Bill Ackman (Trades, Portfolio), known for uncovering well-managed brands with significant growth potential, has invested in two standout companies: Chipotle Mexican Group Inc. (CMG, Financial) and Restaurant Brands International Inc. (QSR, Financial).
These titans have captured the attention of the astute activist investor, reflecting his meticulous strategy of aligning with companies boasting robust growth trajectories.
Chipotle's sizzling success is perfectly seasoned
Ackman typically looks for companies with strong financials and growth potential. Chipotle's (CMG, Financial) revenue growth, comparable sales and margin improvement are still attractive factors in line with this strategy. Not surprisingly, the company demonstrated strong financial performance, with its sales in the second quarter growing by 14% year over year.
Specifically, same-store sales growth, a crucial metric for the restaurant business, increased by 7.4% year over year, while the restaurant-level margin increased to 27.5% and adjusted diluted earnings per share showed significant growth, increasing by 36% year over year.
Source: Chipotle's non-GAAP reconciliation.
Further, Chipotle introduced the Chicken al Pastor menu item, which proved popular, attracting new customers and driving positive social sentiment. Ackman capitalizes on companies that can drive growth through product innovation and expanding the customer base. Chipotle's success with new menu items aligns with this approach.
Strategically, Chipotle has invested in technology, including introducing a dual-sided grill that improves cooking speed and consistency. It is also exploring collaborative robotics to improve efficiency. Ackman often looks for companies that embrace technology and innovation to improve operations and enhance customer experiences.
Similarly, Chipotle is actively expanding its restaurant network. It opened 47 new locations during the second quarter and plans to open more in North America and internationally. Thus, the company's expansion plans and entry into new markets align with this aspect of Ackman's investment strategy.
Finally, Chipotle focuses on a review of its organizational structure to optimize resources and support growth goals. This includes investments in areas like development and digital marketing. In the past, Ackman has encouraged or initiated corporate restructuring to unlock value in the companies he invests in.
How Restaurant Brands cooks up success
Restaurant Brands (QSR, Financial) has also been strategically aligned with Ackman's investment philosophy. For the second quarter, the company reported consolidated system-wide sales growth of 14%. This impressive top-line growth indicates strong consumer demand and brand strength, aligning with Ackman's preference for companies with significant growth prospects.
Similarly, comparable sales increased by 9.6%, demonstrating strong customer demand and the effectiveness of Restaurant Brands' strategies. The Tim Hortons business in Canada achieved a remarkable 12.5% growth in comparable sales, driven by menu innovations, including cold beverages and post-meridium food offerings.
Further, Burger King's international businesses reported an impressive 11.6% growth in comparable sales, indicating positive traffic and higher average check sizes. Notably, investments in the Burger King U.S. system have already yielded expected results regarding top-line growth and franchisee profitability. Burger King achieved an 8.3% increase in comparable sales, driven by effective marketing campaigns and calendar initiatives.
Historically, Ackman's investment philosophy centers on creating value for shareholders and franchisees. Restaurant Brands has prioritized franchisee profitability, with clear plans to enhance restaurant-level Ebitda growth for each of its brands.
Initiatives to enhance restaurant operations and service speed, such as the two-second improvement in speed of service, contribute to franchisee moats. Also, focusing on digital experience and loyalty programs, such as the Tim Hortons credit card, enhances franchisee profitability by increasing customer engagement and sales.
Again, Ackman seeks investments in companies that can benefit from operational enhancements and Restaurant Brands has identified several areas for operational improvement, including modernization, digital initiatives and kitchen simplification. For instance, Burger King is intensely focused on operational execution and modernization, as evidenced by the substantial $400 million Reclaim the Flame investment.
Therefore, Restaurant Brands has well-capitalized master franchise partners and strong unit economics in international markets, positioning it for substantial net restaurant growth globally.
Source: Investor presentation
Ackman's golden touch
Chipotle constitutes a significant 18.86% of Ackman's equity portfolio. The guru entered the Chipotle fray with an average buy price of $404.18 per share, accumulating around 954,000 shares. As of the second quarter, the value of his holding in Chipotle stood at an impressive $1.8 billion, reflecting a substantial price return of over 350%. The remarkable gain underscores Ackman's astute investment acumen, as he timed his entry into the stock perfectly, reaping significant rewards.
Similarly, Restaurant Brands occupies 16.73% of the equity portfolio. Ackman entered this venture at an average buy price of $41.01 per share, amassing a substantial 23.3 million shares. As of the second quarter, the value of his holding in Restaurant Brands sits around $1.5 billion, signifying a favorable price return of more than 60%. Ackman's shrewd investment decision in Restaurant Brands signifies his ability to spot value.
In conclusion, Ackman's strategic investments in Chipotle and Restaurant Brands have proven successful. Chipotle's exceptional financial performance, innovation-driven growth and embracing technology and expansion align seamlessly with Ackman's investment philosophy.
Similarly, Restaurant Brands' robust sales growth, focus on franchisee profitability, operational enhancements and international expansion perfectly harmonize with Ackman's strategic approach.
Overall, Ackman's astute positioning in these stocks has resulted in substantial gains, highlighting his investment acumen.