Chipotle (CMG) investors are digesting third-quarter results that missed Wall Street's sales estimates, despite a string of winning quarters. The burrito chain reported revenue of $2.78 billion, up 13% year-over-year but falling short of the expected $2.82 billion. However, the company's adjusted earnings per share of $0.27 represented a 17.4% jump from a year ago, beating estimates of $0.25.

Chipotle's Winning Formula: Satisfying Customers and Investors

Driving Growth Through Operational Efficiency

Chipotle's interim CEO, Scott Boatwright, highlighted the company's focus on improving throughput, or the speed of service, as a key driver of growth. The addition of an "expo role" – a crew member between the salsa station and cash register who helps expedite the bagging and payment process – has helped add five more orders in a restaurant's peak 15 minutes. This initiative has been implemented in about 60% of Chipotle's locations, up from 50% in the previous quarter. Boatwright believes it's possible to grow Chipotle's orders in peak 15 minutes to 30 orders from the current mid-20s pace, which could lead to a roughly 1% sales growth.The company is also testing innovative technologies to enhance its operations. Chipotle is piloting a robotic makeline, in collaboration with Hyphen, and a guacamole prep robot, Autocado, at select restaurants in California. Boatwright described these as "highly customized technologies that could provide big unlock for us in the future."

Maintaining Affordability and Value Proposition

Despite the competitive environment, Chipotle's value proposition is resonating with diners. The average chicken burrito is priced under $10, which Boatwright said is a 15% to 30% discount compared to Chipotle's peer group. This affordability, coupled with the company's focus on food quality, service, and the return of popular menu items like smoked brisket, has driven check size, foot traffic, and margins.Boatwright emphasized that Chipotle is seeing "strength across all income cohorts," indicating the brand's appeal to a diverse customer base. This broad-based appeal is a testament to Chipotle's ability to balance affordability with its commitment to high-quality, craveable offerings.

Navigating Inflationary Pressures

Chipotle is not immune to the ongoing challenges of ingredient inflation. The company reported that food, beverage, and packaging costs increased nearly 30% from a year ago, driven by higher costs of avocado and dairy. To offset these rising costs, Chipotle has implemented menu price increases, which have partially mitigated the impact on its margins.Additionally, the company's labor costs made up nearly 25% of total revenue, in line with the previous year. Boatwright noted that the "benefit from sales leverage was offset primarily by wage increases for our restaurants in California" following the enactment of the state's fast food minimum wage law.

Expanding Footprint and Promoting from Within

Chipotle ended the third quarter with 3,615 locations, adding 86 new restaurants, 73 of which included a drive-through. The company expects to open 285 to 315 new locations this year and 315 to 345 in 2025, slightly less than the 358 locations Wall Street had anticipated.As Chipotle continues to expand its footprint, the company has been investing in promoting staff from within. Boatwright emphasized the importance of "purpose-driven, passionate people" to help the company achieve its long-term goals, indicating a focus on cultivating a strong, engaged workforce to support its growth.

Awaiting Permanent CEO Appointment

Investors are closely watching for the naming of a permanent CEO, as former chief executive Brian Niccol was poached by Starbucks (SBUX) in August. Boatwright, the current interim CEO, is expected by many on Wall Street to be named the permanent CEO. If appointed, he is likely to maintain Chipotle's current strategic direction, focusing on driving growth through operational efficiency, maintaining affordability, and expanding the brand's global reach.Overall, Chipotle's third-quarter results demonstrate the company's resilience and ability to navigate a competitive landscape. By prioritizing operational improvements, preserving its value proposition, and investing in its workforce, Chipotle is well-positioned to continue its growth trajectory and solidify its position as an iconic global brand.