Shares of burrito king Chipotle Mexican Grill (CMG -0.12%) dropped 13% in July according to data provided by S&P Global Market Intelligence. It comes on the heels of a highly watched stock split followed by negative reports about the state of the restaurant industry.
What's happening at Chipotle
Chipotle is known for its healthy and fresh ingredients at its more than 3,500 fast-casual restaurants. It has developed a loyal fan base of affluent customers who appreciate its food quality and menu as well as its lower pricing as compared with typical luxury-style fare.
That gives it resilience under inflationary conditions, and performance has been outstanding over the past few years despite a pandemic and inflation. It's also clued into changing trends, and it has a robust omnichannel ordering system that gives customers flexibility.
In the 2024 second quarter, revenue increased 18% year over year driven by an 11% increase in comparable sales. That's a nice mix of revenue from both existing and new stores, although it may have gotten an extra kick from hype surrounding its stock split.
However, it's demonstrating high efficiency as well. Operating margin expanded from 17.2% last year to 19.7% this year, and earnings per share (EPS) rose from $0.25 to $0.33, split adjusted.
It also has plenty of growth drivers as it meets consumer needs and finds new places to open stores. Management has plans to nearly double store count in North America alone to 7,000 stores, and it's starting to turn its focus to international expansion.
Should you buy Chipotle stock post split?
The stock itself got a strong kick, too, leading up to its stock split. Chipotle's stock split, at the end of June, was one of the biggest ever on the markets, dividing each stock into 50 pieces.
But soon after that split went through, there were reports about an expected sales slowdown in the restaurant industry. Chipotle was just one of many restaurant stocks that plunged based on these reports.
Chipotle itself is guiding for comparable sales to grow in the mid to high single digits, which is a slowdown from the second quarter, but fairly typical results for Chipotle in general. There could be some crunch coming in the next few quarters, or Chipotle could end up being performing better than the competition, which wouldn't be surprising.
Chipotle has been a reliable market beater for years. Growth could slow down as it gets bigger, but it has a popular model and resilient customer base that should keep it in growth mode for years to come.
