Articles for Chipotle

Chipotle’s Burrito Bonanza in 2011 Will Carry Results

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Thursday, January 26th, 2012 by Trefis Team

Chipotle Mexican Grill, (NYSE:CMG) has had a fantastic 2011 which saw the stock rising more than 60%. It was a stellar year for the restaurant industry in general, as McDonald’s (NYSE:MCD), Yum! Brands (NYSE:YUM) and Starbucks (NASDAQ:SBUX) all outperformed the broader indices significantly. However, we feel Chipotle’s past record of delivering better-than-expected results has led the stock to be overvalued before the Q4 earnings, which is scheduled to be announced on February 1. Moreover, we are skeptical about the rising food and labor costs that might eat into its profitability.

See our complete analysis for CMG stock here

Food and Labor Costs May Spoil the Party

Food costs, as a percentage of revenues, rose 2.5% last quarter and now constitute 33% of total revenues. The years 2008 and 2009 saw commodity prices plummet and as a result restaurants were able to maintain healthy profits. Chipotle benefited by locking in prices when they were relatively low in 2009. Now that the commodity costs have firmed up, the company will have to raise the prices or take a hit on its profit margins.

Chipotle also opened its first Asian-cuisine restaurant named ShopHouse Kitchen in Washington D.C last year and is looking to open more such restaurants. Often, restaurants in the initial stages survive on thin margins due to increased marketing and promotions.

If the company decides to increase menu prices to restore profit margins, then we might see slower growth in the average number of visits per restaurant per year. This will in turn put downward pressure on the stock price.

Comp Sales Figures Exaggerated By Price Rise

Chipotle witnessed more than 11% increase in the comparable restaurant sales last quarter (inclusive of a one-time price increase of 4.5% across 80% of its restaurants). For Q4, the comp sales will likely be impressive as well since the prices were increased in July 2011. For the year 2012, we forecast lower comparable restaurant sales growth since the company doesn’t plan any menu price increase this year. We feel the stock has drifted away from fundamentals and are cautious for the time being.

We have a $321 price estimate for Chipotle, which is about 10% below the current market price.

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Rising Food Costs Put Chipotle in a Precarious Position

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Monday, January 9th, 2012 by Trefis Team

Chipotle Mexican Grill, Inc (NYSE:CMG) may find it hard not to pass on the rising costs to consumers this year as rising food prices are affecting its profitability. Chipotle doesn’t plan to increase the menu prices this year and lower margins are bound to put a downward pressure on the stock price. Chipotle had a stellar 2011 and returned close to 60%, its growth besting the growth of peers such as Chili’s, McDonald’s (NYSE:MCD), Burger King, Yum! Brands (NYSE:YUM) and Papa John’s, among others.

McDonald’s, Starbucks Jump on Board Chipotle’s Green Machine

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Friday, December 16th, 2011 by Trefis Team

Restaurant chains like Chipotle (NYSE:CMG), McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) are trying to be more green to win the hearts and minds of customers by sourcing natural ingredients and promoting recyclability. Such moves will increasingly have a greater impact going forward as the regulations are bound to get tougher. Moreover, these restaurants are likely to get future tax benefits as well. While these moves are unlikely to save on costs in the near term, they could pay off longer term as the input costs have soared for many restaurants. More importantly, an improved image in the eyes of the customers could be the ultimate pay off.

After 50% YTD Run, Chipotle’s Stock is Stuffed at $320

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Friday, December 16th, 2011 by Trefis Team

Chipotle (NYSE:CMG) has performed exceptionally well this year. The stock is up more than 50% this year, outperforming the market indexes significantly. The last six months in particular have seen the stock rising 25% whereas the Dow Jones was flat. Investors are increasing bullish about this restaurant chain which has seen the number of outlets grow rapidly. However, the current rally might have just pushed the envelope, and we expect this optimism will fade. Chipotle competes mostly with the quick service and casual dining segment such as Chili’s, McDonald’s (NYSE:MCD), Burger King, Yum! Brands (NYSE:YUM) and Papa John’s, among others.

See our complete analysis for CMG stock here

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Can Chipotle, McDonald’s Repeat its Stellar Gains in 2012 ?

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Monday, December 12th, 2011 by Trefis Team

So 2011 has been a wonderful year for restaurant stocks. The year-to-date gains for McDonald’s (NYSE:MCD), Yum! (NYSE:YUM), Starbucks (NASDAQ:SBUX) have been more than 25%, 15% and 30% respectively. For Chipotle (NYSE:CMG), it is a staggering 60%. The S&P 500 Index, on the other hand, is more or less at the same level where it was at the beginning of the year. In spite of the recessionary fears, restaurant stocks have been able to deliver a stellar performance.

Restaurant Stocks: Chipotle, Stabucks & McDonald’s Sales Show Holiday Cheer

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Friday, December 2nd, 2011 by Trefis Team

Last week’s combo of Thanksgiving and Black Friday saw restaurants posting better than expected sales. According to First Data, the restaurant and establishment sales for Nov 24-25 paid for by credit or debit card increased by an impressive 11.7% from a year earlier. This week saw some of restaurant stocks posting healthy gains. Chipotle (NYSE:CMG), which closed at $301 last Friday, gained almost 10% through Thursday close.

Starbucks (NASDAQ:SBUX) also found support this week. We believe that Starbucks will have a hard time expanding internationally in countries like China and Vietnam due to its higher pricing. It will either have to expand at a very slow rate or reduce the prices. Reducing prices could have an adverse effect on its EBITDA margins, especially due to high costs of commodities.

You can read more on it in our earlier article, Starbucks Could be Too Expensive for Chinese Tastes.

See our complete analysis for SBUX stock here

McDonald’s (NYSE:MCD) had a mixed week. Although it rose some through Thursday, it under-performed the markets. However, we believe that the current market price is in line with the long term intrinsic value of the company.

See our complete analysis for MCD stock here

Positive Outlook

The restaurant industry is expected to perform well in the year ahead. The Restaurant Performance Index, which measures the overall health and outlook of the U.S. restaurant industry, was 100.1 in the month of September, up 0.7% from August. Restaurants have also been successfully been able to pass on higher commodity costs to consumers and enjoyed higher same-store sales this year. The trend is likely to continue next year as well. Moreover, the Consumer Confidence Index(CCI), released this week, was at its highest level since April 2003. So, we can expect a good year ahead for the restaurant industry.

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Chipotle Earnings Show Impressive Growth, But Fully Valued at $320

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Friday, October 21st, 2011 by Trefis Team

Chipotle (NYSE:CMG) reported strong Q3 results beating analyst estimates with a 24% increase in revenues. The growth was driven by new restaurant openings and increased traffic in the quarter. The earnings release was successful in generating a positive investor response with Chipotle’s share price touching $331 today after yesterday’s close of $308. Menu price increases implemented between March and August positively affected the top-line growth at Chipotle. It didn’t deter loyal customers from visiting Chipotle outlets. Chipotle also reported impressive 11% increase in comparable restaurant sales this quarter. Chipotle competes with mostly cheaper alternatives in the fast food industry such as McDonald’s (NYSE:MCD), Burger King, Pizza Hut and Papa John’s.

We have revised our price estimate for Chipotle to $321, implying a slight discount to the current market price.

See our complete analysis for CMG stock here

Higher Food Price Takes a Bite from Chipotle’s Growth

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Tuesday, September 27th, 2011 by Trefis Team

Rising food costs are a persistent pain for popular restaurant chains like Chipotle (NYSE:CMG), McDonald’s (NYSE:MCD), Burger King, Pizza Hut and Papa John’s. The U.S. Department of Agriculture (USDA) recently forecast that the Consumer Price Index (CPI) for food will increase by 3%-4% in 2011. Chipotle was absorbing rising food costs for the past couple of years but is now raising its menu prices as rising food costs of meat, vegetables and dairy products have started affecting its profit margins. Its restaurant level operating margin decreased by 110 basis points last quarter. While price hikes will help improve its profitability, the company risks losing customers which can impact its top-line growth.

Chipotle Explores New Asian Food Concept

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Monday, September 19th, 2011 by Trefis Team

Chipotle (NYSE:CMG) opened ShopHouse Southeast Asian Kitchen, its first Asian restaurant, in Washington DC. It looks like Chipotle is interested in diversifying, or at least experimenting, with the growing demand for popular Asian dishes that include Banh Mi sandwiches and rice or noodle bowls. According to Technomic, sales at limited-service Asian restaurants grew 5.9 percent in 2010, faster than any other menu category. This year, Technomic expects sales at Asian dining spots to rise 5 percent compared to 4 percent for all limited-service restaurants. Chipotle competes with mostly cheaper alternatives in the fast food industry such as McDonald’s (NYSE:MCD), Burger King, Pizza Hut and Papa John’s.

Our price estimate for Chipotle stock of $276 implies around a 20% discount to the current market price.

Love the Chips and Guac, But Hold Off on Chipotle Stock

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Wednesday, August 3rd, 2011 by Trefis Team

Chipotle (NYSE:CMG) is hot – and not just because of the spicy sauces and salsa that you can lather on to your burrito. The stock is hovering around $325 today from around $129 just over a year ago registering a cool 150% gain for its investors. The company claims that it can service up to 300 customers an hour and is actively looking to expand its stores in selective, key markets making the popularity and growth very enticing. And though we love the fare, we think the stock is a tad too richly priced right now with inflation pressures mounting and softish consumer spending looming. Chipotle competes with mostly cheaper alternatives in the fast food industry such as McDonald’s (NYSE:MCD), Burger King, Pizza Hut and Papa John’s.

Our price estimate for Chipotle stock of $276 implies a discount of about 15% to market price.