Chipotle Has More Upside Potential

Chipotle Mexican Grill Inc. (NYSE:CMG) has been doing the restaurant business for about 20 years. It 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 many emerging markets remain untapped; here Chipotle Mexican Grill has 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. Chipotle’s first-quarter results demonstrate the continued success of its vision to change the way people think about and eat fast food. The company has been able to push standards higher with its food culture.

First-quarter results

Revenue for the quarter was $834.5 million (a decrease of 23.4% from the prior-year quarter).

It opened 58 new restaurants during the quarter, bringing the total restaurant count to 2,066.

Food costs were 35.3% of revenue (an increase of 140 basis points from the prior-year quarter).

Restaurant-level operating margin was 6.8% in the quarter (a decrease from 27.5% in the prior-year quarter).

General and administrative expenses were 7.4% of revenue for the first quarter (an increase of 160 basis points from the prior-year quarter).

Net loss for the first quarter was $26.4 million, or 88 cents per diluted share (a net income of $122.6 million, or $3.88 per diluted share, in the prior-year quarter).

Comparable restaurant transactions decreased 21.1%.

Expectations for 2016

The company expects the following:

  • Full-year tax rate to be around 38.4%.
  • The company plans to open around 220 to 235 new restaurants.

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.

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.

A peek into the restaurant industry

According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this has been the strongest three-month period). Consumer behavior has changed and so the restaurants have come up with different marketing strategies – loyalty programs, ordering, etc.

As per the National Restaurant Association, restaurant industry sales are expected to reach $783 billion in 2016 and will represent the seventh consecutive year of real growth in restaurant sales. Further, the National Restaurant Association has predicted that the restaurant industry will remain the nation’s second-largest private sector employer with a workforce of 14.4 million and will create 1.7 million new restaurant jobs by 2026.

On a concluding note

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 are 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.

Originally Posted at GuruFocus

— Guru Focus

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