Chipotle misses on Q4 earnings

Yahoo Finance Live anchors discuss fourth-quarter earnings for Chipotle.

Video transcript

[AUDIO LOGO]

JULIE HYMAN: Here are the three things you need to know this morning. Inflation is still a big factor in restaurant earnings. We've got the latest results from Yum Brands and Chipotle. We're gonna break down what investors need to know from these reports.

BRAD SMITH: Bob Iger returns to center stage tonight for Disney's latest results. Investors are gonna be listening closely for the tone of the earnings call as Iger contends with activist investor campaign and streaming woes.

BRIAN SOZZI: And President Biden pushed back on stock buybacks in his State of the Union address. What investors need to care about from the President's address, we'll dive into it all.

First, let's get started with the first thing to know this morning. Prices are still top of mind for inflation-weary consumers, which we saw in earnings from restaurant giants Yum Brands and Chipotle this morning. Yum Brands beat Wall Street profit estimates in the latest quarter, as consumers remain lured in by Taco Bell's value offerings. Chipotle painted a slightly different picture, though, with sales cooling following a recent round of price hikes.

So Chipotle's same-store sales, I think that's what the Street is locking in here-- on, up over 5%. That marked a deceleration in growth compared to the third quarter, which is about 7.6%. And if you drill into this earnings call, price, price, price. Chipotle raised prices over the summer.

And it's not that sales completely fell off a cliff, consumers appear to balk a little bit. And I think we also heard that to a lesser extent from McDonald's when they reported. But at the end of the day, you now have to start to wonder how much pricing power does-- not only Chipotle have in this environment left, but many other companies like it.

JULIE HYMAN: The common denominator between Yum Brands and Chipotle, restaurant margins. Margins are still getting squeezed because, yes, consumers are price conscious but the restaurants themselves are paying higher prices still, as well. If you look at margins at Yum, 15.6%. That was below what analysts had estimated. Restaurant margin at Chipotle, 24%. It was also below.

What is still rising in terms of costs for these guys? Chipotle talked about the cost of tortillas. But something that both of them talked about is wages. They are still having to pay people and the rate of wages continue to go higher. So that's something that continues to squeeze these companies. And PS, by the way, that's the thing that the Fed does not want to continue to see go up. But we'll talk-- we'll talk much more about that later.

BRAD SMITH: I was ready to talk about the common denominator being the burritos and the tacos, but we--

JULIE HYMAN: Well, there's that, too.

BRAD SMITH: There's that, too. That's a given, right?

JULIE HYMAN: They all make Tex-Mex food, right?

BRAD SMITH: It's just on the menu. But this is also coming during a period of expansion that you Chipotle talked about a little bit more on the call last night, too. Opening 100 new stores in the fourth quarter, 90 of those having a Chipotlane. And of course, they've been known to lean into that digital touchpoint with the consumers. And they're on track to actually open 255 to 285 new restaurants in 2023, at least 80% of those are gonna have a Chipotle-- so or Chipotlane, rather.

So trying to really seamlessly deliver that digital experience to their customers but at the time where the customers are clearly perhaps balking at some of the burrito prices that they may be encountering because of how those inflationary pressures are getting passed through to them.

BRIAN SOZZI: I think--

JULIE HYMAN: Well, that's why they're going to a Taco Bell over a Chipotle. I mean, not that you're not talking about a one-to-one comparison, let's be honest, between a Taco Bell food--

BRIAN SOZZI: Don't dump on Taco Bell here.

JULIE HYMAN: --and Chipotle. I'm not dumping, I'm just saying.

BRIAN SOZZI: This Taco Bell quarter-- this Taco Bell same-store sales--

JULIE HYMAN: But people obviously went there.

BRIAN SOZZI: --huge.

JULIE HYMAN: They love it.

BRIAN SOZZI: Same-store sales up 11% for Taco Bell in the most recent quarter. And then a perfect scenario what you want to see from a restaurant, really any other company, sales up 11%. Operating profit for Taco Bell up 24%. So in the case of Taco Bell, the items are so darn cheap, they could push through the $0.50 price increases, you're still gonna leave out of there with a, what, $3.00, $4.00 taco at midnight after a couple of beers. I'm down for that, I could do it.

JULIE HYMAN: I'm waiting for the transcript of the conference call to hit. You know what two words I'm gonna be searching for?

BRAD SMITH: What's that?

JULIE HYMAN: Mexican Pizza.

BRIAN SOZZI: You like that.

BRAD SMITH: Ooh.

JULIE HYMAN: You know-- you know I love Mexican Pizza.

BRIAN SOZZI: So does Dolly Parton. So does Dolly Parton.

JULIE HYMAN: Oh, yeah?

BRAD SMITH: [CHUCKLES] Really?

JULIE HYMAN: That's the common denominator between me and Dolly Parton.

BRIAN SOZZI: Glad I can help you.

JULIE HYMAN: There you go.

BRAD SMITH: That's actually, that's a very good one. I wish I shared that, too. But I mean, look, Taco Bell clearly running away with it for Yum Brands here. KFC was the next closest in terms of the full-year performance that they had seen. Same-store sales up by about 4% there. System sales up by about 6%.

And then Pizza Hut, that division was basically even over the course of the year. And then so going forward from here, how much more do they continue at Yum Brands to lean into Taco Bell, lean into the clear cultural shift that is-- well, maybe not a shift but I think in the number of consumers that are looking for that value play, especially in the Mexican grill category, if you will, that Taco Bell is-- it's a reliable categorical play.

BRIAN SOZZI: You know what you're getting there. And from there, I will just add this on Chipotle. If you're an investor on the platform, you're like, what do I do with this stock here? They have still had success pushing through higher price increases.

You know, it's not everybody has stopped going to Chipotle. And on that front, January sales for Chipotle looks like they accelerated to low double-digit percentage gains. That is a huge increase. And it didn't come by them discounting. So that's quite positive.

JULIE HYMAN: Right. And also, they said on the call, they're hoping inflation is starting to moderate. They're seeing a few signs of that.

BRAD SMITH: Yeah, we're gonna continue to track shares of Yum, as well as Chipotle. And stick around, later on in the show, we're gonna take a bite into Chipotle's earnings with the CFO. Chief Financial Officer Jack Hartung is gonna join us 9:45 AM Eastern time today.