Chipotle Mexican Grill Inc.
(
CMG
) has reported third-quarter 2012 earnings of $2.27 per share,
which fell shy of the Zacks Consensus Estimate of $2.30. However,
the result was ahead of the year-ago earnings of $1.90 per share.
Double-digit top-line growth and margin expansion led to the
year-over-year growth in earnings.
Revenues grew 18.4% year over year to $700.5 million in the
reported quarter buoyed by new restaurant openings and higher
comparable store sales (comps). However, revenues too missed the
Zacks Consensus Estimate of $703 million.
Quarter Highlights
Comps grew 4.8% during the quarter under review, thanks to the
higher traffic and uptick in menu prices in the Pacific
Region. On a sequential basis, transaction trends were
almost flat. However, rate of comps growth plummeted 650 basis
points (bps) year over year and 320 bps quarter over quarter.
The restaurant operating margin expanded 70 bps to 27.4%,
attributable to a 60-bps cut in labor, 30-bps drop in occupancy
costs, 70-bps decrease in other operating costs and 40-bps slip
in food, beverage and packaging costs (as a percentage of total
revenue).
Total operating margin expanded 210 bps to 17.4% in the quarter,
benefiting from overall lower expenses. However, general and
administrative expenses went up 60 bps year over year to 6.9% of
revenue due to the investment toward the biennial conference in
the third quarter, higher stock based compensation expense, and
about $1 million in bad debt expense related to general
contractor insolvencies.
Stores Update
During the reported quarter, Chipotle opened 36 new restaurants,
including two units unveiled in London, England. At the quarter
end, the company operates 1,350 units.
Liquidity
Chipotle ended the quarter with cash and cash equivalents of
$421.1 million and shareholders' equity of $1,307.6 million.
Guidance
For 2012, the management reaffirmed its outlook of mid
single-digit comparable store sales growth while comps for 2013
are expected to be within flat to low-single digit level.
The company remains on track to open atleast 155-165 new
restaurants or more in fiscal 2012. For 2013, Chipotle raised its
openings outlook to the range of 165-180 units.
Our Take
Chipotle seems to have lost momentum as depicted by the miss in
the latest quarter, top-line miss in the prior quarter, continued
deceleration in comps growth and the muted comps projection for
2013 as well. Though these arrays of concerns came as a
disappointment to some investors, we believe that Chipotle is
still well positioned to generate improved earnings, margins and
returns on invested capital.
Even in an anemic economy marked with lower consumer confidence
and stiff competition, Chipotle managed to grow its earnings and
revenue year over year by a huge margin. With sound unit
economics and the successful 'Food With Integrity' program, the
stock will likely provide relative safety over the longer term.
Chipotle, which competes with the likes of
Yum! Brands
Inc.
' (
YUM
) Taco Bell, currently carries a Zacks #3 Rank, which translates
into a short-term 'Hold' rating. We are maintaining our long-term
'Neutral' recommendation on the stock.
CHIPOTLE MEXICN (CMG): Free Stock Analysis
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