Chipotle Mexican Grill Inc. (CMG) posted robust third quarter 2010 results that topped the Zacks Consensus expectation on the heels of strong top-line growth buoyed by higher traffic count and new restaurant openings.
The quarterly earnings of $1.52 per share outpaced the Zacks Consensus Estimate of $1.30, and soared 40.7% from $1.08 in the prior-year quarter.
Chipotle said that revenues for the quarter rose 23.0% to $476.9 million driven by new restaurant openings and increase in comparable-store sales. The reported revenues also outperformed the Zacks Consensus Estimate of $461 million.
Comparable-store sales growth has been decelerating since second-quarter 2008 – when it increased 7.1% – although it remained positive, showing resilience in a sluggish environment. After reaching the lowest point of 1.7% in the second-quarter 2009, comps have been on the rise. Comparable-stores sales climbed 11.4% in the quarter under review, reflecting a sequential increase of 270 basis points, a more than three-fold rise from the prior-year quarter.
Restaurant operating margin expanded 220 basis points to 27.7%, reflecting a 20-basis point (bps) (as a percentage of total revenue) drop in food, beverage and packaging costs, 70-bp decline in both labor and occupancy and 50-bp fall in other operating costs. The margin also benefited from comparable restaurant sales growth.
Total operating margin increased from 14.1% in the third quarter of 2009 to 16.3% in the current quarter, driven by a 40-bp dip in depreciation and amortization cost and 30-bp plunge in pre-opening cost, partially offset by a 70-bp rise in general and administrative expense.
Stores Update
During the quarter under review, Chipotle opened 22 restaurants. It currently operates 1,023 outlets.
Chipotle has remained largely unruffled by the recent economic slowdown. The company remains on course to open 120 to 130 new restaurants in fiscal 2010 and plans to open 135-145 new restaurants in fiscal 2011.
Financial Position
Chipotle ended the quarter with cash and cash equivalents of $211 million and shareholders’ equity of $761 million.
Outlook
For fiscal year 2010, management now expects high single-digit comparable-store sales growth, up from its previous guidance of mid to high single-digit growth. For 2011, Chipotle expects comparable restaurant sales growth in the low single-digits.
Our Take
We believe Chipotle is well positioned to expand rapidly while generating improved earnings margins and returns on invested capital. With a strong balance sheet, consistent earnings, healthy cash flow, excellent unit economics, international expansion and continued marketing initiateswe are of the opinion that the stock provides relative safety and consistent growth.
CHIPOTLE MEXICN (CMG): Free Stock Analysis Report
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