After reporting below-expectation results for two consecutive quarters due to higher food prices, Chipotle Mexican Grill, Inc. (CMG) topped the Zacks Consensus Estimate in the third quarter of 2011.
Quarterly earnings of $1.90 per share outpaced the Zacks Consensus Estimate of $1.85, and soared 25.0% from $1.52 per share in the prior-year quarter.
The better-than-expected results were driven by strong top-line growth buoyed by higher traffic count and new restaurant openings, which mostly offset the food cost pressure.
The fast food restaurant chain reported revenues of $591.9 million, up 24.1% year over year, driven by new restaurant openings and higher comparable store sales. The reported revenues also outperformed the Zacks Consensus Estimate of $585 million.
Quarter Highlights
Comparable stores sales climbed 11.3% in the quarter due to higher traffic and menu price hike. The comps expanded 130 basis points (bps) sequentially, but dipped 10 bps annually.
However, the restaurant operating margin contracted 100 bps to 26.7%, attributable to a 250-bp (as a percentage of total revenue) rise in food, beverage and packaging costs, partially offset by a 20-bp fall in other operating costs, a 90-bp drop in labor and a 40-bp dip in occupancy.
However, total operating margin expanded from 16.3% in the year-ago quarter to 16.6% based on a 70-bp decrease in general and administrative expenses and a 40-bp drop in depreciation and amortization costs.
Stores Update
During the quarter under review, Chipotle opened 32 restaurants. The company currently operates 1,163 outlets.
Chipotle has remained largely unruffled by the recent economic slowdown. The company plans to open 135-145 new restaurants in fiscal 2011 and 155-165 new restaurants in fiscal 2012.
Financial Position
Chipotle ended the quarter with cash and cash equivalents of $409.9 million and shareholders’ equity of $999.4 million.
Outlook
For fiscal 2011, management now expects low double-digit comparable store sales growth, compared with its previous expectation of high single to low double-digit growth. For 2012, management expects comps to grow in the low single-digit range.
Our Take
We believe Chipotle is well positioned to expand rapidly while generating improved earnings, higher margins and strong returns on invested capital. With a strong balance sheet, consistent earnings, healthy cash flow, excellent unit economics, international expansion and continued marketing initiatives, we are of the opinion that the stock provides relative safety and consistent growth. However, margins are expected to remain under pressure due to food cost inflation and labor turnover related to the federal probe, partially offset by menu price increases.
The company has reported results above expectations based on higher traffic and menu price hike. Hence, we expect estimates to move up in the coming days. The Zacks Consensus Estimates for 2011 and 2012 are pegged at $6.80 and $8.65, respectively.
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