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 centred 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.
Financials
Revenue during the second quarter increased by 14.1% from the prior year period and was $1.2 billion.
Factor driving this growth in revenue- The growth in revenue was driven by new restaurants not in the comparable base and a 4.3% increase in comparable restaurant sales. 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.
The company opened 48 new restaurants during the quarter, bringing the total restaurant count to 1,878.
Food costs decreased by 150 bps and were 33.1% of revenue.
Restaurant level operating margin was 28.0% during the second quarter, (which was an increase of 70 bps from the prior year period).
Factor driving this growth in operating margin- Favorable sales leverage, offset by increased labor costs as a percentage of revenue.
General and administrative expenses were 5.9% of revenue (which was a decrease of 120 bps from the prior year period).
Reason for this decline- lower non-cash stock based compensation expense, and lower bonus costs, partially offset by higher wages.
Net income for the second quarter of 2015 was $140.2 million, or $4.45 per diluted share, (which was $110.3 million, or $3.50 per diluted share in the prior year period).
Factors that contributed to this strong second quarter
CMG delivered strong second-quarter results due to an increase in revenue, average restaurant sales and comparable restaurant sales.
Company’s expectations for 2015
Low-to-mid single digit comparable restaurant sales increases.
An effective full-year tax rate of approximately 38.7%.
New restaurant openings at or above the high end of the previously announced range of 190-205.
Initiatives taken
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.
Relentless focus
The company constantly focuses on the following:
Using high-quality ingredients.
To make great food accessible at reasonable prices.
Rapidly adding new restaurants.
Expand profit margin.
To keep comparable restaurant sales growing.
Increasing international presence.
Recent news
On July15, 2015 CMG announced it will launch “Friend or Faux” – an integrated marketing campaign and interactive digital experience that invites consumers to learn about the differences between Chipotle’s ingredients and those commonly used to make fast food. The “Friend or Faux” game is optimized for mobile and desktop use, and will be accessible by visiting www.chipotle.com%2Ffriendorfaux. The campaign will be supported by extensive online advertising.
So what makes it different?
In a marketing-driven industry where new menu items are often used to drive customer traffic and proliferation of menu items is the norm, cheap, heavily processed foods that include thousands of additives and artificial ingredients have become common, Chipotle begs to be different, focusing instead on making food with great quality ingredients prepared using classic cooking techniques. Through this campaign, Chipotle will showcase the limited number of ingredients it uses to make its food (just 68 ingredients in total) and contrast that with the long and complex ingredient lists on which many fast food brands have become so reliant.
(Source: Company’s Website)
A peek into the restaurant industry
Eating out has become a fashion now, and perceptions have changed. There is a constant rise in the disposable income of people around the world, and eating out is comforting, too. There is an improvement in the economy.
According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this was the strongest three-month period). Consumer behavior has changed and so the restaurants have come up with different marketing strategies – loyalty programs, ordering, etc. According to a market research firm NPD Group, restaurant traffic will increase 1% in 2015, an improvement over a flat 2014 guest count.
As per a report submitted by National Research Association, restaurant industry will reach some landmark numbers in 2015 – more than $709 billion in sales, one million locations and 14 million employees.
On a concluding note
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.
It has been a booming success for years now and is a favorite among consumers. It can keep growing since there is a lot of room for this company in the restaurant industry. CMG is the leader in the fast casual U.S. restaurant industry.
I expect that this Mexican fast-casual food giant company will deliver exceptional returns in the near future and I would recommend this company a buy as of now. It is one of the best performing restaurant stocks at present.
