In August, Chipotle Mexican Grill(NYSE: CMG) announced that its chairman and CEO, Brian Niccol, was leaving the restaurant chain to take a similar role at Starbucks. His six-year tenure was bountiful for shareholders, with a market-crushing return of approximately 800%.
Anytime a successful CEO leaves a company, shareholders should check in on its succession, recent financials, and long-term goals to see what to do with their investment.
Chipotle's CEO succession
Following Chipotle's CEO departure, its board of directors appointed its Chief Operating Officer (COO), Scott Boatwright, as interim CEO. Boatwright joined the company in 2017 and has been "instrumental" in the company's success, including playing an integral role in implementing new technology into restaurants.
In addition, Chipotle accelerated the appointment of its Chief Financial Officer (CFO), Adam Rymer, another Chipotle veteran who served 15 years with the company in various financial roles.
Former CFO Jack Hartung, who previously announced his retirement on hold, is now staying on to support the transition.
Given the appointments, Chipotle is prioritizing a promote-from-within approach with its new leadership. While the debate between an outside hire and internal promotion is unique to each company, some data points toward a cultural benefit to the latter. A Joblist survey of 1,000 American workers revealed that 56% feel internal promotions boost morale, and 71% believe they're better suited for scaling a business.
Scaling continues to be a focus for Chipotle, with new CEO Scott Boatwright reiterating the goal of expanding to 7,000 restaurants in North America and expanding its footprint internationally when he was appointed to his position. For reference, Chipotle had 3,615 owned and operated locations at the end of its most recently reported quarter.
Here are Chipotle's latest financial results
Chipotle recently reported its third-quarter 2024 results, which generated positive growth on the top and bottom lines. Specifically, the company produced $2.8 billion in revenue and $387.4 million in net income, representing year-over-year growth of 13% and 23.7%, respectively.
CMG Revenue (Quarterly) data by YCharts.
Driving this growth were 294 net-new company-owned locations since Q3 2023, bringing the total to 3,615, representing a nearly 9% year-over-year increase. Furthermore, Chipotle opened two internationally licensed locations during that time, a first for the company.
Chipotle is also growing organically, which is driving higher comparable-restaurant sales -- a key metric for restaurant stocks, which compares the change in period-over-period total revenue for locations in operation for at least 13 full calendar months. The company's comparable-restaurant sales increased 6% for the quarter, partly due to transactions increasing 3.3% and a 2.7% growth in its average check. For comparison, fast-casual competitor Wingstop reported 7.3% company-owned domestic same-store sales growth during the same period.
As for its financial situation, Chipotle has a robust balance sheet, with no debt and $2.3 billion in cash, restricted cash, and investments. The plethora of cash has given management confidence to repurchase its stock, a strategy that increases shareholders' ownership stakes by reducing the number of outstanding shares. In the most-recent quarter, Chipotle spent $488.1 million on share repurchases, reducing its share count by 0.8% year over year. The company also has $1.1 billion remaining under its current buyback program.
What lies ahead for Chipotle?
As touched upon, Chipotle's management believes it can nearly double its current store count in North America from 3,615 to 7,000 locations and expand internationally, where it currently has a very small footprint. The expansion will take time; however, management is projecting to open 315 to 345 new company-operated restaurants in 2025.
Additionally, the company expects to grow its average-unit volumes from their current annual levels of $3.2 million to over $4 million while expanding its restaurant-level margin.
If the company can hit those targets, its annual revenue could surpass $28 billion annually, representing a 162% increase from its trailing-12-month results of $10.7 billion.
Image source: Getty Images.
Is Chipotle stock a buy?
It will take time to evaluate Chipotle's new management effectively, but by comparing the company's valuation to historical levels, it's possible to see whether the stock is trading at fair value.
The stock consistently trades at a high valuation, with a five-year median price-to-earnings ratio of 63.9, pricing out value investors. Still, the company appears to be trading at a slight discount, most recently at 54.6 times earnings.
In the near term, it's crucial for management to gain shareholders' confidence by achieving its earnings and expansion goals. For long-term investors, though, this may be an ideal moment to invest in Chipotle. Despite the current leadership uncertainty, the company's strong balance sheet positions it well for continued growth.
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Collin Brantmeyer has positions in Chipotle Mexican Grill and Wingstop. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Starbucks, and Wingstop. The Motley Fool recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
