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Chipotle Mexican Grill Should Continue To Beat The Market

November 10, 2014 | About:

The fast food industry has undergone a change since the new concept of fast food casual dining was introduced by Chipotle Mexican Grill (NYSE:CMG). Since then, the operator of restaurant chain is having a having a great time, witnessing a significant increase in demand. Also, consumer spending increased 0.5% in August, over the month of July. Thus, people are spending more on food and casual dining.

Chipotle Mexican Grill has been doing extremely well from the last few quarters as its restaurants resonate well with customers. Its quarterly revenue has surged 28.4% in the last one year. Also, its share price has appreciated by 19.4% during the same time.

A blockbuster quarter yet again

Chipotle reported its third quarter results, which were way ahead of Street's estimates. However, its share price dropped 6% since investors were not happy with the outlook of comparable store sales growth for the next year.

Revenue for the quarter jumped a whopping 31% to $1.08 billion, over last year. The top line was higher than the analysts' estimate of $1.06 billion. Factors which drove sales higher were new store openings and same store sales growth. The company opened 43 new restaurants during the quarter, which added to the overall revenue.

Also, same store sales grew an interesting 19.8%, the highest growth in the last five quarters. Comparable store sales continue to rise since there is a significant increase in store traffic. Stores witnessed higher footfall despite an increase in product prices. This shows that people are less affected by the price hike and continue to flock into its restaurants.

The bottom line, too, was an impressive one. Earnings surged 56% over the prior year, clocking in at $4.15 per share. Despite a continual increase in input costs, the company managed to beat the analysts' earnings estimate of $3.84 per share. In order to overcome the pressure of cost inflation, the restaurant operator increased its product prices which resulted in higher margins also.

A bright future awaits

After opening 132 new restaurants since the beginning of this year, the company plans to open a total of 195 to 205 new restaurants by the end of this year. This will boost Chipotle's top line further.

Moreover, it has been expanding its presence through different new concepts also. It plans to open restaurants having Asian cuisines, Pizzeria Locale and ShopHouse. These new concept stores should attract more customers and will diversify the company's portfolio of stores. In addition, it will be expanding its presence in the International markets, with a special focus on Europe. With only 10 restaurants in Europe, Chipotle has a lot of scope to grow in this region.

Furthermore, the company provided a bright outlook for the year, which made investor hopeful about its future prospects. However, the company declared that the comp sales are expected to be in the lower range in 2015. This announcement disappointed the investors.

Bottom line

It is practically not possible to continue with the streak of 20% comp sales growth for any company. Therefore, it is obvious that the comp sales would decrease by next year. However, Chipotle Mexican Grill's performance has been impressive and its recent initiatives make the company even more interesting. Its products are resonating well with customers and its expansionary moves will help in boosting the performance. Thus, this restaurant chain operator should be owned for the long term.


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