Chipotle Delivers Solid Q2 Results Despite Slower Comps Growth

CMG: Chipotle Mexican Grill logo
Chipotle Mexican Grill

Chipotle Mexican Grill (NYSE:CMG) delivered solid Q2 results helped by strong comparable sales growth of 8% and new restaurant additions. Total revenue jumped 20.9% to $690.9 million and net income swelled 61% to $81.7 million or an EPS of $2.56. While the comparable sales growth slowed down to 8% from 12.7% in the first quarter, it is important to take into account that the company raised the menu prices at its restaurants in the first and second quarter of 2011. Thus, the comparable sales growth was higher than normal in the first quarter of 2012. In the absence of any menu price hikes, comparable restaurant sales growth of 8% highlights the strong fundamentals of the company.

In fact, the management had forecast mid-single digit restaurant sales growth at the start of the year, but the Q1 results obviously made the markets more optimistic. The stock was down 12% to $355 in the after hours trading session on slower comparable sales growth for the quarter. However, the results were overall in-line with our expectations and, for the long term, we expect comparable restaurant sales growth of 6-8%.

We have a $417 price estimate for Chipotle, but we are in the process of revising our estimates to incorporate Q2 earnings.

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Margins Widen

Higher same store sales meant the percentage of fixed costs such as labor, occupancy and other operating costs, all saw a reduction. They now constitute 38.7% of total revenues, down 2.6% from the same quarter previous year. Another important metric for the company – cost of food, beverage and packaging – declined to 32.1% from 32.9%. This cost had been escalating consistently in the last few quarters, so a reduction will be beneficial for the company going ahead.

The company accelerated the restaurant addition and opened 55 new restaurants this quarter, including its first in Paris, France. For the full year, Chipotle expects to add 155-165 new restaurants. As of June 30, 2012, it had 1,312 restaurants in total. [1]

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