Did You Get this Memo on Chipotle?

Chipotle Mexican Grill investors should be salivating.

Feb 19, 2014 at 3:00PM

Cmg Fyi
Source:  Chipotle Mexican Grill

You have to hand it to Chipotle Mexican Grill (NYSE:CMG). While its own philosophy is that it will be "mindful" of the "societal impact" of its business, it isn't so rigid in that pursuit that shareholders suffer. Demand is so high in some of its restaurants that it's literally running out of food.

First, understand the Chipotle background story
On its website, the company prides itself with the following: "Now we want you to know the sources for all of our ingredients, so that we can be sure they are as flavorful as possible while, we are mindful of the environmental and societal impact of our business. We call this idea, Food With Integrity, and it guides how we run our business." For example, Chipotle's goal is to eliminate genetically modified organisms (GMOs) from its ingredients.

Further into Chipotle's website, it states, "It means that we support and sustain family farmers who respect the land and the animals in their care." It later adds, "The best way to treat animals with dignity and respect is to allow them to display their natural tendencies. When sourcing meat, we work hard to find farmers and ranchers who are doing things the right way."

It's proving to be a wise move, as Chipotle continues to post blazing hot record sales, same-store sales, and record profits. In a bit of irony, the ingredients sourcing that is helping to drive such high demand is causing guests to have to accept alternative sources of ingredients. The website warns: "Today, thanks to increased demand, we source 100% of our beef from ranches that meet or exceed our naturally raised standards. Once in a while we do experience a shortage in certain areas of the country and we'll let you know at the restaurants if that happens." It says a shortage, but it doesn't actually say it will use "conventional" steak instead.

Where's the beef?
You may want to check out your local Chipotle Mexican Grill and see what all the fuss is about that resulted in revenue being up 20.7%, same-store sales being up 9.3%, and net income being up 29.8% in the most recent quarter. If you do, you may find that flyer at the top of this article. It sounds like sales are continuing at a brisk pace, and faster than supply is available.  This is a great sign for shareholders.

          Source: Chipotle Mexican Grill

You may even find that your local location has ran out of jalapenos despite a jalapeno being in its logo. That would almost be like Burger King running out of burgers as demand continues to rise faster than supply is available..

Foolish final thoughts
Expect to see the same-store sales numbers on Chipotle Mexican Grill get another leg up for the first quarter. It's highly unlikely that only local Chipotles are out of key ingredients since chains like Chipotle tend to share the same distribution hubs. Sales must be more robust than ever in order to run out of such key ingredients. Fools may want to take a closer look at Chipotle as its run may be far from over.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of 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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