Chipotle Mexican Grill Inc. (CMG) reported second-quarter adjusted earnings of $3.50 per share, which beat the Zacks Consensus Estimate of $3.05 by 14.8% and were up 24.1% year over year driven by an increase in the top line.
Revenues grew 28.6% year over year to $1.1 billion and beat the Zacks Consensus Estimate of $980.0 million by 7.1%. The upside was driven by higher comps growth and unit expansion.
Behind the Headline Numbers
Despite a recent price hike, comps grew 390 basis points (bps) from the prior quarter and 1180 bps year over year to 17.3% in the quarter, primarily driven by higher traffic and also due to an increase in average check.
Total operating expenses were $870.2 million, up 29.8% year over year due to higher food, beverage and packaging and other operating expenses.
Food costs as a percentage of revenues increased 150 bps to 34.6% due to higher beef, avocado and cheese costs. However, labor costs as a percentage of revenues, contracted 90 bps to 21.8%.
Restaurant level operating margin declined 30 bps year over year to 27.3% in the reported quarter due to higher food costs, partially offset by favorable sales leverage.
Liquidity
Chipotle ended the quarter with cash and cash equivalents of $470.1 million, up from $411.6 million in the previous quarter. Total shareholder equity was $1.75 billion, up from $1.65 billion in the previous quarter.
Comps Guidance Upped for 2014
Chipotle has increased its comps guidance for 2014. The company expects comps in the mid-teens range versus the previous expectation of high-single digits comps increase.
In 2014, Chipotle expects to open 180–195 restaurants.
Our Take
Chipotle has been witnessing a fairly stable traffic trend over the past few years driven by its strong market position, new menu launches and increased media exposure. Further, the company’s decision to raise menu prices also did not affect its traffic. We believe Chipotle will be able to keep its growth story intact as it enjoys a loyal following from heath-conscious customers by serving antibiotic-free meats and organic menu items.
Chipotle currently carries a Zacks Rank #2 (Buy). Other stocks in the same industry that are worth considering include Domino's Pizza, Inc. (DPZ), Noodles & Company (NDLS) and Papa John's International Inc. (PZZA). All these stocks have the same Zacks Rank as Chipotle.
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