Well rolled, Chipotle Mexican Grill
The bottom-line explosion was partly due to brisk traffic at its namesake quick-service restaurants. Comps soared 19.7% higher to lead a 40.2% surge in revenue. Analysts were expecting the top line to clock in with a more modest 30% improvement.
If this is a sign of things to come, it's going to be a very cozy relationship between Chipotle and its investors. It's not everyday that a company comes to market with a mountain of hype and scales it with ease.
Chipotle went public back in January. It was doing well as a part of the McDonald's
Unlike slow-footed rivals Baja Fresh at Wendy's
Investors can't count on a nearly 20% surge in comps to pad the methodical expansion, but it certainly helped prop up margins big time in the March quarter. Food costs are a variable expense, though items like labor and occupancy are relatively fixed. With more customers ringing up bigger orders, high comps usually find those line items improving. That's why labor costs went from 29.7% of Chipotle sales to just 28.3%. Occupancy overhead dipped to 7.4% of total sales from a 7.9% showing in the first quarter of 2005. Those were key drivers in moving operating profit margins from 3.3% to 6.8%.
Chipotle also announced that it intends to file for a secondary offering. Don't go running for the border, nervous investor. It's just McDonald's unloading as many as 4.8 million of its shares. It won't be a dilutive move, since the company is not printing new shares nor receiving the proceeds of the deal. With more shares floating around in the open market, it will likely provide a little more stability in Chipotle.
So, to close, a tip of the sombrero to this spicy little eatery chain that is slowly making a believer out of me.
Longtime Fool contributor Rick Munarriz could go for a Chipotle burrito about now. He does not own shares in any of the companies in this story. T he Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.