Chipotle Mexican Grill Inc. (CMG, Financial) has been doing the restaurant business for about 20 years. Chipotle offers a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in a distinctive atmosphere.
The fast food industry currently is booming as GenX prefers to eat out mostly. Eating out has become a habit among young adults; Chipotle Mexican Grill is better positioned in the industry as it tries to provide healthier food.
This fast food industry leader continues to log impressive results and is constantly innovating healthier menus for its investors. It has plenty of room to grow in the near future and still many emerging markets remain untapped; here Chipotle Mexican Grill poses great potential. It is already known for promoting antibiotic-free meat and dairy products.
This Mexican fast-casual food giant company will deliver exceptional returns in the near future, and it is a buy right now. It is one of the best-performing restaurant stocks.
Third quarter results
Revenue during the third quarter was $1.2 billion (increased by 12.2% from the prior year quarter).The growth in revenue was driven by new restaurants not in the comparable base and a 2.6% increase in comparable restaurant sales.
Comparable restaurant sales growth was driven primarily by an increase in customer visits and to a lesser extent from a menu price increase taken in certain markets in the third quarter.
The company opened 53 new restaurants during the quarter, bringing the total restaurant count to 1,931.
Food costs were 33% of revenue (a decrease of 130 basis points as compared to the prior year quarter).
Restaurant level operating margin was 28.3% in the quarter (a decrease of 50 basis points from the prior year quarter).
General and administrative expenses were 5.8% of revenue (a decrease of 80 basis points from the prior year quarter).
Net income for the third quarter was $144.9 million, or $4.59 per diluted share ($130.8 million, or $4.15 per diluted share, during the prior year quarter).
Outlook
2015
The company expects the following:
- The company plans to open 215 to 225 new restaurants.
- Low- to mid-single-digit comparable restaurant sales increases.
- Full-year tax rate of around 38.7%.
2016
The company expects the following:
- The company plans to open 220 to 235 new restaurants.
- Low-single-digit comparable restaurant sales increases.
- Full-year tax rate of around 38.7%.
Relentless focus
The company constantly focuses on the following:
- Using high-quality ingredients.
- Making great food accessible at reasonable prices.
- Rapidly adding new restaurants.
- Expanding the profit margin.
- Keeping comparable restaurant sales growing.
- Increasing international presence.
A peek into the restaurant industry
Eating out has become a fashion, and perceptions have changed. There is a constant rise in people's disposable income around the world, and eating out is comforting, too. The economy is improving.
According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this was the strongest three-month period). Consumer behavior has changed so restaurants have come up with different marketing strategies – loyalty programs, ordering, etc. According to market research firm NPD Group, restaurant traffic will increase 1% this year, an improvement over a flat 2014 guest count.
According to a report submitted by National Research Association, the restaurant industry will reach some landmark numbers in 2015 – more than $709 billion in sales, 1 million locations and 14 million employees.
So what makes it different?
In a marketing-driven industry where new menu items are often used to drive customer traffic and proliferation of menu items is the norm, cheap and heavily processed foods that include thousands of additives and artificial ingredients have become common. Chipotle begs to be different, focusing instead on making food with great quality ingredients prepared using classic cooking techniques. Through this campaign, Chipotle will showcase the limited number of ingredients it uses to make its food (just 68 ingredients in total) and contrast that with the long and complex ingredient lists on which many fast food brands have become so reliant.
On a concluding note
“Chipotle’s third quarter results demonstrate the continued success of our vision to change the way people think about and eat fast food. As we have grown our restaurants through the year, we are able to push our standards higher in what we can accomplish with our food culture. I am grateful for our customers’ continued support of our animal welfare standards and want to thank them for their patience while we have worked hard to address this issue. I am confident that we have the right food culture and people culture in place for us to continue our momentum,” said Steve Ells, founder, chairman and co-CEO of Chipotle.
Chipotle is getting very good ratings from analysts and is expected to grow this year. It has a rich valuation. It is continuing to create memorable customer experiences, which in turn is ensuring customer loyalty and brand reputation. It is finding new ways to cater to its customers.
It has been a booming success for years and is a favorite among consumers. It can keep growing since there is a lot of room for this company in the restaurant industry.
Disclosure: I do not hold any position in the company.
