Following the unexpected departure of its CEO, Chipotle’s stock is currently under review. In August, Chipotle Mexican Grill announced that its chairman and CEO, Brian Niccol, would be leaving to assume a similar role at Starbucks. During his six-year term, the company’s shareholders experienced a significant return of approximately 800%.
When a successful CEO departs, it is advisable for shareholders to reassess the company’s succession plan, recent financial performance, and long-term objectives to determine the best course of action for their investments.
In the wake of Niccol’s departure, Chipotle’s board of directors appointed Scott Boatwright, the Chief Operating Officer, as the interim CEO. Boatwright, who joined the company in 2017, has been pivotal in Chipotle’s success, particularly in integrating new technology within the restaurants. Additionally, the company expedited the appointment of its Chief Financial Officer, Adam Rymer, a seasoned veteran with 15 years at Chipotle in various financial roles. Meanwhile, former CFO Jack Hartung has postponed his retirement to assist with the leadership transition.
Chipotle has chosen to prioritize internal promotions with its new leadership appointments. Although the decision between hiring externally or promoting internally varies from company to company, data suggests that internal promotions can benefit corporate culture. A survey indicated that 56% of American workers believe internal promotions boost morale, while 71% think they are advantageous for business scalability.
Chipotle’s growth strategy remains focused on expansion, with interim CEO Scott Boatwright reaffirming the objective to increase the number of restaurants in North America to 7,000 and expand internationally. At the end of the last reported quarter, Chipotle had 3,615 owned and operated locations.
In terms of financial performance, Chipotle reported positive growth in its third-quarter 2024 results, with $2.8 billion in revenue and $387.4 million in net income, reflecting year-over-year increases of 13% and 23.7%, respectively. This growth was supported by 294 new company-owned locations since the third quarter of 2023, resulting in a nearly 9% year-over-year increase in the total number of restaurants.
Additionally, Chipotle expanded internationally by opening its first two licensed locations overseas. The company’s organic growth also contributed to a 6% rise in comparable-restaurant sales, driven by a 3.3% increase in transactions and a 2.7% growth in average check sizes. In comparison, competitor Wingstop reported a 7.3% increase in same-store sales during the same period.
Chipotle’s strong financial position includes a robust balance sheet, with no debt and $2.3 billion in cash, restricted cash, and investments. This financial strength has allowed the company to repurchase $488.1 million worth of its own stock during the most recent quarter, reducing its share count by 0.8% year-over-year. The company still has $1.1 billion remaining under its current buyback program.
Looking ahead, Chipotle aims to nearly double its store count to 7,000 locations in North America while expanding internationally. The company plans to open 315 to 345 new company-operated restaurants in 2025. Additionally, Chipotle anticipates increasing its average unit volumes from $3.2 million to over $4 million and expanding its restaurant-level margins.
Achieving these targets could potentially boost the company’s annual revenue to over $28 billion, a 162% increase from its trailing 12-month results of $10.7 billion.
Evaluating Chipotle’s new management will take time, but comparing the company’s current valuation to its historical levels may help determine if the stock is fairly priced. Typically, the stock trades at a high valuation, with a five-year median price-to-earnings ratio of 63.9. Recently, it has been trading at a slightly lower valuation of 54.6 times earnings.
In the near term, it is crucial for management to secure shareholders’ confidence by meeting its earnings and expansion targets. For long-term investors, this might be an opportune moment to invest in Chipotle. Despite uncertainties surrounding leadership changes, the company’s strong financial foundation positions it well for continued growth.
