Quick-casual restaurant chain,
Chipotle Mexican Grill Inc.
) third-quarter 2013 earnings of $2.66 per share missed the Zacks
Consensus Estimate of $2.77 by nearly 4% due to lower margin and
increased costs. 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 results were backed by higher comparable
sales (comps) growth and unit expansion.
Behind the Headline Numbers
Comps grew 6.2% during the quarter led by higher traffic.
Comps increased 70 basis points (bps) sequentially and 140 bps
year over year.
The restaurant level operating margin was down 60 bps annually
to 26.8% in the reported quarter. Higher food costs and mounting
marketing expenses offset lower labor cost and pressurized the
Food, beverage and packaging costs as a percentage of revenues
increased 100 bps to 33.6% with the rise in costs for salsa
ingredients such as tomatoes, corn and tomatillos and higher
dairy as well as chicken prices. Moreover, since the company is
now using non-GMO (genetically modified organism) sunflower and
rice bran oils instead of GMO soy oil, oil costs have increased
leading to higher food costs.
Labor costs as a percentage of revenues contracted 40 bps to
22.8% as a result of the higher comps. Total operating margin,
however, declined 20 bps to 16.6% in the quarter due to higher
During the third quarter, Chipotle unveiled 37 restaurants. As
of Sep 30, 2013, the company operated 1,539 restaurants. The
company has also introduced a new ShopHouse restaurant in
Washington, DC in the quarter. During the quarter, the
restaurateur debuted in Frankfurt, Germany. Chipotle now operates
14 restaurants internationally.
Further, the company remains on track to open nearly 165-180
restaurants this year. Apart from this, the company also intends
to unveil more ShopHouse units by 2014.
Chipotle ended the quarter with cash and cash equivalents of
$308.1 million versus $$281.6 million in the previous quarter.
Total shareholder equity was consistent at $1.47 billion.
In the third quarter, the company bought back 41,000 shares
worth $17 million and nearly $103 million worth of shares are
left to be purchased under the company's existing share
The company has increased its comps guidance for 2013.
Following the improving traffic trend, management now expects
comps to grow in mid single-digits, higher from the previous
estimate of low-to-mid single digits.
For 2014, Chipotle will open 80 - 195 restaurants. The company
expects low single-digit comps growth for 2014.
Though Chipotle missed earnings estimates, we are encouraged
by double-digit top-line growth and higher comps. We believe that
the company's initiative to provide GMO-free foods will trigger
its business in the ensuing quarters.
Though lower margin remains a concern, overall, we are
encouraged by Chipotle's strong market standing, new menu
launches and increased media exposure. We believe that the Zacks
Rank #2 (Buy) company has compelling growth drivers like the
ShopHouse concept and catering program to sustain revenue
momentum, going forward.
Some other players in the restaurant industry which look
attractive at the current level include
Red Robin Gourmet Burgers Inc.
AFC Enterprises Inc.
Bob Evans Farms, Inc.
). While Red Robin holds a Zacks Rank #1 (Strong Buy), AFC
Enterprises and Bob Evans Farms carry a Zacks Rank #2.
AFC ENTERPRISES (AFCE): Free Stock Analysis
BOB EVANS FARMS (BOBE): Free Stock Analysis
CHIPOTLE MEXICN (CMG): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
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