Why Did Chipotle Mexican Grill, Inc. Shares Climb 31% in April?
The market now believes that Chipotle's (NYSE: CMG) turnaround has taken hold. That's partly due to the company's strong first-quarter results, and partly due to the optimism created by the hiring of new CEO Brian Niccol.
Q1 revenue rose by 7.4%, to $1.1 billion. In addition, comparable-restaurant sales increased by 2.2% and restaurant-level operating margin increased to 19.5% from 17.7%. Earnings per share (EPS) came in at $2.13, a 33.1% increase from the year-ago period.
"While the company made notable progress during the quarter, I firmly believe we can accelerate that progress in the future," said Niccol in the earnings release. "We are in the process of forming a path to greater performance in sales, transactions, margins and new restaurants."
Investors clearly are happy with Niccol and the changes he has promised. Even though things aren't much different, the promise that change is coming has sent shares rising. After closing March at $323.11 a share, the chain's stock closed April at $423.33, a 31% gain according to data provided by S&P Global Market Intelligence.
Niccol has promised more menu innovation and that Chipotle will become a more responsive company. He has also pledged not to reduce standards, and it seems likely he won't be as rigid as his predecessor Steve Ells when it comes to giving customers what they want.
"Chipotle will have a culture that is centered on running great restaurants, putting the customer first, innovating for today and tomorrow, supporting each other, and delivering on commitments," he said.
Whether these gains continue depends on his ability to deliver on these promises. That seems likely, as Niccol proved himself a capable, adaptable leader while he was CEO at Taco Bell. His challenge will be to balance his flair for marketing with protecting Chipotle's core value of delivering high-quality food.
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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.