Is Gorging On Chipotle Still a Good Idea?

Chipotle Mexican Grill (CMG) recently announced third-quarter revenue of $1.2 billion, an increase of 12.2% from $1.1 billion in the third quarter of 2014. Chipotle also declared third-quarter net income of $144.9 million, up 10.8 percent from $130.8 million in the third quarter of 2014.

The global fast food chain reported continued year-over-year expansion in both its top and bottom lines primarily due to significant growth across the comparable restaurant sales, driven by rising customer footfall at the company’s key restaurants and allowed by lesser increase in menu pricing in some markets during the quarter.

What’s driving growth? 

Chipotle is expected to be continuously delivering solid year-over-year expanding annual shareholder returns on its common stock from December 31, 2009 till December 31, 2014 compared to the consolidated return index for the S&P 500 Restaurants and the S&P 500 index.

The rapid change in the way people think about and consume fast food has enabled the fast food provider to expand its restaurant count all through the year.
Chipotle has notably extended its food standards for the quarter with having presently returned carnitas to nearly 90% of its restaurants and expects to pursue the opportunity to introduce it back to all of its major restaurant chains in the fourth quarter.

The steadily and continuously shifting culture towards fast food has allowed significant increase in footfall at the company’s key restaurant chains and thus driving continued increase in sales growth.

Chipotle strategically opened 53 new restaurants in the quarter and thus making the combined restaurant count to 1,931. In addition, the fast food company successfully lowered its food costs for the quarter by 50 basis points to 33.0% of net revenue as compared to the same period last year.

The global fast foods chain illustrated 28.3% of restaurant level operating margin during the quarter, a decline of 50 basis points compared to the third quarter of 2014. The reduction was mainly driven by elevated labor costs, and enhanced promotion and marketing expenditures, somewhat offset by depressed food costs as a percent of the company’s top line.

Chipotle is observed to be cautious about controlling the rising non-core expenses while increasingly opening new restaurants to grow customer footfall and thus overall sales which was further supported by the reduced food costs.

For the complete fiscal year 2015, Chipotle expects to grow its guidance for opening new restaurants to approximately 215 to 225 restaurants, an increase from the earlier declared range for opening of 190 to 205 new restaurants. Also, the company estimates to grow its comparable restaurant sales in low-to-mid single digit.

Going forward, for 2016, Chipotle estimates new restaurant introductions to be in the range of 220 to 235 restaurants with comparable restaurant sales growth to be in low-single digits.

The fast food eatery chain seems quite confident about its prospective growth moving into the second half of 2015 and further into the fiscal year 2016 and thus targets on openings several more restaurants in the near future much ahead of its earlier restaurants opening goal.


All in all, Chipotle is a strong investment from a long-term point of view, so I think that investors should remain invested in it for the long run.
Published on Nov 20, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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