Chipotle Mexican Grill(CMG, Financial) is a chain of restaurants in the United States, United Kingdom, Canada, Germany and France, specializing in burritos and tacos.
The company has released a mission statement called Food with Integrity, which highlights its efforts in using organic ingredients, and serves more naturally raised meat than any other restaurant chain. Chipotle is one of the first chains of fast casual dining establishments. The food giant delivered a disappointing quarter, kick starting a sell-off. The company missed the analysts estimate on revenue and reported a underwhelming in same-store sales.
During the reported quarter, the company reported revenue of around $1.1 billion, an upsurge of 20% on comparable restaurant sales growth of 10.4%. The company produced diluted earnings of $2.88/ share. Average restaurant values have surpassed the $2.5 million mark for the first time. G&A was 5.8% of sales in the Q1 2015, declined from 7.4% previous year. The company suffered a loss on clearance of assets, around $2.8 million linked with some of the prior progress work. Total stock comp in the first quarter was around $1.16 million versus $27.6 million previous year.
A big concern
One of the major reasons for strike in revenue growth is the cutoff of pork supply, which may be a topic for investors over falling demand.
Chipotle suspended a pork supplier in January for unsatisfied living standards of pigs. The company requires pigs that are deep bedding in storehouses and without the use of antibiotics.
Due to the shortage of pork, the company has to remove carnitas from the menu at numerous locations, decreasing about 2% off comp store sales. The company expected that pork shortage will last through the fourth quarter of 2015, impacting sales all the way through the year.
The company has to overcome the barrier of pork shortage to gain double digit growth as pork shortage is currently impacting their sales by 200 basis points. One-third of their total restaurant is affected by pork shortage. Immediate impacts of pork shortage on sale were not seen but after research it was observed that their carnitas customers appear to be visiting less or not at all, until they hear the news about carnita skin in the market.
Chipotle's dependence on the limited quantity of pork dealers that can come across its high standards will likely result in upcoming ingredient scarcities. Management expects that shortage will last at 1/3rd of their restaurants during summer time.
Conclusion
For fast growing restaurants like Chipotle, revenue growth is the key. The company’s slow revenue and same-store sales growth is a cause of concern for investors and given the stock’s valuation, I think the stock is a sell.
