On a day where a lot of former high flier 'momo' stocks are being taken to the cleaner, it's worthwhile to focus on one of the current crop:
Chipotle Mexican Grill (CMG). Thus far, it's been mostly immune to any company specific major selloff (I'm excluding periods of the financial crisis when every stock was thrown out), but like any good momo stock, it will one day have its date with "a Netflix (
NFLX) moment". They all do eventually.
However, now is not the time and last Thursday
the company reported another fine quarter, especially in light of rising commodity costs. Chipotle has been able to pass along price increases which is a good sign, and still remains early enough in its growth cycle for investors to pile in.
- Earlier this year, the company raised menu prices 4.5 percent at 80 percent of its stores to help recoup higher ingredient costs.
There is scarcity value in high growth consumer discretionary stocks - so the few that can grow, get some nose bleed valuations. Full report
here.
- Chipotle (CMG) earned $1.90 EPS, 25% above a year ago, and 5 cents higher than views. Revenue rose 24.1%, to $591.9 million.
- Comparative store sales increased 11%, driving revenue up to $591 million, up from $476 million in the year-ago period, topping the average analyst expectation for $584 million. Analysts were expecting a 9.6% increase.
- Higher commodity costs drove the percentage of food costs up to 33.1% of sales during the quarter, from 30.6% a year ago. The operating margin at the restaurant level fell 100 basis points to 26.7%, in part due to price increases offsetting higher input costs. Chipotle operates 1,162 restaurants in the U.S. Canada and the U.K.
Further
- The company expects low-double-digit same-store sales growth for 2011, and low-single-digit same-store sales growth for 2012.
- The company plans to open 155 to 165 restaurants in 2012.
- Food costs should improve in the fourth quarter based on lower costs for avocados, the main ingredient in guacamole. The company is looking for low- to mid-32% range.
About the author:
Mark's equity focus is identifying secular growth trends, and the companies most likely to benefit from these macro trends. Stocks are identified through fundamental analysis, although basic technical analysis is used in determining entry and exit points. With a degree in Economics from the University of Michigan, a broader understanding of the economy as a whole, along with interpreting investor psychology is also a major interest for Mark. His career background has focused on financial analysis in corporate America. Visit Mark's website at http://www.fundmymutualfund.com/Visit TraderMark's Website
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CMG has pricing power and expanding margins