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Chipotle Mexican Grill (CMG)

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WHAT HAS CHANGED?

Latest Earnings

Chipotle Mexican Grill's growth continued in the 4th quarter of 2019. The company reported Q4 and full-year 2019 results on February 4, 2020. Comparable sales improved 11.1% for the year and included 7% of comparable restaurant transaction growth. The company opened 140 new restaurants for the year. Revenue was recorded at $5.6 billion, up 14.6% y-o-y. Digital sales grew 90.3% and accounted for 18.0% of sales. This positive performance aided in the restaurant-level operating margin expansion of 180 basis points to 20.5%. Diluted EPS was $12.38, net of a $1.67 after-tax impact from expenses related to legal, corporate restructuring, restaurant closure costs, and certain other costs, a 96.2% increase from $6.31. Adjusted diluted earnings per share excluding these charges was $14.05, a 55.1% increase from $9.06

Continual Focus On Digital Initiatives

Chipotle is maintaining its focus on digital initiatives, and the company will market this capability further as it sees tremendous growth in mobile ordering. In 2018, the company rolled out its digitally enabled second make lines (team of workers that is focused on digital orders which avoids impacting the main kitchen line) to deliver a faster experience for its digital customers. In FY 2019, digital sales grew 90.3% and accounted for 18.0% of sales.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Chipotle's value that present opportunities for upside or downside to the current Trefis price estimate for Chipotle:

Company Operated Restaurants

Number of Restaurants : Chipotle was historically adding around 200-240 restaurants per year, but after the E. coli virus outbreak in Q3 2017, the company decided to reduce the pace of expansion till operations in the existing restaurants stabilize. In 2018 Chipotle added 137 new restaurants, and we expect it to add around 185 new restaurants on average in a year over our forecast period.

Average Revenue Per Restaurant : We expect the company's revenues to grow at a steady pace over our forecast period, with average restaurant sales growing at around 3% over our forecast period.

For additional details, select a driver above or select a division from the interactive Trefis split for Chipotle at the top of the page.

BUSINESS SUMMARY

Chipotle Mexican Grill is a chain of restaurants operating in the casual dining segment, which specializes in serving Mexican cuisine. As of March 31, 2019, the company operated 2,504 restaurants, almost all of which are located within the U.S. All the restaurants are company-operated with no franchises.

Chipotle's menu comprises a Mexican fare with a few things that can be mixed and matched with various sauces and ingredients such as salsa, guacamole, cheese, and lettuce, to make one's dishes. The menu primarily consists of Tacos, Burritos, Salads, and Burrito Bowls (Burrito without the Tortilla).

Chipotle operates on the "Food with Integrity" principle, wherein it offers naturally raised pork, chicken, and beef. Naturally raised implies that the animals are raised in open pastures and are fed on a purely vegetarian diet without any added hormones or antibiotics.

Chipotle's objective is to provide a fine-dining experience in a quick-service setup and to provide quality food and ambiance without having the customer wait too long. Some Chipotle restaurants can serve up to 300 customers an hour.

Chipotle competes with restaurants in the casual dining segment such as Applebee's, Qdoba, Taco Bell, and Chili's, among others. It also competes with fast-food restaurants such as McDonald's, Burger King, Subway, and KFC.

SOURCES OF VALUE

Chipotle's business is wholly dependent on company-operated restaurants, which explains the significance of this division to its stock.

Higher average spend per customer than competitors

Chipotle enjoys a higher average spend per customer than most of its competitors, given its high quality of food. For example, in McDonald's, the average spend per customer is around $4, whereas the corresponding figure in Chipotle is about $11-12. The company has successfully marketed itself as a restaurant serving natural, hygienic, and organic food in an upscale ambiance, for which the consumers are often ready to pay a slight premium.

Another reason why the company enjoys a higher average spend per customer is that it has restaurants only in developed countries, where the average spend is usually higher than in developing countries. Most of the fast-food restaurant chains have a mix of restaurants in developed and developing countries, which has a lowering effect on the overall spend per customer.

Company operated restaurants generate lower profit margins than franchised restaurants

Company-operated restaurants are low margin businesses in comparison to franchises. Chipotle's EBITDA margins for 2015 were around 25% (after which they fell to about 12% in 2016 post the E. coli virus. In FY 2017, it recovered a little to 15.9% and was recorded at 15.4% in FY 2018. For the rest of the forecast period, we expect a marginal increase every year versus 90% for McDonald's franchised restaurants. Since all of Chipotle's restaurants are company-operated, its overall margins are also lower. While in McDonald's case, the high franchised restaurant margins compensate for its lower margins from company-operated restaurants.

KEY TRENDS

Organic and healthier food gaining importance in the U.S.

Consumers have become more health-conscious, and there is an increase in demand for natural and healthier food. Using its 'Food with Integrity' campaign, Chipotle has aggressively marketed itself as a restaurant using only naturally raised meat. Taking cues from Chipotle, an increasing number of restaurant chains are adding all-natural products to their menu. Wendy's started offering upscaled items on its menu last year. Moreover, its restaurant remodeling initiative is inspired by Chipotle.

Growth in the number of stores and expansion into European markets

The company has seen significant growth in its number of stores, which has increased from around 956 in 2009 to 2,010 in 2015. Currently, it operates 2,491 stores, as of December 31, 2018. As of December 31, 2017, 37 of its restaurants were located outside of the U.S., with 23 in Canada, 7 in the United Kingdom, 6 in France, and 1 in Frankfurt, Germany. While there are a lot of growth opportunities for the company in international markets, especially in high GDP countries, the company is currently focused on expanding in North America, which limits its near-term growth potential.

Recent Trefis Articles

Will Chipotle Beat Consensus For FY 2019?

Chipotle Mexican Grill (NYSE: CMG) is slated to release its Q4 and full-year 2019 results on February 4, 2020. We believe that Chipotle's Revenues and earnings will beat consensus. We expect Chipotle to report revenues of $70.6 billion (vs. consensus estimate of $70.5 billion), which would be 26.4% higher than the previous year. Earnings are likely to be around $7. ...More



A Look At Chipotle vs. McDonald’s

Chipotle Mexican Grill (NYSE: CMG), is a quick service restaurant in the US that features a Mexican menu of burritos, burrito bowls (a burrito without the tortilla), tacos, and salads. The company's focus is to give a fine dining experience to the world of quick-service restaurants. ...More



Is Chipotle Undervalued?

Yes, as per Trefis Price estimate Chipotle Mexican Grill (NYSE: CMG) valuation comes to $827 per share, higher than the current market price.  Chipotle is a Mexican fast food restaurant that features a menu of burritos, burrito bowls (a burrito without the tortilla), tacos, and salads. ...More



COGS Driving Chipotle’s Total Expenses?

Chipotle Mexican Grill (NYSE: CMG) has its expenses largely clubbed under its cost of goods sold and G&A expenses, which together accounted for about 93.5% of the company’s total expenses in 2018. However, this is a reduction from 95.9% of total expenses that these two cost heads accounted for in 2016. ...More



Chipotle Top Line To Grow By 12% in 2019

Chipotle Mexican Grill (NYSE: CMG), whose stock is currently trading at around $809, generates its revenue from its Company operated Stores across the US with some stores (less than 2%) also present in Canada and Europe. In this note we discuss the historical performance, and expected Total Revenue for FY 2019. ...More



Chipotle To Maintain Momentum In Q2 2019?

Chipotle Mexican Grill (NYSE: CMG), an American chain of fast casual Mexican restaurants, is set to announce its Q2 2019 results on July 23, 2019 followed by a conference call with analysts. The market expects the company to report revenue close to $1.4 billion in Q2 2019, which would be an increase of 11% on a year-on-year basis. ...More



What Would Be The Revenue Growth If Chipotle Adds 100 Stores In Europe?

Trefis estimates that Chipotle (NYSE: CMG) can add incremental revenue worth 3% of the Total by the year 2024 if they add 100 stores in Europe by then. The revenue is likely to be slower in the first 2-3 years as the brand is not yet well known in the region due to its negligible presence. We will discuss this below in detail. ...More



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What To Expect From Chipotle’s Q1 2019 Results?

Chipotle Mexican Grill (NYSE: CMG), an American chain of fast casual Mexican restaurants, is set to announce its Q1 2019 results on April 24, 2019 followed by a conference call with analysts. The market expects the company to report revenue close to $1.3 billion in Q1 2019, which would be an increase of 9.7% on a year-on-year basis. ...More



Will Restaurant Growth Push Chipotle Revenues Through 2021?

Will expansion in its number of restaurants drive Chipotle's growth the next few years? Yes, Trefis estimates a steady growth in the number of restaurants will take Chipotle Mexican Grill's (NYSE: CMG) revenues to more than $6.6 billion by 2021. The company posted revenues of $4.86 billion and earnings at $6.35 for the FY 2018. ...More



Chipotle Ends Fiscal Year 2018 Strongly, Will It Continue The Growth in 2019?

Chipotle Mexican Grill (NYSE: CMG) reported quarter 4 and Full year results for the Fiscal year 2018 recently. In the first 3 quarters the company had done well on comparable sales improvement and net new stores openings, this trend continued in the 4th quarter, too, with the company posting the highest quarterly comparable sales increase for the fiscal year. ...More



Chipotle To End Fiscal Year 2018 On High Growth

Chipotle Mexican Grill (NYSE: CMG) has had an upbeat year in the first 3 quarters and is expected to post strong quarter 4 results for the Fiscal year 2018 on February 6, 2019 after the market closes.  The investor call will take place at 4:30pm EST. In the first 3 quarters the company has done well on comparable sales improvement, net new stores opening, and margin expansion. ...More



Can ‘Catering And Delivery’ Bolster Chipotle’s Same Store Sales 10% By 2021?

Chipotle Mexican Grill (NYSE: CMG) continued a strong performance in its third quarter, with the company beating consensus expectations on earnings. The 8.6% revenue increase was driven by a comparable sales increase of 4.4% and 28 new store openings. This positive performance aided in the restaurant level margin expansion of 260 basis points. ...More



What’s Ahead For Chipotle Mexican Grill After An Upbeat Third Quarter?

Chipotle Mexican Grill's (NYSE: CMG) upbeat year continued in its third quarter, with the company handily beating consensus expectations on earnings, but missing slightly on revenues. Shares of the company jumped in the aftermath, given the strong performance, as well as CEO Brian Niccol's plan to institute measures to improve the company's image. Comparable sales improved 4. ...More



What To Expect From Chipotle Mexican Grill In The Third Quarter?

Chipotle Mexican Grill's (NYSE: CMG) new CEO, Brian Niccol, has had an upbeat start to his tenure as the company has posted strong revenue and earnings growth in his first two quarters, largely beating consensus expectations on both metrics. Sales improved by 7.9% in the first six months of FY 2018, driven by comparable sales growth of 2. ...More



Why Chipotle Mexican Grill’s Stock Is Worth $465

Chipotle Mexican Grill's (NYSE: CMG) new CEO, Brian Niccol, has had an upbeat start to his tenure as the company has posted strong revenue and earnings growth in his first two quarters, largely beating consensus expectations on both metrics. Sales improved by 7.9% in the first six months of FY 2018, driven by comparable sales growth of 2. ...More



Price Hikes And New Stores Help Chipotle Deliver An Earnings Beat

Chipotle Mexican Grill (NYSE: CMG) carried on its strong showing in the second quarter, handily beating consensus estimates for both revenue and earnings. Sales improved 8.3% in the quarter, driven by comparable sales growth of 3.3%, due to price increases, and new restaurant openings. This positive performance aided in the restaurant level margin expansion of 90 basis points. ...More



Can Chipotle’s Strong Performance Continue In The Second Quarter?

Chipotle Mexican Grill (NYSE: CMG) will announce its second quarter earnings on July 26, wherein a rise in both revenue and earnings per share is expected. Revenue growth is expected to be driven by an improvement in comparable sales, increased digital sales, and new store openings. ...More



Why Have We Increased Our Price Estimate For Chipotle By 24%?

Chipotle Mexican Grill's (NYSE: CMG) new CEO, Brian Niccol, has had an upbeat start to his tenure as the company posted revenues that were largely in-line with consensus estimates, as well as an earnings beat. Price hikes to the tune of about 5%, comparable sales growth of 2. ...More



Price Hikes Help Chipotle Deliver An Earnings Beat

Chipotle Mexican Grill's (NYSE: CMG) new CEO, Brian Niccol, has had an upbeat start to his tenure as the company posted revenues that were largely in-line with consensus estimates, as well as an earnings beat. Price hikes to the tune of about 5%, comparable sales growth of 2. ...More



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