Is It Time to Take Some Money off the Chipotle Table?

Chipotle Mexican Grill recently reported better-than-expected fourth-quarter results, but this could be the right time for investors to take some money off the table.

Feb 16, 2014 at 9:00AM

Chipotle Mexican Grill (NYSE:CMG) recently reported excellent fourth-quarter results. Its share price quickly rose by about $30 but has since simmered down to about $545 per share. While the company's plans to expand its brand make this a good, if not pricey, investment in the long run, this could be the time to spread some Chipotle wealth around.

Chipotle at a glance
Chipotle Mexican Grill's total revenue increased more than 20% for the fourth quarter and 17.7% for the full year. Furthermore, comparable-restaurant sales were up by 9.3% and 5.6% for the fourth quarter and 2013, respectively. Chipotle also raised its 2014 sales forecast and now expects a low- to mid-single digit gain.

Investors should also note the fast-casual chain will likely raise menu prices during the third quarter in order to recapture increasing commodity costs. The price rise is also intended to recoup costs of Chipotle's previously announced plans to label food products containing genetically modified organisms, or GMOs, as part of a long-term goal to eliminate GMOs from its menu items.

In short, raising prices will improve the chain's margins. Moreover, diversifying the Chipotle brand with nascent concepts in Asian cuisine and Neapolitan pizza through the ShopHouse endeavor and the Pizzeria Locale strategic alliance may pan out in time. These moves combined with Chipotle's successful marketing model position the chain for continued growth in the long run. But it is uncertain how long it will take for ShopHouse and Pizzeria Locale to get cooking. 

While there's still a lot to like about Chipotle, some investors may not like its hot and spicy share price. So this might be an opportunity to take some money off the table and roll it into other retail restaurant chains like Texas Roadhouse (NASDAQ:TXRH) and Buffalo Wild Wings (NASDAQ:BWLD).

Let it roll at Texas Roadhouse
Texas Roadhouse shares performed well in 2013 even though the company faced margin pressures from a spike in food costs -- in particular, sharply higher beef prices. The chain currently operates more than 410 restaurants, most of which are in the U.S.

The company's third-quarter report also reflected this pressure in its earnings -- down by 5% to $0.24 per share. At the same time, overall sales rose by 8%, same-store sales by 2.6%, and franchise sales by 4%. Texas Roadhouse attributed the earnings loss to an 8% spike in beef prices.

While the company has yet to say whether menu prices will be raised this year to offset the rise in food costs, management expects food-cost inflation to slow in 2014. In fact, CEO Kent Taylor said, "Looking ahead, we are encouraged by expectations of much lower commodity cost inflation in 2014."

The third-quarter report also indicated that Texas Roadhouse was expecting a total of 28 new stores to open in 2013 and anticipated another 25 to 30 stores would start cooking in 2014.

In sum, Texas Roadhouse continues to be strong in many ways, mostly because of store expansion and a history of rising same-store sales. Investors will have a better idea if the company met its store openings projections and whether it plans to raise menu prices when fourth-quarter and year-end earnings are announced on Feb. 24. 

Does Buffalo Wild have wings to fly?
Buffalo Wild Wings' fourth-quarter 2013 report last week showed sales increased by 12.4% to $341.5 million. Furthermore, same-store sales increased 5.2% and 3.1% at company-owned stores and franchises, respectively. Finally, the retail restaurant chain opened 53 company-owned and 49 franchised restaurants during the period.

The earnings announcement apparently disappointed some diners and investors on the Street, as the share price is off by about 10% since then. The present share price of about $134 is far below the 52-week high of $152, so Buffalo Wild still has wings to fly. The question remains whether investors will buy in.

But if some of that premium Chipotle money is in the mix, this is a good opportunity for long-term buyers of Buffalo Wild. The chain plans to open another 1,700 restaurants over the next 10 years in the U.S., Mexico, and Canada. 

In sum, CEO Sally Smith said, "The fourth quarter completed a great year for Buffalo Wild Wings. In 2013 we continued to build the brand for future success by focusing on several key initiatives, including selling chicken wings by portion."

Some other initiatives Buffalo Wild is undertaking include "guest-facing technologies" like table-top tablets and proprietary TV content. While this may not make Buffalo Wild an ideal spot for a hot first date, the company reaffirmed its forecast of 20% net earnings growth this year.

Leftover thoughts
Chipotle Mexican Grill, Texas Roadhouse, and Buffalo Wild Wings are all poised for growth in the coming year. The question remains as to how much higher Chipotle's share price will rise in comparison to the others, however.

While Chipotle has a good track record of revenue and earnings growth, the success of the ShopHouse and Pizzeria Locale are uncertain. So investors could make gains by sneaking some tip money off the table and rolling it into Texas Roadhouse and Buffalo Wild.

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Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and Texas Roadhouse. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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