Quick service restaurant chain Chipotle Mexican Grill (CMG, Financial) reported its fiscal 2014 fourth quarter numbers on February 3. While the company posted better than anticipated earnings per share, it failed to meet the analyst expectations related to the topline. However, despite missing the mark, Chipotle posted 26.7% better revenue and 52% more profits compared to prior year period. Even the comparable store sales surged 16.1%. Annually, revenue rose 27.8% and earnings surged 36% year on year. Let’s take a quick look at Chipotle’s latest quarter.
A look at the numbers
The Denver-based company reported fourth quarter consolidated revenue of $1.07 billion, missing estimates of $1.075 billion, but up from previous year’s $844.1 million. The revenue growth came primarily from the comparable store sale growth of 16.1%, new store openings, greater footfall of customers and the nationwide menu price increase. For the quarter, net income came to $121.2 million or $3.84 a share. The market was expecting Chipotle to post earnings per share in the tune of $3.79 compared with $2.53 in the prior year period. Restaurant level operating margin was 26.6%, up by 100 bps due to “favorable sales leverage partially offset by higher food costs” according to Chipotle management.
Looking at annual figures, revenue came to $4.11 billion, net income was $445.4 million. Comparable store sales grew 16.8%, and restaurant level operating margin came to 27.2%, up by 60 bps. During 2014, the restaurant chain opened a total of 192 new stores of which 60 were opened in the final quarter. All this pulled up the total restaurant count to 1,783. Next year the company plans to open restaurants in 190 to 205 new locations, and these new stores will help to post even better numbers. John Hartung, Chipotle CFO, said during the earnings call,
“We’re proud of results we achieved during the fourth quarter and for the entire year of 2014 as our empowered restaurant teams continue to delight our customers with great service, while preparing and serving a delicious meal made from responsibly raised ingredients to each and every customer.”
An eventful quarterÂ
According to CEO Steve Ells, “Chipotle has created the new fast food model” and he is absolutely correct in saying so. Compared to McDonald’s (MCD, Financial), Yum! Brands (YUM, Financial) and other major restaurant chains, Chipotle is much smaller in terms of revenue and reach. Yet the company has been a better success story so far. While these bigger peers are struggling to find grounds, Chipotle is easily managing customer expectations, brand philosophy and growth.Â
Because of increased food costs, Chipotle had to raise menu prices. But going forward in 2015 the company has no plans of any further price hike. Chipotle wants the brand to be accessible and affordable so that its customers can continue to come as frequently as they wish to. The company keeps the health and the preferences of its customer as its first priority, and doesn’t compromise with that at any cost. Because of this, Chipotle suspended one of its pork suppliers in January after it became aware the supplier wasn’t following its animal welfare protocols. The move lead to a shortage of pork menu items, but that was something Chipotle could live with. It chose to face the shortage instead of meeting it by supplying pork from conventionally raised pigs, since their raising conditions are unacceptable to Chipotle. This move attracted huge support from the customers who applauded Chipotle for standing on its principles.
The company also reported in store efficiency gains as it improved over the prior year period. It increased its average number of peak lunch hour transactions by three transactions, and peak dinner hour transactions by five transactions. All in all, Chipotle had a superb quarter with performance gains all across, and analysts and industry experts are positive about the stock.
