Chipotle shares rise after earnings beat expectations

Growth was helped along by the company's ongoing expansion, but existing stores also did well.

By Benzinga Apr 19, 2012 9:22AM

Updated 4:45 p.m. ET


By Nelson Ham, Benzinga Staff Writer

 

Chipotle Mexican Grill (CMG) saw shares rise in after-hours trading Thursday after the company beat expectations for revenue and profit.


The casual-restaurant operator said profit rose 35% to $62.7 million, or $1.97 a share, for its first quarter. Analysts had projected a profit of $1.93 a share. Sales increased 26% to $640.6 million, higher than the $631 million Wall Street was expecting.


Growth was helped along by the company's ongoing expansion, but existing stores also did well. Sales at stores open for longer than a year rose 12.7%. Investors were pleased by the results, sending shares up less than 1% in after-hours trading to $433.55.

 

The company has been raising prices this year, which investors hope will lead to stronger margins. The company has enjoyed double-digit revenue growth for the past four quarters, and profit has increased for three consecutive quarters. The company has grown revenue and earnings every year of the past decade, largely by opening additional restaurants.

 

Expectations

 

Chipotle's earnings have missed analyst expectations -- by just a few pennies per share -- in two of the past four quarters.

 

In its fourth-quarter report, Chipotle reported profit of $57.5 million, or $1.81 per share. That was up 23.7% from the previous year, but fell short of the consensus estimate of $1.83. Revenue also rose 23.7% year over year to $596.7 million, in line with analysts' expectations. The company said it opened 67 restaurants in the quarter and planned to open 155 to 165 new locations in 2012.

 

Looking ahead, analysts expect to see sequential and year-over-year growth of both per-share earnings and revenue in the current quarter. At this point, the full-year forecast has earnings up 22.2% from the previous year and revenue 21.5% higher.

 

The company

 

Chipotle Mexican Grill, based in Denver, operates more than 1,200 fast-casual Mexican food restaurants in the United States, Canada and England. It also operates the ShopHouse Southeast Asian Kitchen. The company is known for using high-quality raw ingredients and classic cooking methods. It has a distinctive interior design and claims to be mindful of the environmental and societal impact of its business. Chipotle was founded in 1993, and it now is a member of the Standard & Poor's 500 Index ($INX).

 

Competitors include BJ's Restaurants (BJRI), Buffalo Wild Wings (BWLD) and Panera Bread (PNRA). BJ's reported better-than expected profit and sales growth of nearly 30% in its most recent quarter. The other two are expected to post double-digit growth for earnings and revenue in their quarterly reports, scheduled for April 24.

 

During the three months that ended in March, Chipotle offered free burritos for Earth Day, released its first national commercial during the Grammys, announced a share buyback program and saw shares hit repeated multi-year highs.


Performance

 

Chipotle's long-term profit growth forecast is 22.2%. Its return on equity is 23.2% and its operating margin is higher than the industry average. But its price-to-earnings and price-to-earnings-to-growth ratios are higher than the industry average. Short interest is 7.8% of the float. Twelve of 29 analysts who follow the stock rate it a "buy" or "strong buy." The share price has outstripped its mean price target, but it is about 14% less than the highest price target.

 

The stock is about 29% higher than at the beginning of the year, as well as more than 54% higher than a year ago. Shares have pulled back from the 52-week high on Friday. The price is well above the 50-day and 200-day moving averages. Year to date, the stock has outperformed the competitors mentioned above, as well as McDonald's (MCD) and the broader markets.

 

Action items

 

Bullish:

Investors interested in exchange traded funds invested in Chipotle might want to consider the following trades:

  • PowerShares Dynamic Leisure & Entertainment (PEJ) is more than 17% higher this year.
  • PowerShares DWA Technical Leaders (PDP) is more than 15% higher this year.
  • Consumer Discretionary Select Sector SPDR (XLY) is more than 15% higher this year.
  • Vanguard Mid-Cap Growth ETF (VOT) is more than 14% higher this year.

Bearish:

Traders may prefer to consider these alternative positions in the restaurant industry:

  • Ruth's Hospitality (RUTH) is up more than 48% this year.
  • Jamba (JMBA) is up about 38% this year.
  • Frisch's Restaurants (FRS) is up more than 40% this year.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

 

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