Analyst Note
| Sean Dunlop |In the face of industry headwinds, wide-moat Chipotle reported strong first-quarter earnings, with $2.02 billion in sales and $5.70 in adjusted EPS slightly exceeding Factset consensus estimates of $2.01 billion and $5.64, respectively. Restaurant margin pressure was unsurprising, with 12%-13% inflation in the food basket proving difficult to pass through in real-time—but a 4% price increase in the quarter, pushing menu prices about 10% higher than a year ago, suggests that guidance for a strong restaurant margin rebound (to 25%) over the summer is plausible. After balancing near-term food cost pressure with strong top line results and muted administrative expenses, we expect to raise our $1,510 fair value estimate by a low-single-digit percentage, broadly consistent with the time value of money.