Chipotle Sales Beat as New Chicken, Chips Bring Diners Back

It's more of the same. Uh basically, you know, they did report an okay same store sales number, better than some of their peers. They were able to generate positive traffic. But the margins took a pretty big hit again. You know, basically what they're doing here to to boost the traffic and same store sales is giving away a lot of food. So there's been there were several food giveaways, there were several buy one get one offers out there and every Sunday through the digital app, you can buy two entres and get a third free. So, um, you know, basically they're they're sacrificing their margins to to get boost that top line, which we don't think is a a sustainable um way to go about things.

So, what's the fallout then? How how does it how do you see that getting resolved?

Well, listen, what happens is you're training your your employ your uh I'm sorry, you're training your customers that the food isn't worth the menu price, right? If you're constantly giving out discounts. And so over the long term, it causes damage to the brand because people say, you know what? I'm not going to get Chipotle unless I have a a discount available to me, right? And so what what does management do? How do they lap, you know, a 1 to 2% comp next year? Well, do they offer even more discounts, right? That's what they needed to do to get that comp this year, right? And and to me it's it's a downward spiral for the brand in the minds of consumers.

So, what's the on the on the cost side of the equation? What's the key drivers here that Chipotle and other restaurant companies fast food are are kind of dealing with right now?

Yeah, well, obviously the higher diesel costs bleeds into everything, right? Because food has to be shipped across the country by distributors, right? So that that bleeds into everything, but um, yeah, I mean for Chipotle, it's beef, it's chicken, um avocado prices are are very volatile. so that's something we watch closely for this name, right? And so that's that's been um, part of it, right? And and on the call, they were pressed about, you know, what kind of comp do they have to put up to offset what they see as 3% uh commodity inflation next year and they said it's going to have to be about four.

Wow. Okay. 4% comp isn't happening for Chipotle next year, right? So, um, there's going to be a lot more margin pressure to come.