Chipotle Makes Money While Making a Difference

Consumers are becoming more and more socially conscious, and want the goods and services they use to measure up. It doesn't take much. A simple action that costs a company very little --  or nothing at all -- can make a real difference in the mind of the consumer, and the company's bottom line.

There are some companies, however, that go well beyond that call of duty in that sense, companies that have incorporated social responsibility into the very heart of their business model. Chipotle Mexican Grill (NYSE: CMG  ) is one of those companies. Without further ado, then, let's have a look at the boutique burrito concern, and analyze it in terms of its performance as a socially-conscious enterprise, as a business, and as an investment.

Food with integrity
So goes Chipotle's first commandment and guiding principle for its wildly successful Mexican food business. According to the Chipotle website, food with integrity means, "Serving the very best sustainably raised food possible with an eye to great taste, great nutrition and great value." To that end, the company focuses on three key aspects of socially-responsible conduct:

  • Supporting and sustaining family farmers who respect the land and the animals in their care.
  • Using meat from animals raised without the use of antibiotics or added hormones whenever possible.
  • Sourcing organic and local produce when practical, including the use of dairy from cows raised without synthetic hormones.

Beyond these basic-but-beautiful core focus points, Chipotle has also signed onto California's 2010 Transparency in Supply Chains Act, which the burrito concern is taking very seriously, with efforts that include:

  • Verification: Periodically assessing its supply chain with respect to multiple factors, including risks of human trafficking and slavery.
  • Auditing: Subjecting Chipotle suppliers to inspections, announced and unannounced, by Chipotle, as well as third parties, to ensure compliance with company standards.
  • Certification: Requiring supplier compliance with laws that prohibit forced labor, child labor, and applicable standards for working hours and conditions.

A great company at a fair price
CSR cred now firmly established, let's look at a few basic metrics, and see how Chipotle measures up against its peers as a business and as an investment.

Revenue growth:

  • In its most recent quarter, Chipotle grew its quarterly revenue by a whopping 18.4% year over year.
  • Yum! Brands (NYSE: YUM  ) grew its quarterly revenue by a solid 9% YOY.
  • Perennial powerhouse McDonald's (NYSE: MCD  ) quarterly revenue actually contracted by 0.2% YOY.
  • Finally, fellow CSR enthusiast Starbucks (Nasdaq: SBUX  ) , like Chipotle, also turned in a great quarter, with YOY revenue growth of 11%.

Earnings growth:

  • Chipotle grew its earnings a big 19.6% YOY in the most recent quarter.
  • Yum!, not be outdone, grew its quarterly earnings by 23% YOY.
  • McDonald's, patently outdone, shrunk its quarterly earnings by 3.5% YOY.
  • Finally, Starbucks did slightly better than McDonald's (at least staying out of the negative), with quarterly earnings growth of 0.1% YOY.

Cash-to-debt ratio:
It's always good to see more cash than debt on the balance sheet, ideally at least 1.5 times more.

  • With $574 million in cash and $3.6 million in debt, Chipotle can lay claim to the ridiculously great C/D of 159.
  • With $942 million in cash and $3 billion in debt, Yum! Brand's C/D is a not-so-ridiculously great 0.31.
  • $2.2 billion in cash and $13.3 billion in debt give McDonald's the similarly not-so-grand C/D of 0.16.
  • Finally, with $2 billion in cash and $550 million in debt, Starbuck's C/D is a fabulous 3.64.

With money as cheap as it is, too many companies are in debt up to their corner offices, and it's a dangerous position to be in. This is because, when things go wrong (and they always do), the bigger the war chest a company has, the better chance it has of coming through the other side intact. Kudos to both Chipotle and Starbucks, then, on this important metric.

Making money while making a difference
In terms of price-to-earnings ratio, all of our companies, save McDonald's at 16, are on the high side. Chipotle comes in at 30, Yum! at 21, and Starbucks at 28. But while 30 is higher than average for an American company, it's not radically so. And, as you can plainly see from its stellar performance on the metrics, with Chipotle, you're getting a lot of company for the money.

In terms of CSR, Chipotle may not be perfect, but it's very, very close. Always on the lookout for a great, socially responsible investment? It's hard to beat Whole Foods Market, the organic grocery store that's booked investors more than 30 times their initial investment since its IPO.

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  • Report this Comment On November 13, 2012, at 11:16 PM, JuampaF wrote:

    Totally agreed! CMG has posted great numbers but many doubt it's capacity to grow further. Chipotle relies heavily on American dependence on mexican food (let's face it! America LOVES their neighbor's food). Personally I do think there is great chances of expansion but that is if Europe gets back on track for growth. In the mean time CMG can sit on a stockpile of cash that they will hopefully use to advance profitable purposes later!

    Any opinions on CMG's price? can it hit the marvelous 400's again????

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