Chipotle Mexican Grill
) is a restaurant chain which serves Mexican cuisine and epitomizes
the concept of a fast-casual restaurant i.e. positioned higher than
a fast food restaurant but below a casual restaurant chain such as
Chili's or Ruby Tuesday's. Chipotle emphasizes on using fresh and
naturally raised ingredients and using cooking methodologies found
usually in premium restaurants. All of its restaurants are
company-operated which means none of them is franchised/licensed.
Trefis expects the company's revenue in 2012 to touch $2.7 billion,
about 20% more than the 2011 revenues.
See full analysis for Chipotle Mexican Grill
The restaurant chain's EBITDA margins are close to 25% and have
historically risen consistently since the rate of revenue addition
has outpaced the rate at which fixed costs (such as labor and
occupancy costs) have increased. Food and other commodity costs
have generally stayed in the range of 30%-33% of revenues.
Chipotle had 1,350 restaurants as of September 30, most of which
are in the U.S. Only 10 of its restaurants are present in
international locations (5 in Toronto, 4 in London and 1 in Paris).
The company is adding 170 restaurants in 2012 and plans to add
another 180 in 2013. Chipotle's stock has plummeted more than 30%
in the last six months due to slowing comparable sales growth.
Historically, it posted same-store sales growth in the region of
9-10%. Growth rocketed to 11.4% in Q1 but declined to 8.0% in Q2
and further dropped to 4.8% in Q3.
Trends To Watch
(a) Same-Store Sales Growth
Due to increased competition from Taco Bell, which introduced a
similar menu at a lower price and has a much broader footprint,
Chipotle's sales are being affected. Increased competition also
limits the company's ability to raise menu prices, something that
again affects same-store sales growth.
Management will be conservative in increasing menu prices and
will only do so in case its rivals implement them first or input
costs rise more than expected. We wouldn't be surprised if
same-store sales decline further in Q4 in absence of price hikes
and since they come on top of an already high base (same-store
sales growth for Q4 2011 was 11.1%). We generally estimate
same-store sales growth in the region of 4-5% over the long term
since sustaining historical growth figures is not possible over a
wider base of restaurants.
Trefis expects margins to stabilize going forward. Historically,
we have witnessed an improvement in margins, but this was largely
because of high same-store sales growth figures. But under the
assumption that they will slow to 4-5% in the long run, margin
expansion looks unlikely. They should continue to remain in a
similar territory although there could be a few fluctuations during
certain quarters due to unexpected changes in input costs.
(c) Restaurant Expansion
Chipotle is also experimenting its Asian-cuisine restaurant
called ShopHouse Kitchen. Until now, the restaurant had a presence
only at one location, but the company plans to add a couple more in
the first half of 2013.
If the concept is successful, there is tremendous potential in
terms of the number of restaurants that can be opened under this
brand. But to assume the next wave of growth to come from this
brand of restaurant would be too optimistic at the moment.
Unless ShopHouse Kitchen can complement the new additions or
Chipotle plans aggressive openings internationally, we expect the
rate of restaurant addition to slow down. The expansion rate is
also likely to slow down due to its relatively higher pricing
compared to other fast food chains. Since the management
hasn't promulgated its intent to pursue any of the above right
now, we are conservative in our forecasts for the number of
We have a price estimate of $313 for Chipotle
, which is about 15% higher than the current market price.
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