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Chipotle stock soars as digital sales boost results

The company is testing a mobile order drive-thru lane called “Chipotlane” as it works to keep building digital orders.
Photograph courtesy of Chipotle Mexican Grill

Chipotle Mexican Grill stock soared more than 14% on Thursday after the company reported its strongest results in 18 months, thanks in part to its efforts to boost digital sales.

Same-store sales at the Newport Beach, Calif.-based Mexican chain rose 6.1% in the fourth quarter, and transactions rose 2%, which the company said was a shift in customer behavior from prior periods.

“We definitely saw a trend change,” CEO Brian Niccol said on the company’s fourth-quarter earnings call Wednesday. He cited improved marketing, operations and digital efforts. “We’re going to keep doing that in 2019. We believe those are the right strategies to engage with our customers in a unique way.”

Chipotle’s stock, which going into Thursday trading more than doubled since Niccol was named CEO a year ago, reached $600 a share for the first time in more than three years—since a series of food safety incidents led to steep declines in its sales and stock price.

Chipotle was able to get customers to return last quarter thanks largely to the boost it received from its digital channels.

In particular, Chipotle is getting customers to order through its digital channels. Digital orders at the chain rose nearly 66% in the period ended Dec. 31, when mobile and online ordering represented 13% of sales.

The company has been focused intently on getting consumers to use its mobile and online ordering strategies, something Niccol considers vital to its efforts to boost sales and traffic.

One such effort is what the company calls a “Chipotlane,” or a drive-thru window for mobile and online orders. The company is testing the lane in 10 restaurants and plans to expand it to “a few dozen” restaurants, as early tests have resulted in more digital orders and higher overall sales.

“It’s possibly the fastest way to get Chipotle,” Niccol said. He noted that customers have to order via the chain’s mobile app or its website and schedule a pickup time, but the windows enable customers to skip the line.

Chipotle used other efforts to bolster its digital sales. That included a major delivery promotion at the end of December, the “Delivery Bowl,” which offered free delivery during the college bowl season.

The company has pickup shelves in 1,000 restaurants and digitized second make-lines in 1,000 restaurants. It expects to expand both efforts this year. The make-lines are designed to handle digital, delivery and catering orders, and the company says they improve the speed and consistency of that traffic.

The company’s app downloads increased 72%, executives said. “We continue to hear the No. 1 reason consumers eat elsewhere is they don’t have access to Chipotle,” Niccol said, explaining the reasoning behind its digital efforts.

Chipotle has made numerous changes since Niccol arrived as CEO from Taco Bell. The company has since overhauled its management team, moved headquarters to California and set into place a series of changes to improve operations and marketing.

The results on Wednesday were viewed as a demonstration that the changes are taking root. Restaurant-level margins, a key figure for Chipotle because strong margins were the chain’s hallmark in the years before food safety incidents hurt sales, were 17% of revenues in the fourth quarter—up from 14.9% a year earlier.

Revenues in the quarter rose 10.4% to $1.2 billion. Earnings per share declined 25.8% to $1.15 due largely to restructuring and other one-time costs.

Niccol said on Wednesday that boosting sales will help improve those profit numbers over time. “The best leverage for our economic model is growing sales and transactions,” he said. “If we do that well, margins will expand.”

UPDATE: This story has been updated to include more stock price information.

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