Quality Food Is The Future Of Chipotle Mexican Grill

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Balanced Investing


  • Chipotle’s last quarter was another success as the comparable sales figure grew with more visits despite the menu price increase.
  • Quality is the main selling point and importing beef from Australia is likely to help Chipotle uphold its standard.
  • Marketing efforts are effective given the awards the company has received.

Shares of Chipotle Mexican Grill Inc. (NYSE:CMG) reached a new 52-week high of $667 this week, the day after the company announced its second quarter results. Chipotle continues to be one of the restaurant industry's leading businesses, delivering incomparable sales growth and beating its peers' margins. When the company first opened its first store in 1993, the simple business model preached that food served fast didn't necessary have to be "fast-food". This way of life continues to contribute towards Chipotle's success. Complementing this success is the high-quality raw ingredients, classic cooking methods and unique restaurant design that have helped the company to gain ground and steal market share from big chains like McDonald's (MCD).

In this article I will be discussing Chipotle's recent quarterly results before proceeding to discuss the future potential of this fast-growing restaurant chain.

Second Quarter

In its latest period, Chipotle's revenue increased 28.6% to $1.05 billion with the comparable figure rising by a smaller but still important, 17.3%. Despite raising its menu prices in April, this comparable rate of growth which grew 390 bps year over year strengthened the company's foothold in the industry and was the reason behind its pricing power as consumer visits grew together with higher average check.

Operating expenses rose 29.8% to $870 million due to higher food, beverage, and packaging and other operating expenses. Food costs, as a percentage of revenues, increased 150 bps to 34.6% due to higher beef, avocado, and cheese costs. Marketing expenses are also rising. The only reduction was seen in labour costs which declined as a percentage of revenues to 21.8%. The net result of cost movement was the restaurant level operating margin declining 30 bps to 27.3%.

Chipotle provided diluted earnings per share of $3.5 during the last quarter. This was an increase of 24% compared to 2013's

This article was written by

Balanced Investing profile picture
I am a buy side research analyst working for an asset management firm. I aim for a combination of growth and value while investing and recommend the same for others. My sector expertise include financials and healthcare. In my research, I focus more on cost drivers, revenue drivers and the factors affecting these drivers as financial results are only an output of these drivers.

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