Chipotle Mexican Grill, Inc (NYSE:CMG) continued with its growth momentum delivering strong Q1 results on Thursday. Net revenues for the quarter ending March 31 stood at $640.8 million, an increase of 25.8% over the same quarter previous year while net income surged 35.1% y-o-y to $62.7 million.  Chipotle competes mostly with quick service and casual dining restaurants such as Chili’s, McDonald’s (NYSE:MCD), Burger King, Yum! Brands (NYSE:YUM) and Papa John’s, among others.
Margins Show Improvement
The operating margins increased by 220 basis points as the company benefited from lower fixed costs such as labor and occupancy costs, as a percentage of revenue, primarily because of a 12.7% increase in comparable restaurant sales (or comp sales). Strong comp sales led to higher revenues, causing the percentage of fixed costs to decline resulting in higher profitability. However, the decrease in fixed costs were partially offset by rising food, beverage and packaging costs, which now constitute 32.2% of the total costs, up 0.2% over previous year. Chipotle expects food inflation of mid-single digits for 2012.
For the full year, we expect adjusted EBITDA to witness a slight decline as the lower fixed costs will be more than negatively offset by the rising food costs. Moreover, comp sales growth for this quarter was helped by increases in menu prices implemented in 2011 and, therefore, we might not see such strong numbers for the subsequent quarters. The company itself expects the number to be in mid-single digits for the full year.
Chipotle also reaffirmed its full year guidance to open 155-165 new restaurants in 2012. For this quarter, the company added 32 new restaurants including one in Toronto, Canada. The total number of restaurants now stand at 1,262.
We have a $428 price estimate for Chipotle, which is slightly below the current market price. We are in the process of revising our estimates to incorporate Q1 earnings.
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