Chipotle Mexican Grill Inc. (CMG, Financial) has been doing the restaurant business for about 20 years. Today, Chipotle continues to offer a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in a distinctive atmosphere.
Despite hailing from an “unhealthy industry,” CMG is growing popular. Chipotle is seeking better food from using ingredients that are not only fresh, but that, where possible, are sustainably grown and raised responsibly with respect for the animals, the land and the farmers who produce the food. In order to achieve this vision, CMG focuses on building a special people culture that is centered on creating teams of top performers empowered to achieve high standards. This people culture not only leads to a better dining experience for the customers, it also allows developing future leaders from within.
The fast food industry currently booming as GenX prefers to eat out mostly. Eating out has become a habit among young adults. CMG is better positioned in the industry as it tries to provide healthier food.
First-quarter results
Revenue
Revenue increased by 20.4% from the prior year period and was $1.09 billion during the quarter.
Net income
Net income increased by 47.6% and was $122.6 million or $3.88 per diluted share (which was $83.1 million or $2.64 per diluted share in the prior year period).
Operating margin
Restaurant level operating margin was 27.5% in the quarter (an increase of 160 basis points from the first quarter of 2014).
Comparable restaurant sales
Comparable restaurant sales increased by 10.4%. Comparable restaurant sales growth was driven primarily by an increase in average check, which includes the benefit of a nationwide menu price increase that was fully rolled out during the second quarter of 2014, and to a lesser extent by increased traffic.
Diluted EPS
Diluted earnings per share increased by 47.0% and were $3.88.
Costs
Food costs: Food costs were 33.9% of revenue, a decrease of 60 basis points
General and administrative expenses: General and administrative expenses were 5.8% of revenue, a decrease of 160 basis points due to lower non-cash stock based compensation expense.
New restaurants
The company opened 49 new restaurants bringing the total count to 1,831.
Sales volume
CMG achieved a record $2.5 million per restaurant average sales volumes.
(Source: Company’s Website)
Expectations
The company expects the following:
1. CMG expects to open around 190-205 new restaurants.
2. It expects the full-year tax rate of around 38.7%.
3. The company expects an increase in low-to-mid single digit comparable restaurant sales.
Present efforts
It is a good player indeed and has a flourishing restaurant business. It is concentrating on advertising campaigns and innovation. It is constantly working to cater a diversified menu to its customers. It has also included a Vegan menu, being served already in 1,000 restaurants. It is making an expansion effort in the U.K. and Europe.
It recently announced a partnership with RED during the month of June to support the fight against AIDS. The partnership will include a donation to the Global Fund to fight AIDS from limited-edition Chipotle gift card sales. Chipotle will offer a limited edition (RED) gift card, available for purchase in restaurants and online at www.chipotle.com/RED Chipotle will donate a portion of the sales value of every (RED) gift card purchase of $25 or more to the Global Fund, up to $100,000.
CMG has achieved its goal of moving to only non-GMO ingredients to make all of the food in its U.S. restaurants, including all of the food at its Asian restaurant concept, ShopHouse Southeast Asian Kitchen. The company is now actively developing new recipes for its tortillas, which are the only food items on its menu that include any artificial additives.
(Source: Company’s Website)
My takeaway
This fast food industry leader continues to exhibit impressive results and is constantly innovating healthier menus for its investors. It has plenty of room to grow in the near future and still many emerging markets remain untapped; here CMG poses great potential. It is already known for promoting antibiotic-free meat and dairy products.
It is getting very good ratings from the analysts and is expected to grow further in 2015. It has a rich valuation. It is continuing to create memorable customer experiences, which in turn is ensuring customer loyalty and brand reputation. It is finding new ways to cater to its customers. I would recommend this company a buy as of now.
