Chipotle Mexican Grill Inc. (CMG, Financial), a major fast-casual restaurant, reported double-digit revenue growth during the quarter ending June 30.
Brief summary of earnings report
The Denver, Colorado-based restaurant reported comparable restaurant sales growth of 8.1% year over year for the past quarter and 12.5% year over year for the past six months, driven by higher customer visits and increases in “average check as a result of lower promotional activity.” Chipotle opened 50 restaurants during the past three months and 107 restaurants during the past six months, ending June with 2,339 total restaurants.
Chipotle increased its restaurant-level operating margin to 18.8% during the second quarter, a 3.3% improvement from the prior-year quarter. The operating margin expanded primarily due to sales leverage and more efficient management deployment.
Company expects improving operations and customer experience going forward
CEO Steve Ells said Chipotle “saw encouraging signs in [the company’s] improved financial results” over the past six months even though recent events offer opportunities to “improve [Chipotle’s] operations and deliver the outstanding experience that [the company’s] customers expect.” In the earnings call, Ells highlighted the company’s strong food safety protocol: the protocols deliver good customer growth when management follows the guidelines correctly.
Ells also mentioned how Chipotle’s customers “want to see new things from the company,” including new menu items like queso. The CEO mentioned that while the company tries to “keep things simple yet operate at a high level,” Chipotle is still testing new ingredients in their kitchens and “expanding [its] menu offerings in order to delight every customer who visits [Chipotle].” These initiatives can add momentum to the company’s marketing business and “shape up the new Chipotle.”
Company share price increases on strong earnings outlook
Chipotle’s share price rose to $348.62 from its previous close of $340 as the company offered a strong full-year outlook. Company management expects high single-digit comparable revenue sales increases on 195 to 210 new restaurant openings for the full year.
GuruFocus ranked Chipotle’s financial strength and profitability a 9 and an 8, indicating the restaurant has good growth potential in the short term. The company has five positive investing signs, including no debt, a strong Piotroski F-score and relatively low valuations. Chipotle’s share price is approximately $178.50 lower than its 10-year median price-sales valuation.
Activist investor Bill Ackman (Trades, Portfolio) owns 2,882,463 Chipotle shares, approximately 10.06% of the company’s total shares outstanding.
Disclosure: The author has no positions in Chipotle.
