Shares of burrito-centric restaurant chain Chipotle Mexican Grill (CMG -1.52%) jumped 37% in the first half of 2024, according to data provided by S&P Global Market Intelligence. The chart shows a steady increase throughout the six-month span, accentuated with two bigger single-day moves. Those larger jumps happened each time the company reported quarterly financial results.
On Feb. 6, Chipotle reported record revenue of $9.9 billion for 2023, which excited investors and boosted the stock. During the year, the company opened a record 271 new locations. And locations that had been open at least 13 months saw a strong same-store-sales increase of 8%.
Then on April 24, Chipotle reported results for the first quarter of 2024, which showed 14% year-over-year top-line growth. Sales were boosted by same-store-sales growth of 7% and new restaurant openings. Menu prices were up but this wasn't the primary booster of the sales numbers. In reality, Chipotle benefited from 5% growth in transactions, which is the better driver of financial results.
Besides these quarterly financial results, there was a prevailing bullish wind for Chipotle stock for much of the first half of the year due to its proposed 50-for-1 stock split. It was proposed in March. And even though this isn't a fundamental driver for the stock price over the long term, it did still excite investors, causing shares to trend higher. Chipotle stock officially split on June 26.
It's not just the growth; it's the profits
Restaurant stocks can enjoy operating leverage when sales volume per location increases, maximizing labor productivity and getting the most out of property and equipment. For Chipotle, its Q4 operating margin was 14.4% compared to 13.6% in the prior-year period. And in Q1, its operating margin was 16.3% compared to 15.5% in the same quarter of 2023.
Indeed, over the last five years, Chipotle's operating margin has more than doubled, leading to a dramatic increase in operating profit.
CMG Revenue (TTM) data by YCharts
When revenue is growing at a good pace and profits are growing even faster, it often works out well for investors. And that was on full display for Chipotle's shareholders in the first half of 2024.
The long-term outlook is good
Since the split, Chipotle stock has pulled back some. To be fair, the stock's valuation had shot up to an all-time high, reflecting overexcitement from investors. It's healthy to see it cool down a little.
However, the future still looks exceedingly bright for Chipotle. As already pointed out, sales volume continues climbing, boosting its profit margins to impressive levels. The company has almost 3,500 locations as of Q1. But it anticipates having 7,000 some day.
Chipotle's management plans to open a record amount of locations this year, moving toward that long-term goal. Therefore, the long-term outlook for growth is strong.
Chipotle will report financial results for the second quarter of 2024 on July 24 after the market closes.
