Measures to revive passenger flow have paid off for Ink-style Barbecue (CMG.US) Q3 revenue exceeds expectations

Zhitong Finance App learned that as of press release, the stock price of CMG.US (CMG.US) rose 7% before the market on Thursday. The previous day's management statement showed that CEO Scott Boatwright (Scott Boatwright)'s efforts to bring back customers with new menus and marketing campaigns are bearing fruit. The Mexican fast food chain said in a conference call after Wednesday's earnings report that it expects same-store sales to increase by about 3% to 4% by the end of the quarter, up from 2.1% in the three months ending September.

Bringing Guests Back: Menu and Marketing Go Hand in Hand

Earlier this week, the company announced that it will be returning to smoked beef brisket for a limited time starting November 5, just in time for the holiday season and rugby season. This is the company's latest step in boosting passenger traffic. In the third quarter, new products such as spicy lime chips and the return of pollo asado were already driving sales.

What is more noteworthy is the change in customer base structure. Botwright said in a conference call that the performance of the low-income customer base surpassed that of the high-income customer base for the first time in the third quarter. The best month was September — and at that time, the company's promotion was at its lowest level throughout the year. He said, “The broader consumer and industry headwinds are likely to continue, but initiatives under our 'growth formula' strategy are accumulating, giving us more tools to win in any environment.”

However, the company did not increase its caliber for the whole year: same-store sales will continue to grow in the “low single digit range” in 2026, in line with the forecast given in July. In other words, the “exit rate” of 3% to 4% in the fourth quarter is a phased target, not a guide for the whole year.

Price increase of about 3%, hedging beef and diesel

The cost side is the other main line of this financial report. The company said it will raise menu prices by about 3% in the fourth quarter to hedge against rising freight costs caused by the sharp rise in the price of more expensive beef and diesel.

The three-quarter cost structure confirmed the pressure: the cost of ingredients, beverages, and packaging accounted for 29.5% of revenue, down from 30.0% in the same period last year — the improvement was beneficial from menu price increases, tariff relief, and limited-time product portfolios, but was partially offset by beef and freight inflation, and increased protein usage. The share of labor costs rose from 25.2% to 25.7% due to lower sales, higher employee compensation (including wage inflation and performance bonuses), additional store manpower to support promotions, and increased insurance costs. Management expenses rose from $146.7 million to $185.2 million, mainly driven by equity incentives, performance bonuses, and external services related to corporate projects. The effective tax rate was raised from 23.1% to 25.6%.

Profit and profit: Revenue exceeded expectations and earnings per share fell short

Total revenue for the third quarter increased 9.6% to US$3.293 billion, mainly driven by the opening of new stores. Same-store sales contributed less; same-store sales increased 2.1% (customer unit price +1.3%, transaction volume +0.8%). Digital sales accounted for 38.8% of food and beverage revenue, up from 36.7% in the same period last year. 84 new self-operated stores were opened during the season, including 53 with “Chipotlane” drive-speed lanes.

However, profitability was clearly under pressure: operating margin fell to 13.7% from 15.9% in the same period last year, and operating margin at the restaurant level fell from 24.5% to 23.3%; diluted earnings per share and adjusted earnings per share were both $0.27, down 6.9% year over year. Analysts surveyed by FactSet had expected adjusted earnings of $0.29 per share, revenue of $3.286 billion, and a 1.5% increase in same-store sales — slightly exceeding expectations in revenue and same-store sales, falling short of earnings per share.

The stock price reaction is typical of “increase profits first, then look at profit margins”: it rose 7.6% after the market on Wednesday and 7% before the Thursday market. But even so, the stock's cumulative decline during the year was still more than 20%. Until now, it has been plagued by budget-sensitive consumers, discount campaigns at regular restaurants, and the aftermath of this summer's cyclospora (cyclospora) incident.