Chipotle Betters Expectations

Chipotle Mexican Grill, Inc. (CMG - Analyst Report), the fast food chain operator, recently reported better-than-expected third quarter results. Earnings per share (EPS) surged 83.1% year over year to $1.08, surpassing the Zacks Consensus Estimate of 88 cents. Menu price increase, new restaurant openings and selective cost cutting measures drove the growth in EPS.
 
Revenues for the reported quarter ascended 13.8% to $387.6 million driven by new restaurant openings and increase in comparable-store sales. The increase in comps was driven by 6% menu price increase, which in turn, helped offset the 2.5% decline in traffic counts. Chipotle was able to increase menu price, when other restaurant operators offered discounts to woo consumers in a recession. The average check increased by 5%.
 
Comparable-store sales growth has been decelerating since the second quarter of 2008 –when it increased 7.1% – although it remained positive, showing resilience in a turbulent environment. After reaching the lowest point of 1.7% in the second quarter of this year, the comps reaccelerated and rose 2.7% in the following quarter.
 
Even amid a bleak U.S. economic outlook, management reiterated its current-year outlook of low single-digit percentage growth for comparable-store sales in 2009. Chipotle expects comps to remain flat in fiscal 2010.
 
Restaurant operating margin surged 410 basis points to 25.5% driven by menu price increases, lower food and labor costs (as a percentage of revenue), and fall in marketing expenses, partially offset by increased occupancy costs.
 
The company currently operates 911 restaurants and plans to open 120-130 new restaurants in fiscal year 2009, a growth of 14.3%-15.5%. So far, in the first nine months of 2009, the company has opened 76 new restaurants. Chipotle expects to open the same number of restaurants in fiscal year 2010 as in 2009.
 
Chipotle and other fast-food chains, like Burger King Holdings (BKC), Yum! Brands (YUM - Analyst Report), and McDonald’s Corp. (MCD - Analyst Report) are faring better than casual and upscale dining restaurants, as budget-constrained consumers are trending towards lower-priced dining options.

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