In the book Algorithms to Live By, I was exposed to a concept that improved my ability to make decisions -- the "explore-exploit trade-off." I'll spare you the nerdy details. But I'm at the stage of life where I should be exploring things. Instead, I keep exploiting (ordering) the same chicken burrito from Chipotle Mexican Grill (CMG -0.26%) over and over because it's 🌺just so good. Why explore the me﷽nu further?
Chipotle does a good job making my burrito. But that's not the only thing this restaurant chain does well. The company has profit margins that are hard to comprehend, and it's incredibly material for investors making decisions about Chipotle stock today.One of the most remarkable numbers I've ever seen
On April 24, Chipotle reported financial results for the first quarter of 2024. Keep in mind that there were nearly 3,500 company-owned locations at the end of the quarter. This is a huge chain, and it consequently has big corporate expenses outside of its restaurants. These are called general and administrative expenses, and they cost Chipotle over $200 million in Q1 alone.In Q1, Chipotle had a restaurant-level billion casino royal:operating-profit margin of 27.5%. Since billion casino royal:the restaurant industry is notoriously a low-margi▨n🦋 proposition, Chipotle's numbers are remarkable.
Quarter | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 |
---|---|---|---|---|---|
Restaurant-level operating margin | 25.6% | 27.5% | 26.3% | 25.4% | 27.5% |
Right now Chipotle is hitting its best numbers in the past year, which is encouraging for shareholders. In fact, the company is actually hitting record high numbers ౠthat are night-and-day better than just f♏ive years ago. And the numbers were nothing to sneeze at back then.
Here's a table of Chipotle's numbers from five years ago, with the most recent quarter back in there again for comparison.Quarter | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | Q1 2024 |
---|---|---|---|---|---|
Restaurant-level operation margin | 19.5% | 19.7% | 18.7% | 17% | 27.5% |
What it means for investors
If Chipotle had only opened a lot of new restaurants over the years, it would have been a growth opportunity. But because it's been able to increase sales per location and consequently boost its restaurant-level profits, it's been an explosive growth opportunity. If you want to understand why Chipotle stock is up about 370% in only five years, look no further than its 400% gains in billion casino royal:earnings per share (EPS).