Chipotle plans to add more locations in small towns

Chipotle Mexican Grill saw its share price climb more than 8% in after-hours trading on Tuesday, after the fast-casual chain reported higher-than-expected earnings and announced plans to expand its footprint in the long-term with more locations in smaller towns.

The firm posted revenue of $2 billion for the fourth quarter of 2021, a 22% increase from the same quarter the year before that topped Wall Street's estimate of $1.6 billion. Earnings per share were at $5.58 for the quarter, beating analysts' expectations of $5.25 and showing a 60% increase from the $3.48 in Q4 2020.

In its letter to investors, Chipotle announced that it had updated its long-term development plans and aims to have 7,000 restaurants in North America, up from its previous goal of 6,000 "based on the success of small-town locations that are delivering unit economics at or better than traditional" locations.

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During 2021, Chipotle saw its digital sales – including orders delivered by third parties and those picked up at store locations by customers – grow 24.7% to account for 45.6% of all sales. The company sees opportunity in that arena, and more than 80% of new Chipotle locations are being built with drive-up "Chipotlane" windows for customers to conveniently pick up orders placed online. The chain opened 215 new restaurants last year.

During the earnings call, when asked about the company's development plans going forward, Chipotle chief financial officer Jack Hartung reiterated the success of small-town locations and touted the plan to ramp up location expansion.

"We're fortunate," Hartung said. "People want Chipotle in their towns, the landlords want Chipotle in their centers, and we just demonstrated now we have the small-town opportunity to add to the Chipotle opportunity."

"Chipotlanes continue to outperform our non-Chipotlane restaurants," Hartung explained. "They have higher volume, they skew more towards digital, and that skew comes from ordering at a higher-margin transaction."

"What Chipotlanes are also allowing us to do is to go into these small towns where we have another convenient access point," Hartung added, pointing to the "superior returns" at locations that offer the drive-through service.

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