Chipotle Grows on Health Food Focus; Cost Inflation a Risk

Zacks Equity Research

On Aug 29, 2014, we issued an updated research report on Chipotle Mexican Grill Inc. ( CMG).

 

On Jul 21, this restaurant chain posted robust second-quarter 2014 results with both earnings and revenues beating the Zacks Consensus Estimate. Earnings and revenues were up year over year, owing to higher comps and unit expansion. Restaurant level operating margin declined due to higher food expenses, partially offset by favorable sales leverage.

 

Despite a price rise in the quarter, comps grew both year over year and sequentially mainly due to higher traffic as well as an increase in average check. However, driven by improved comps, the company upped its comps growth expectation from a high single-digit range to a mid-teens range.

 

Chipotle has been witnessing a fairly stable traffic trend over the past few years driven by its strong market position, menu launches and increased media exposure. The company’s decision to use non-GMO food also attracts health-conscious customer. 

 

Moreover, the company expects food cost inflation to persist and food cost ratio (including the menu price increase) to move up year over year in 2014. Further, the company expects marketing and promotion expenses to increase with most of the increase coming in mid 2014 owing to the introduction of a new advertising campaign. Such frequent increase in expenses would continue to hurt margins, going forward.

 

Chipotle Mexican Grill presently sports a Zacks Rank #1 (Strong Buy). Other stocks in the same industry that can be considered include BJ's Restaurants, Inc. ( BJRI), Jamba, Inc. ( JMBA) and Domino's Pizza, Inc. ( DPZ). While BJ's Restaurants and Jamba carries the same Zacks Rank as Chipotle, Domino's Pizza has a Zacks Rank #2 (Buy).

On Aug 29, 2014, we issued an updated research report on Chipotle Mexican Grill Inc. ( CMG).

 

On Jul 21, this restaurant chain posted robust second-quarter 2014 results with both earnings and revenues beating the Zacks Consensus Estimate. Earnings and revenues were up year over year, owing to higher comps and unit expansion. Restaurant level operating margin declined due to higher food expenses, partially offset by favorable sales leverage.

 

Despite a price rise in the quarter, comps grew both year over year and sequentially mainly due to higher traffic as well as an increase in average check. However, driven by improved comps, the company upped its comps growth expectation from a high single-digit range to a mid-teens range.

 

Chipotle has been witnessing a fairly stable traffic trend over the past few years driven by its strong market position, menu launches and increased media exposure. The company’s decision to use non-GMO food also attracts health-conscious customer. 

 

Moreover, the company expects food cost inflation to persist and food cost ratio (including the menu price increase) to move up year over year in 2014. Further, the company expects marketing and promotion expenses to increase with most of the increase coming in mid 2014 owing to the introduction of a new advertising campaign. Such frequent increase in expenses would continue to hurt margins, going forward.

 

Chipotle Mexican Grill presently sports a Zacks Rank #1 (Strong Buy). Other stocks in the same industry that can be considered include BJ's Restaurants, Inc. ( BJRI), Jamba, Inc. ( JMBA) and Domino's Pizza, Inc. ( DPZ). While BJ's Restaurants and Jamba carries the same Zacks Rank as Chipotle, Domino's Pizza has a Zacks Rank #2 (Buy).

 

Read the Full Research Report on CMG
Read the Full Research Report on DPZ
Read the Full Research Report on BJRI
Read the Full Research Report on JMBA


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