Chipotle, Panera Bread, and Potbelly: One Is Clearly Weathering the Storm

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Panera Bread (NASDAQ: PNRA  ) and Potbelly (NASDAQ: PBPB  ) reported disappointing earnings recently. While both companies blamed weather for their sales weaknesses, investors reacted differently to each stock. Given the rough nature of this year's winter, such an excuse is understandable, but it further proves that Chipotle Mexican Grill (NYSE: CMG  ) is one step ahead of its peers.

It's the weather's fault!
The 2013-2014 winter now ranks as one of the snowiest in history . As a result, it makes sense that consumers would be more inclined to stay in their homes, instead of eating out.

This theory was validated by the quarterly earnings reports from Panera Bread and Potbelly, two companies that have grown at high single-digit to low double-digit rates in normal weather conditions.

Specifically, Panera Bread noted that comparable-store sales in weather-affected areas fell by 10 %, which meant that its overall decline of 2% was somewhat overlooked. Therefore investors are buying the idea that comparable sales for the full year will rise by 3%, and as a result, shares of Panera were up more than 4% on Wednesday.

However, Potbelly is a different story, as its stock fell by double-digits on Wednesday.

Specifically, Potbelly is a very small company with just $74.8 million in quarterly revenue -- Panera had $661 million in the quarter -- which means that revenue growth below 2% is tough to digest regardless of the weather .

Chipotle: Still the king of fast-casual
With that said, Potbelly and Panera operate in a segment of the restaurant industry called fast-casual, and it is the newest and fastest-growing segment within the industry.

Chipotle is the king of this space; Panera is large within this arena; then there are a slew of recently public companies like Potbelly and Noodles that one day hope to become the next Chipotle. However, if Chipotle taught us anything in its last quarterly report, it's that no one is close to stealing its market share and that Chipotle continues to widen the gap between itself and everyone else.

In fact, Chipotle, a company that announced quarterly revenue of $844 million, grew 20.7% year-over-year despite a rough winter. Furthermore, it grew comparable sales by 9.3%, a mark investors haven't seen from any restaurant in several quarters .

Also, Chipotle grew its operating margin 100 basis points to 25.6%. In the same period, Panera Bread's operating margin fell 170 basis points to 12.9%, and in the company's conference call it noted that margins could fall another 75 to 125 basis points in 2014.

As a result, it appears that while the other restaurants are struggling due to weather, which has resulted in lower sales and margins for them, Chipotle is getting stronger.

Chipotle still has long-term growth opportunities
This is a company with a solid footprint in areas which were not effected by the harsh winter and it has also been rolling out new concepts and brands to attract new consumers. For example, Chipotle is rolling out and growing its Asian Kitchen, which is like Chipotle's Mexican brand but focused on Asian foods. Also, in its last quarter the company announced plans to bring its fast-casual concept to pizza, which could be another lucrative business.

Therefore, Chipotle is not limited to just Mexican food as it can also venture out into other food groups, and it still has a massive global market to monetize; Chipotle is mainly a U.S. brand now.

Final thoughts
As a result, it doesn't look as though there will be another Chipotle, mainly because the company is yet to reach maturity, and this alone warrants a long-term investment. At 35 times next year's earnings, Chipotle may appear pricey relative to its peers; Panera and Potbelly trade at 21 and 39 times forward earnings, respectively. However, investors must remember the outlook, and the many wheels that are turning for Chipotle.

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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