On Dec 26, we reiterated our long-term Neutral recommendation
on casual dining restaurateur
Chipotle Mexican Grill, Inc.
) following mixed third-quarter results announced on Oct 17.
Why the Neutral Recommendation?
Chipotle's third-quarter 2013 earnings of $2.66 per share
missed the Zacks Consensus Estimate of $2.77 by nearly 4% due to
increased costs and lower margin. However, earnings were up 17.2%
year over year, led by higher top line.
Revenues grew 18.0% year over year to $826.9 million and also
beat the Zacks Consensus Estimate of $818 million by 1.1%. The
better-than-expected sales were backed by higher comparable sales
(comps) growth and unit expansion.
Following the improving traffic trend, the company has raised
its comps guidance for 2013. Management now expects comps to grow
in mid single-digits, higher from the previous estimate of
low-to-mid single digits.
We expect the company's initiative to provide GMO (genetically
modified organism)-free foods will trigger its business in the
ensuing quarters. Overall, we are encouraged by Chipotle's strong
market standing, new menu launches and increased media exposure.
We believe that the company has compelling growth drivers like
the ShopHouse concept and catering program to sustain the revenue
However, Chipotle is highly susceptible to commodity
inflation. The company believes that the cost of food will be
higher in the first half of 2014 due to the rise in avocado and
steak costs, thus, hurting margin. The company's several sales
building initiatives including marketing programs and improved
supply chain will lead to higher costs.
The restaurant industry has been experiencing sluggish growth
and slowdown in consumption over the last few quarters. Slow job
growth, high interest rates and still-tightened credit
availability continue to hurt consumer discretionary
Other Stocks to Consider
Chipotle carries a Zacks Rank #3 (Hold). Other better-ranked
Brinker International, Inc.
Buffalo Wild Wings Inc.
The Cheesecake Factory Incorporated
). All these companies carry a Zacks Rank #2 (Buy).
BUFFALO WLD WNG (BWLD): Free Stock Analysis
CHEESECAKE FACT (CAKE): Free Stock Analysis
CHIPOTLE MEXICN (CMG): Free Stock Analysis
BRINKER INTL (EAT): Free Stock Analysis
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