Foolish Forecast: Chipotle's First Course

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Grab up your flatware and tuck in your napkins, folks. Get ready for the first-ever course of quarterly reporting from the kitchens of NYSE newcomer Chipotle Mexican Grill (NYSE: CMG). The McDonald's (NYSE: MCD) spinoff reports its Q4 and full-year 2005 numbers on Monday afternoon.

Wall Street Wisdom:

• General consensus. Ten analysts dine on Chipotle's numbers. Three of them call the company a buy, one says it's a sell, and the rest just sit around holding their burritos.
• Revenues. No analyst revenue estimates are posted on Chipotle's Yahoo! Finance page. But the firm was credited with making $127.5 million in sales a year ago, when it was still part of McDonald's. The past few quarters have posted something in the vicinity of 32% year-over-year sales growth, probably because the pace at which the company has been opening new locations. So let's pencil in $168 million as a possible target to account for said growth.
• Earnings. Analysts do have an estimate down for Chipotle's profits. They're looking for a reversal of the loss attributed to the firm in the year-ago quarter and about $0.11 per share in profits on Monday.

Margin watch:
As I've already mentioned, Chipotle's new to the markets as a stand-alone entity. Thus, we've got only an abbreviated set of margin stats for you today. Judging from the past year's achievements, however, it looks like Chipotle's on an uptrend, with gross, operating, and net margins all improving over the past year on a rolling basis.

Margins %	12/04	3/05	6/05	9/05
Gross	29.9	30.2	30.5	31
Op.	1.7	2.4	3	3.7
Net	1.3	3.5	5.3	5.1

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
Every so often, you see a situation like the one above: where a company posts net margins (which are essentially operating margins, minus the banks' and the tax man's cuts) greater than its operating margins. When that happens, you know something unusual has occurred. In Chipotle's case, the wild cards were a pair of $7.5 million tax credits the firm benefited from in March and June 2005. Those boosted the net over the operating margin in the respective quarters, and the effects of this boost will continue to make themselves felt on the rolling (trailing-12-month) numbers for another three quarters.

More important than the accounting profits, though, is the trend in improving cash profits. Despite the torrid pace at which the company has been opening restaurants, Chipotle's operating cash flow has risen while its capital expenditures declined. If it can stick to that secret recipe, Chipotle should be able to whip up some tasty free cash flow tomorrow as well.

Fool contributor Rich Smith does not own shares of either company named above.