Chipotle (CMG) Rallies On Strong First Quarter Earnings

Mexican quick serve restaurant Chipotle (CMG) surged last week after posting strong first quarter earnings. The company's earnings per share rose 24.4% to $2.45, which topped the analyst consensus of $2.14 per share. Meanwhile, revenue rose 13.4% to $726.8 million, also beating the consensus estimate of $725 million. The company primarily attributed its top line gain to new restaurant openings during the quarter.

Chipotle added 48 new locations, bringing its total store count up to 1,458 by the end of March. Daily Chart
Chipotle's same-store sales only rose 1%, down from 12.7% growth in the prior year quarter. However, it appears that the company balanced out that anemic growth by adding more locations. Excluding the impact of two less days - Easter and the lack of a leap day this year - Chipotle's same-store sales actually rose 3%. The company's earnings growth is particularly impressive, since rising food costs, sluggish consumer spending and adverse weather conditions have weighed down many of its industry peers. The company's higher menu prices during the quarter hurt its sales growth. Despite these higher menu prices, restaurant level operating margin still slid 110 basis points to 26.3% from the previous year. Food costs rose 80 basis points to 33.0% to total revenue, mainly due to higher prices for cheese, chicken and salsa. Occupancy costs rose to 6.6% of total revenue. However, Chipotle's operations remained efficient, as evidenced by its 50 basis point expansion in total operating margin. Chipotle accomplished this by keeping its SG&A (sales, general and administrative) expenses under control, and they decreased from the previous year. Cash reserves remained strong at the end of the first quarter, at $346.9 million versus the $322.6 million it reported in the prior year quarter. The company repurchased 164,000 shares worth $51 million during the quarter, and added $100 million to its existing share repurchase program. Looking forward, Chipotle expects same-store sales to rise in the low single-digit' level and to open 165 to 180 new restaurants in 2013. Menu prices are also expected to marginally rise throughout the year if food prices continue to rise. However, a recent decline in corn and soybean prices could bode well for the company, since they would decrease the price of chicken feed and chickens. Even after the recent rally, shares of Chipotle are still down 17% over the past twelve months. The stock has been on a tear over the past decade, rising 770% over the past ten years and 220% over the past five. However, its high P/E (40x trailing and 30x forward) multiple is a controversial point among investors, with bulls believing that the company's growth deserves a premium, while bears believe that the company's growth trajectory is unsustainable. Now that Chipotle's same-store sales growth has slowed to 1%, it might be wise to wait for the macroeconomic problems to subside before chasing this rally. The stock has a 5-year PEG growth ratio of 1.62, which indicates that the stock's growth is not as robust as it used to be. Other News About CMG Chipotle Beats 1Q Earnings, Revenues Up Chipotle posts impressive first quarter earnings. Chipotle Hiring Investigation Expands The government continues its probe of Chipotle's hiring practices. Other Stocks in the News Which Automaker Will Claim the Crown in 2013? Will Volkswagen topple GM and Toyota in 2013? IsYum! Brands No Longer a Yummy Growth Stock? Can Yum! Brands survive its headaches in China? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Apr 26, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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