Chipotle Grows on Health Food Focus; Cost Inflation a Risk - Analyst Blog

By
A A A

On Aug 29, 2014, we issued an updated research report on Chipotle Mexican Grill Inc. (CMG).

On Jul 21, this restaurant chain posted robust second-quarter 2014 results with both earnings and revenues beating the Zacks Consensus Estimate. Earnings and revenues were up year over year, owing to higher comps and unit expansion. Restaurant level operating margin declined due to higher food expenses, partially offset by favorable sales leverage.

Despite a price rise in the quarter, comps grew both year over year and sequentially mainly due to higher traffic as well as an increase in average check. However, driven by improved comps, the company upped its comps growth expectation from a high single-digit range to a mid-teens range.

Chipotle has been witnessing a fairly stable traffic trend over the past few years driven by its strong market position, menu launches and increased media exposure. The company's decision to use non-GMO food also attracts health-conscious customer. 

Moreover, the company expects food cost inflation to persist and food cost ratio (including the menu price increase) to move up year over year in 2014. Further, the company expects marketing and promotion expenses to increase with most of the increase coming in mid 2014 owing to the introduction of a new advertising campaign. Such frequent increase in expenses would continue to hurt margins, going forward.

Chipotle Mexican Grill presently sports a Zacks Rank #1 (Strong Buy). Other stocks in the same industry that can be considered include BJ's Restaurants, Inc. (BJRI), Jamba, Inc. (JMBA) and Domino's Pizza, Inc. (DPZ). While BJ's Restaurants and Jamba carries the same Zacks Rank as Chipotle, Domino's Pizza has a Zacks Rank #2 (Buy).

On Aug 29, 2014, we issued an updated research report on Chipotle Mexican Grill Inc. ( CMG ).

On Jul 21, this restaurant chain posted robust second-quarter 2014 results with both earnings and revenues beating the Zacks Consensus Estimate. Earnings and revenues were up year over year, owing to higher comps and unit expansion. Restaurant level operating margin declined due to higher food expenses, partially offset by favorable sales leverage.

Despite a price rise in the quarter, comps grew both year over year and sequentially mainly due to higher traffic as well as an increase in average check. However, driven by improved comps, the company upped its comps growth expectation from a high single-digit range to a mid-teens range.

Chipotle has been witnessing a fairly stable traffic trend over the past few years driven by its strong market position, menu launches and increased media exposure. The company's decision to use non-GMO food also attracts health-conscious customer. 

Moreover, the company expects food cost inflation to persist and food cost ratio (including the menu price increase) to move up year over year in 2014. Further, the company expects marketing and promotion expenses to increase with most of the increase coming in mid 2014 owing to the introduction of a new advertising campaign. Such frequent increase in expenses would continue to hurt margins, going forward.

Chipotle Mexican Grill presently sports a Zacks Rank #1 (Strong Buy). Other stocks in the same industry that can be considered include BJ's Restaurants, Inc. ( BJRI ), Jamba, Inc. ( JMBA ) and Domino's Pizza, Inc. ( DPZ ). While BJ's Restaurants and Jamba carries the same Zacks Rank as Chipotle, Domino's Pizza has a Zacks Rank #2 (Buy).


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CHIPOTLE MEXICN (CMG): Free Stock Analysis Report

DOMINOS PIZZA (DPZ): Free Stock Analysis Report

BJ'S RESTAURANT (BJRI): Free Stock Analysis Report

JAMBA INC (JMBA): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CMG , BJRI , JMBA , DPZ

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stocks

Referenced

Most Active by Volume

74,282,785
  • $10.84 ▲ 11.64%
60,794,128
  • $17.12 ▲ 0.71%
55,628,662
  • $35.59 ▼ 1.00%
55,306,290
  • $116.47 ▲ 0.14%
55,118,241
  • $39.75 ▼ 0.43%
53,597,648
  • $9.41 ▲ 8.29%
41,889,990
  • $47.98 ▼ 1.48%
35,692,375
  • $97.34 ▼ 0.57%
As of 11/21/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com