Is the bear market getting you down? This top stock rides high

Chipotle Mexican Grill (GCM 1.65%) announced its results for the second quarter of fiscal 2022 after markets closed on Wednesday, July 26. The US-based fast food chain pleasantly surprised shareholders as revenue and profit grew by more than double digits.

Unsurprisingly, the stock was up 14% the day after the report. Still, it’s down 13.6% year-to-date as investors worry about how the company will handle business with soaring inflation. Let’s take a look at its latest quarter results to see how it’s coping with rising costs and whether the stock has room to rise.

Customers return to Chipotle’s restaurant

Chipotle’s revenue in the second quarter, which ended June 30, totaled $2.2 billion. This was 17% more than the same quarter last year. The increase is the result of a combination of factors. Restaurant sales increased 36% year over year. Remember this time last year, people weren’t as comfortable leaving their homes and ordering at restaurants. As the economic reopening gained momentum, Chipotle restaurant sales surged. Meanwhile, digital sales remained robust at 39% of the overall total.

Comparable restaurant sales, which exclude the impact of new openings and closings, increased 10.1%. This boosted average sales per restaurant to $2.75 million. This figure has increased for four consecutive quarters as Chipotle has effectively managed the transition from the pandemic shutdowns. Management had stated a long-term goal of achieving an average revenue per restaurant of $3 million.

Chipotle expects this momentum to continue and expects mid- to high-digit revenue growth in the next quarter, and that includes menu price increases that will be implemented in August. The company has already made several rounds of price increases and customers seem to be responding reasonably well. Typically, customers buy fewer products when a company raises prices. It could be that pent-up demand to eat in restaurants outweighs the headwind of higher prices.

Chipotle faced higher prices on the inputs it needed to serve customers. Food, beverage and packaging costs rose to $673.9 million in the June quarter from $574.5 million in the same period a year earlier. Similarly, labor costs increased to $549.9 million from $464.5 million previously. The coronavirus pandemic has rumbled through supply chains around the world and, combined with resilient consumer demand, has triggered record levels of inflation.

Chipotle increased its operating profit margin to 15.3% from 13% in the same quarter a year earlier. The benefits of economic reopening, with customers returning to restaurants, have offset rising costs for Chipotle.

Chipotle stock shows excellent outlook

That said, we don’t know how long this wave of restaurant customers will last. Could it calm down once consumers exhaust this pent-up demand over the next few months or quarters? This is a risk that investors should not ignore.

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Can Chipotle stock continue to rise? Maybe. However, it is more likely to stay flat as it grows into its prime.