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Chipotle Q3 2011 Results

October 20, 2011 | About:
The Science of Hitting

The Science of Hitting

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Chipotle (CMG), the restaurant operator which specializes is tacos, burritos, salads and burrito bowls, reported earnings after the close on Thursday; here are some of the highlights from the press release and the conference call for the third quarter of 2011:

Revenue in the quarter increased 24.1% to $591.9 million; this was driven by a mix of new stores (32 in the quarter, including the new ShopHouse Southeast Asian Kitchen concept) and an impressive comparable restaurant sales increase of 11.3% (4.6% from menu pricing), marking yet another quarter of double-digit comparable sales growth. Through the first nine months of the year, revenues are up 23.6% to $1.67 billion, driven by 82 new restaurants and comparable sales up just shy of the third-quarter increase (11.2%).

Here is what Chairman and Co-CEO Steve Ells had to say about the new ShopHouse concept:

Finally, during the quarter, we opened our new ShopHouse Southeast Asian Kitchen in Washington, D.C. The ShopHouse menu includes a bowl of rice or noodles, a choice of meat or tofu, an array of vegetables, curries, sauces and various garnishes. Additionally, we offer a delicious Banh Mi sandwich with freshly baked bread with your choice of meat or tofu. All of this is served in the Chipotle format, where food is cooked to the line and customized to each individual customer. The restaurant has been open for about a month, and I'm very encouraged by the quality and taste of the food, service and the overall customer experience. And the customers, so far, just love it. Some customers have commented that it's a bit too spicy, which is exactly what I heard when I opened the very first Chipotle 18 years ago. What I love is that these customers tell me that it might be too spicy, while they devour every bite of their meal.

I'm convinced that Chipotle's success is not necessarily because we serve tacos and burritos, but rather because of our commitment to making great tasting food with sustainably raised ingredients, using classical cooking techniques and in an open kitchen, and served in an interactive, customizable and very efficient way. ShopHouse provides an opportunity for us to test this idea and see how our model works with another cuisine. We have no specific plans for additional ShopHouse restaurants at this time. We'll continue to perfect this restaurant, develop a strong team and assess its unit economics.


For the remainder of the year, management expects comparable sales to remain strong, and ultimately land in the low double-digits range; for 2012, they expect results to taper of significantly, with a forecast of low single-digit comparable restaurant sales growth.

Restaurant level operating margin was 26.7% in the quarter, a decrease of 100 basis points from the third quarter of 2010. This decline in margins was due to a significant increase in food costs (33.1% of sales), which increased 250 basis points as a percentage of sales due to rising commodity costs; the same is true year to date, with a 100 basis point decline in restaurant level operating margin due to a 230 basis point increase in food costs.

Despite the decline in margins, net income increased 25.3% in the quarter ($60.4 million) and 18.8% year to date ($157.5 million); on a diluted EPS basis, earnings increased 25% ($1.90) and 18.7% ($4.96) on a quarterly and year to date basis, respectively.

In after hours trading, the stock was up more than 3.5%; shares are currently trading around $320 per share.

About the author:

The Science of Hitting
I'm a value investor, with a focus on patience; I look to buy great companies that are suffering from short term issues, and hope to load up when these opportunities present themselves. As this would suggest, I run a fairly concentrated portfolio by most standards, usually with 8-10 names; from the perspective of a businessman rather than a market participant / stock trader, I believe this is more than sufficient diversification.

I hope to own a collection of great businesses; to ever sell one, I would demand a substantial premium to the average market valuation due to what I believe are the understated benefits to the long term investor of superior fundamentals and time on intrinsic value. I don't have a target when I purchase a stock; my goal is to replicate the underlying returns of the business in question - which if I've done my job properly, should be very attractive over many years.

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