Tuesday, October 30, 2007

Chipotle Mexcian Grill (CMG) - The One Impervious Restaurant Stocks

I am bearish on the domestic restaurant sector due to the twin drags of slowing consumer/rising input costs (food!), but you just have to give it up for the folks at Chipotle (CMG). My thesis has been born out from the skimming I have been doing here and there (I don't post about the sector much because it's not exactly a growth industry), but Chipotle is apparently the teflon stock in the sector, with a super (considering the headwinds) report. That said, at >60x 2007 estimates it's priced as a teflon stock. And they didn't say much about the cost of inputs like cheese, but they are the growth stage of expansion where apparently they can laugh mockingly at the increases.

With that said, guidance could be a cause of concern - "low to mid" single digit 'same store' sales (to steal a term from retail) - not sure if this stock is priced at low to mid single digit same store sales levels, but that said, they are just in the early-mid innings of a national expansion plan to there is a lot of potential for new restaurant growth.
  • Revenue increased 35.6% to $286.4 million
  • Comparable restaurant sales increased 12.4%
  • Restaurant level operating margins increased 150 basis points to 23.0%
  • Net income increased 74.6% to $20.6 million
  • Diluted earnings per share increased 72.2% to $0.62
  • Revenue for the third quarter of 2007 increased 35.6% to $286.4 million from $211.3 million in the third quarter of 2006. This growth in revenue was attributable to new restaurants not in the comparable base and a 12.4% increase in comparable restaurant sales in the third quarter. Comparable restaurant sales growth was primarily due to an increase in customer visits. Chipotle opened 28 restaurants during the third quarter of 2007, including 26 restaurants in existing markets and two restaurants in new markets.
  • Restaurant level operating margins increased to 23.0% in the third quarter of 2007 from 21.5% in the third quarter of 2006, primarily due to efficiencies in labor, and menu price increases associated with the addition of naturally raised meats in certain markets which were partially offset by higher food costs.
  • Net income for the third quarter of 2007 was $20.6 million, or $0.62 per diluted share, compared to $11.8 million, or $0.36 per diluted share in the third quarter of 2006.
  • For the full year 2008, management expects the following: Comparable restaurant sales increases in the low to mid single digit range
  • 130 140 new restaurant openings
I will be interested to see how the street handles this guidance - perhaps its just a lowball "under promise, over deliver" methodology. Just too pricey for me especially in this economy and the economy over the next 18-24 months. Hopefully analysts will question on the conference call just how much the rising food inputs are costing them, and if they are passing it along to the consumer and in what degree. And if their forecast for future food prices are part of the reason they are guiding so low in 2008. Or just a slowing economy... as people make McDonald's their sit down 'restaurant' of choice as we all get slowly poorer with our more useless pesos, err dollars. Now where were those Loonies....

No position


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