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Chipotle Barely Meets Zacks Estimate

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Chipotle Mexican Grill Inc. (CMG - Free Report) has reported fourth-quarter 2012 earnings of $1.95 per share, which were in line with the Zacks Consensus Estimate. The results were ahead of the year-ago earnings of $1.81 per share. Revenue as well as comparable restaurant sales (comps) improvement led to the year-over-year growth in earnings.

In full year 2012, the company’s earnings were $8.75 per share, missing the Zacks Consensus Estimate by 4 cents but improving from the year-earlier earnings of $6.76.

The fast food restaurant chain reported fourth quarter revenues of $699.2 million, up 17.2% year over year, buoyed by new restaurant openings and higher comparable store sales (comps). Revenues surpassed the Zacks Consensus Estimate of $693 million. In 2011, revenue increased 20.3% to $2.73 billion year over year.

Behind the Headline Numbers

Comps registered a 3.8% and 7.1% growth in the fourth-quarter and full-year 2012, respectively, backed by higher traffic. Higher menu prices added about 2.8% during the year. Comps were also benefited by the favorable weather in December. However, comps fell 100 basis points (bps) sequentially and 730 bps annually. In the fourth quarter, comp transaction grew 3.8%.

The restaurant operating margin declined 150 bps annually to 24.6%, owing to the rise in food expenditure by 130 bps to 33.5% and 10-bps increase in labor cost whereas occupancy costs and other operating costs remained consistent year over year.

Total operating margin plunged 110 bps to 14.6% in the quarter, attributable to high labor and food costs. However, general and administrative expenses declined 20 bps year over year to 6.2% as a result of sales growth.

Stores Update

During 2012, Chipotle opened 183 new restaurants with 60 units in fourth quarter. As of December 31, 2012, the company operated 1,400 units.


Chipotle ended the quarter with cash and cash equivalents of $322.6 million and shareholders’ equity of $1,246 million.


For 2013, management expects comps to be consistent with low-single digit level (rise in menu price excluded). Effective tax rate will be nearly 38.5%. Further, the company remains on track to open nearly 165–180 new restaurants in 2013. Food inflation will be within 33.5% and 34% in 2013.

Our Take

Chipotle seems to gain its momentum on the back of its revenues as well comps growth. However, higher input costs, difficult consumer-spending environment and low comps projection for 2013 are areas of serious concern.

Though this array of concerns came as a disappointment to some investors, we believe that Chipotle is still well positioned to generate improved earnings going forward.

Chipotle currently carries a Zacks Rank #3 (Hold). Among its peers – Yum! Brands Inc. (YUM - Free Report) reported fourth quarter 2012 adjusted earnings of 83 cents per share, ahead of the Zacks Consensus Estimate by 2 cents. Earnings surged 10% year over year. In full year 2012, Yum! Brands’ adjusted earnings were $3.25 per share, up 13% year over year.

Another peer, AFC Enterprises Inc. recently declared its preliminary fourth quarter and full year 2012 results. The company projects its adjusted earnings per share for the full year of 2012 to be within $1.23-$1.24, up from 99 cents in 2011. AFC also provided a rosy outlook for 2013. AFC currently holds a Zacks Rank #2 (Buy).

Yet another peer Dunkin Brands Group, Inc. (DNKN - Free Report) recently posted fourth-quarter and full year 2012. It currently holds a Zacks Rank #2 (Buy).

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