If you needed another example of the mantra “invest in what you know” or “invest in what you like”, look no further than Chipotle Mexican Grill (CMG). The company just reported blow-out earnings after the bell today that showed YoY revenue and net income growth of 28.6% and 25.5%, respectively for the second quarter. Both revenue ($1.05B vs. $990M) and EPS ($3.50 vs. $3.09) beat consensus expectations as well by a sizable margin.
But the real star of the show was the company’s comparable restaurant sales (see: same store sales, or SSS) growth of 17.3% YoY — an increase from the previous quarter’s already-impressive 13.4% growth. This tremendous increase — helped mostly from an increase in foot traffic rather than the price increases implemented during the quarter — represents yet another quarter of SSS growth (as shown below from the company’s SEC filing posted on their website).
Improving Same Store Sales
Not only has SSS increased each quarter over the last year, but these increases have been what would be called “quality” increases given the rising average restaurant sales each quarter. This is yet further proof that more and more people are choosing to eat at CMG. Moreover, this impressive growth comes at a time when spending on fast casual restaurants was essentially flat for the quarter. Quite an accomplishment for any business in my opinion.
Furthermore, the company raised their SSS guidance for the remainder of the year as a result. For example, management said that it now expects comparable restaurant sales in 2014 to be in the mid-teens, which is up from the high single digits it had forecast in April following Q1 results.
However, the company did report that food costs did rise 1.5% YoY mostly as a result of increasing prices for beef, avocados and dairy. As such, CMG did see operating margins fall 0.3% YoY to 27.3% in Q2. In addition, CMG management also said that they did see a slight shift in people switching from steak to chicken as a result of the recent price increases.
It is important to note, however, that the company’s price increases that went into effect last quarter were not implemented for the full quarter and as a result did not represent the full benefit of these increases.
Meanwhile, CMG management did report that they continued with their stock buyback program during the quarter as they repurchased about 37,000 shares of their own stock. This is notable as well due to the fact that management has been opportunistic with these purchases and announced that their average purchase price was around $517 — nearly 14% from today’s closing price around $590. These buys look even better now following CMG’s roughly 10% rise after-hours into the $645 range.
In the end, it looks as though CMG’s impressive results are poised to continue as their Q2 results are not just a fluke, but are part of a favorable (and continuing) trend. It would also appear that my buy recommendation from March was right on the money and I continue to recommend shares of CMG as no clear competitor seems to exist (even as El Pollo Loco prepares for its IPO later this week).