Lunchtime at Chipotle Mexican Grill Inc. is picking up, according to Chief Financial Officer Jack Hartung, a sign that workers are heading back to their offices, and back to their midday meal routines.
“We’re seeing Monday through Friday lunch coming back in a big way,” Hartung told MarketWatch. “As people go back to work, in-store ordering is coming back.”
Chipotle CMG, +1.60% reported earnings that blew past consensus, sending shares soaring 11.5% in Wednesday trading, and to a record close of $1,755.99. Shares rose another 2.2% in Thursday trading.
Digital sales grew 10.5% and accounted for 48.5% of total sales. Even as the fast-casual chain has recovered 70% of in-store sales, Chief Executive Brian Niccol said on the earnings call that the company has held on to 80% of digital sales.
Chipotle raised prices recently to cover the wage hikes that the company put in place to attract and retain talent. Hartung says the move hasn’t resulted in much pushback.
See: Chipotle’s upcoming launch of smoked brisket should make recent price hikes easy to swallow
“We’ve been telling people that we’re only going to cover the cost with price increases,” he said. “People knew what we were doing and were like, ‘Right on. I’ll pay an extra 30 cents for someone to make a living wage.’”
Analysts note little resistance from customers as well.
“Two-year comps accelerated in June as recent price increases are seeing little resistance, in-restaurant sales continue to recover (including lunch day part), and digital sales are proving highly incremental (still early, but still only seeing 15-17% of customers ordering through both in-line and digital channels),” wrote Raymond James analysts in a note.
Raymond James rates Chipotle stock strong buy with an $1,800 price target.
Also: Chipotle price hike doesn’t change its ‘strong’ value proposition
Business is expected to stay on its upward trajectory.
“Going forward, we expect same-store sales outperformance to be driven by contribution by company-specific initiatives around digital, menu innovation (e.g., smoked brisket), marketing and operational execution, as well as industry tailwinds from increased consumer mobility (lunch historically ~50% of mix),” Credit Suisse analysts led by Lauren Silberman wrote in a note.
Credit Suisse rates Chipotle stock outperform with a $2,075 target price, up from $1,950.
Chipotle hasn’t nailed down when brisket will come to the menu, but Hartung expects it will be a limited-time offer.
“Brisket like carne asada and cauliflower rice competes in the kitchen and competes on the grill,” he said.
Chicken and steak are the company’s “bread and butter,” he said, so it’s a challenge to add permanent items to the menu and still meet the demand for existing menu items.
Even with all of the good news, there are concerns.
“Margins will remain a key focus for investors, both near-term (with potential for further pricing actions to help offset wage increases + commodities headwinds) and long-term (with AUV [average unit volume] now running above past ‘peak’ $2.5 million level),” wrote RBC Capital’s Christopher Carril.
RBC rates Chipotle stock outperform with an $1,825 price target, up from $1,800.
The labor market is tight in the U.S. with companies increasing wages and benefits to get the workers they need. Hartung says it’s a “labor environment unlike any I’ve ever seen.”
While there might be costs associated, Chipotle thinks the investment is worth it. By offering candidates a path to professional growth, Hartung says Chipotle has been able to keep the applications flowing and hang on to the employees it already has.
“We need to take away the short-term [idea that workers are] going to leave for a $2 raise,” he said.
Don’t miss: Chipotle says it can offer workers the chance for a six-figure salary in 3.5 years
Chipotle stock has gained 28.7% for the year to date while the S&P 500 index SPX, +0.01% is up 16.1% for the period.
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