard to turn it into a very personalized program that keeps them engaged,” Niccol told analysts.

A new feature dubbed Freepotle caters to this idea by giving out up to 10 free items throughout 2023. The chain reported a pickup in member enrollments and engagement after the release.

Chipotle has 33 million rewards members as of this month, with sights on 40 million.

Higher Targets

The day after Chipotle’s first-quarter earnings, 19 different analyst firms updated their price targets for the restaurant chain.

Firms such as Wells Fargo and Oppenheimer raised their targets up to $2,050. Others like Truist Securities and Citigroup went as high as $2,270 and $2,240, respectively.

Analysts from Wedbush stated, “We continue to view menu innovation, loyalty/digital, throughput, and marketing spend growth as drivers of sustained [same-store sales] growth.”

Baird research reported, “Of note, the apparent strength in CMG’s transaction growth in early Q2 compares favorably to the trend we are seeing in our fast-casual survey data, and gives us increased confidence in our thesis that CMG’s efforts to bolster unit-level operations can yield very healthy absolute/relative performance as 2023 unfolds.”

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