3 Huge Takeaways From Chipotle's Killer Quarter

One year ago the bears were feasting on Chipotle Mexican Grill (CMG -0.17%). After hitting highs around $440 per share in April 2012, the stock avalanched to around $234 per share last October. But the company has been turning in solid quarters and is now running with the bulls. On Friday the stock flew 16% to land at an all-time high over $500 per share.

In case you're wondering, it was a killer quarter for Chipotle. But let's dig down a little to fully appreciate what's happening. Rather than focus on everything, I've chosen three areas to focus our attention: revenue, earnings per share, and comps, or same-store sales.

Revenue
Chipotle's revenue for the quarter was $827 million -- up 18% the same quarter last year. This beat analyst's estimates of $820 million. I attribute the earnings beat to comp-sales, which we'll hit in a minute. But the majority of the earnings growth was thanks to new units. Chipotle had opened 129 new locations this year with 37 in the latest quarter.

With this continued success, Chipotle not only looks to deliver on the high end of this year's growth target of 165-180 new units, but also is guiding between 180-195 units for 2014. Should the company hits those targets, that's 12% unit growth next year.

There's quite a few investors looking for the next Chipotle growth story in companies like Noodles & Company (NDLS 2.30%), but if you're just looking for a Chipotle growth story, perhaps you should stick with Chipotle.

Noodles is aiming for growth a tad higher than Chipotle -- 14%-15% this year --but investors will also have to pay up for that growth. Noodles carries a forward P/E around 85. Chipotle's is currently around 40. When looked at this way, Chipotle's growth is almost as fast but will cost investors less than half the price.

Earnings per share
Chipotle's earnings per share came in at $2.66 per share -- an improvement of 17% from last year -- but missed estimates of $2.78 per share. An improvement of 17% is hot, but why were analysts hoping for a little more?

This quarter's margins were down due to higher food costs and Chipotle didn't increase prices -- more on that in a second. This food cost issue has hit the whole industry, but it's a particularly complicated issue for Chipotle since it's trying to provide 100% GMO and hormone-free food. 

When it comes to vegetables, there are only so many places Chipotle can find GMO-free food. If any one of those sources experiences a problem with supply, prices will increase and the company can't exactly find a cheaper supplier down the street. This is what happened with Chipotle's avocado and tomato suppliers. Avocados are currently in high demand, and bad weather affected the tomatoes. 

It seems the market is willing to shake off the earnings per share miss because these are temporary factors. Even with the miss, 17% growth is nothing to sneeze at.

Comps
This is where Chipotle absolutely hit the ball out of the park. Comps increased 6.2%, a huge increase by anyone's standards. Yet this whopping increase comes at a time when many restaurants' comps are deteriorating at an alarming pace. Darden decreased 3.3% last quarter. Ruby Tuesday declined 11.4%. Brinker International was down 0.9% in the 4th quarter 2013. In short, Chipotle grew comps during a pretty rough stretch of time.

This is also better growth than some closer competitors like Jack in the Box's Qdoba (JACK 0.02%) Chuy's (CHUY -2.04%) and Yum! Bands' Taco Bell (YUM -0.20%).

Just looking at these numbers, Chipotle outran the competition, but there's another reason to be impressed with Chipotle's comps growth: it came without any menu price increases.

Jack in the Box increased prices at Qdoba. That coupled with catering attributed to the meager comps gain there. Chuy's comps improvement is attributed mostly to higher checks. Restaurant traffic barely creeped up 0.2%. 

Compare this with Chipotle who grew comps 6.2% the old-fashioned way: more people coming to eat. This continues to fly in the face of those -- like David Einhorn -- who insist Taco Bell's Cantina Bell is stealing away Chipotle's customers. Yum! doesn't provide very detailed segmented comps information to know how Taco Bell increased 2%. But since Chipotle is still able to grow at this rate, logically Cantina Bell isn't the silver bullet it's heralded being.

The killer quarter
So to review, Chipotle's revenue growth continues to impress due to strong new unit growth. Earnings per share missed due to food inflation from non-GMO providers. And its comps simply blew away the competition -- both with the increase itself and the quality of that increase. For Chipotle investors, there is absolutely no reason to sell even at these all-time highs. This quarter reflects just how strong this company is.

And if you want to truly compare apples to apples, be sure to check the comps performance at Chuy's and Jack in the Box when they report earnings Oct. 28 and Nov. 20, respectively.