Chipotle Mexican Grill, Inc. (CMG) posted robust fourth quarter and fiscal 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 $1.47 per share outpaced the Zacks Consensus Estimate of $1.29, and soared 48.5% from 99 cents in the prior-year quarter.
Chipotle said that revenues for the quarter rose 24.5% to $482.5 million driven by new restaurant openings and increase in comparable-store sales. The reported revenues also outperformed the Zacks Consensus Estimate of $468 million.
The company’s full-year earnings per share were $5.64 versus $3.95 in full fiscal 2009. Revenues were $1.84 billion in full fiscal 2010, representing a year-over-year growth of 20.9%.
Quarter Highlights
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 12.6% in the quarter under review, reflecting a sequential increase of 120 basis points and surged from 2% in the prior-year quarter.
Restaurant operating margin expanded 140 basis points to 25.9%, reflecting a 90- basis point (bps) (as a percentage of total revenue) decline in labor, a 80-bp fall in occupancy, a 70-bp drop in other operating costs, partially offset by a 90-bp rise in food, beverage and packaging costs. The margin also benefited from comparable restaurant sales growth.
Total operating margin increased from 13.0% in the fourth quarter of 2009 to 15.3% in the current quarter, driven by a 50-bp dip in general and administrative expense, a 40-bp plunge in depreciation and amortization cost and a 10-bp decline in pre-opening cost.
Fiscal Year Highlights
Same-restaurant sales jumped 9.4% from the prior year period, driven by higher traffic.
Restaurant operating margin expanded 180 basis points to 26.7%, reflecting a 10- bps (as a percentage of total revenue) drop in food, beverage and packaging costs, a 70-bp decline in labor, a 50-bp fall in occupancy and a 40-bp decrease in other operating costs.
Total operating margin enhanced 160 bps to 15.7%, driven by a 20-bp plunge in both depreciation and amortization cost and pre-opening cost.
Stores Update
During the quarter under review, Chipotle opened 62 restaurants. It currently operates 1,084 outlets.
Chipotle has remained largely unruffled by the recent economic slowdown. The company plans to open 135-145 new restaurants in fiscal 2011.
Financial Position
Chipotle ended the quarter with cash and cash equivalents of $224.8 million and shareholders’ equity of $810.9 million.
Outlook
For fiscal year 2011, management now expects low single digit comparable-store sales growth.
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 initiatives, we are of the opinion that the stock provides relative safety and consistent growth. The company reported better than expected results, hence we expect estimates to move up in the coming days.
One of Chipotle’s primary competitors, Brinker International Inc. (EAT) reported second quarter 2011 adjusted earnings per share (EPS) of 38 cents, surpassing the Zacks Consensus Estimate of 32 cents. It was also well ahead of 25 cents reported in the prior-year quarter. The upside in earnings was driven by continued margin expansion at Chili’s and top-line growth at Maggiano’s.
CHIPOTLE MEXICN (CMG): Free Stock Analysis Report
BRINKER INTL (EAT): Free Stock Analysis Report
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