Chipotle Mexican Grill Inc. ( CMG )
has reported second-quarter 2012 earnings of $2.56 per share,
comfortably ahead of the Zacks Consensus Estimate of $2.30 as well
as the year-earlier earnings of $1.59. The better-than-expected
results were driven by double-digit top-line growth and margin
CHIPOTLE MEXICN (CMG): Free Stock Analysis
KONA GRILL INC (KONA): Free Stock Analysis
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Revenues rose 20.9% year over year to $690.9 million in the
reported quarter, based on new restaurant openings and higher
comparable store sales (comps). However, reported revenue fell
below the Zacks Consensus Estimate of $706 million.
Comps grew 8.0% during the quarter on the back of higher traffic
and menu price increases witnessed last year. Higher menu prices
added about 4.6% in the quarter under review. However, comps
slipped 470 basis points (bps) sequentially and 200 bps
The restaurant operating margin expanded 340 bps to 29.2%,
attributable to a 100-bp cut in labor, 30-bp drop in occupancy
costs and 130-bp decrease in other operating costs and 80-bp slip
in food, beverage and packaging costs (as a percentage of total
Total operating margin expanded to 19.4% from 14.7% in the
year-ago quarter, benefiting from lower expenses. General and
administrative expenses were 6.1% of revenue, down 120 bps year
over year, driven by favorable sales leverage, lower employee bonus
accruals and lower legal expenses.
During the quarter under review, Chipotle opened 55 restaurants,
including first restaurant opening in Paris, France. The company
currently operates 1,316 outlets.
Chipotle has remained largely unruffled by the recent economic
slowdown. The company remains on track to open 155-165 new
restaurants in fiscal 2012.
Chipotle ended the quarter with cash and cash equivalents of
$404.8 million and shareholders' equity of $1,261.2 million as
compared with $401.2 million and $1,044.0 million in 2011,
For 2012, the management reaffirmed its outlook of mid
single-digit comparable store sales growth.
Though the top-line miss by the fast-food restaurant chain came as
a disappointment for some investors, we believe Chipotle is well
positioned to generate improved earnings, margins and returns on
invested capital. With a strong debt-free balance sheet, healthy
cash flow, excellent unit economics, strategic international
expansion, the successful 'Food With Integrity' program and
continued marketing initiatives, we believe that the stock provides
relative safety and consistent growth.
However, fierce discounting wars among quick-service operators,
lower consumer confidence and higher input costs remains areas of
Chipotle, which competes with Kona Grill Inc ( KONA ),
currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We are maintaining our long-term Neutral
recommendation on the stock.