We maintain our Neutral recommendation on casual dining
Chipotle Mexican Grill, Inc.
). The company's strong brand power, aggressive expansion efforts
and improved productivity gains are very encouraging. However,
cost inflation and uncertain economic conditions keep us on the
sidelines at the current level.
Why the Reiteration?
Chipotle, the most recognized fast casual Mexican restaurant
chain in the U.S., is famous for its signature burritos and
tacos. The company, through its 'Food With Integrity' initiative
seeks to provide sustainably-grown and naturally-raised products.
The customers are fond of Chipotle's naturally-raised
ingredients, which helps drive traffic growth.
In addition to this, the company continues to expand its
presence worldwide. It opened 150 and 183 new restaurants in 2011
and 2012, respectively, and has plans to unveil nearly 165-180
new units in 2013. Chipotle is also focusing on spreading its
Asian style restaurants, namely ShopHouse Southeast Asian Kitchen
throughout the U.S.
Recently, the company announced the launch of new ShopHouse
units in premium states of the U.S. We believe that this concept
will be an important long-term growth driver for the company,
The Zacks Rank #3 (Hold) company's new off-premise catering
program launched in the first quarter of 2013 will contribute
robustly to its business in the near future. Apart from this,
Chipotle remains focused on driving comps through a range of
other sales driven initiatives, including throughput
enhancements, developing the workforce, launching new menu items
and initiating a new marketing strategy.
The company's comps in the past two quarters grew only 3.8%
and 1.0%, respectively, due to an uncertain economy and a
difficult consumer-spending environment. We believe this sluggish
growth in comparable store sales in the past few quarters might
act as a headwind to its growth story.
Moreover, Chipotle is exposed to increasing food and beverage
costs, which may hurt the company's profitability, going forward.
In 2013, management expects its operating costs to go up,
following aggressive marketing and promotional initiatives, which
will hurt its margins.
Other Stocks to Consider
Some other restaurant industry stocks with a favorable Zacks
CEC Entertainment Inc.
AFC Enterprises Inc.
Bloomin' Brands, Inc.
). While CEC Entertainment carries a Zacks Rank #1 (Strong Buy),
AFC Enterprises and Bloomin' Brands both carry a Zacks Rank #2
AFC ENTERPRISES (AFCE): Free Stock Analysis
CEC ENTERTANMNT (CEC): Free Stock Analysis
CHIPOTLE MEXICN (CMG): Free Stock Analysis
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