Is Qdoba Mexican Grill the Next Chipotle Mexican Grill?


Jack in the Box (NASDAQ: JACK  ) owns a large burger chain and a much smaller fast-casual Mexican chain called Qdoba Mexican Grill. Yet it is Qdoba that may be stealing the show going forward. With the release of Jack in the Box's second- quarter results, Qdoba Mexican Grill, which until recently hasn't seemed like much of a threat, looks like it has a shot at Chipotle Mexican Grill (NYSE: CMG  ) stardom.


Source:  Qdoba.com

Bringing in the beans
Chipotle Mexican Grill has been consistently delivering four things to the investing community: stunning sales, stunning profits, stunning growth, and stunning stock price gains. After this winter, Chipotle Mexican Grill delivered on yet another item: stunning brand strength.

While other restaurant chains of all types and varieties were getting walloped by the snow, Chipotle Mexican Grill was blazing a new trail. For the first quarter ended on March 31, revenue popped 24.4% to $904 million. Same-store sales soared 13.4%. Net income rose 8.5% to $83.1 million, or $2.64 per diluted share. It was some of the best sales growth Chipotle Mexican Grill has seen in years.

The reason for the unusual strength, despite the winter storms, was that the temporary store closings only caused the cravings to only build for its fan base. According to Jack Hartung, CFO of Chipotle Mexican Grill, when the stores reopened sales were so strong  in the rebound that they were stronger than the sales seen before the bad weather, making up for lost sales and then some.


Qdoba burrito and Chipotle Mexican Grill burrito.  Sources:  Qdoba.com and Chipotle.com 

Qdoba's turn?
Jack in the Box's adjusted operating earnings for the quarter ended in April jumped 38% to $0.51 per share. Systemwide same-store stores were up a modest 0.7% at the Jack in the Box burger chain, but for the Qdoba chain same-store sales leaped 7%. This is much higher than anything Qdoba has seen in quite some time.

In similar fashion to Chipotle Mexican Grill, this was, well, quite an underpromise, overdeliver, as it had only guided for between 2% and 3% same-store sales growth for Qdoba. It seems like the bad weather in the early parts of the quarter actually may have helped boost sales similar to the way it helped Chipotle Mexican Grill.

Lenny Comma, chairman and CEO of Jack in the Box, stated that Qdoba's better- than-expected same-store sales results "overcame a shortfall at Jack in the Box." This is despite Jack in the Box's burger chain being four times larger. Comma credited part of the success to the successful introduction and promotion of two new flavors on its menu.

Going forward, Jack in the Box guided for between a 3% and 4% increase in full-year same-store sales for Qdoba compared to prior guidance of a 2% to 3% rise. Given the large beat in the second quarter, the guidance seems to be sandbagging again, something that Chipotle Mexican Grill has been known to do.

Foolish final thoughts
Chipotle Mexican Grill ended 2013 with nearly 1,600 restaurants and plans to add between 11% and 12% more in 2014. Jack in the Box ended with 615 Qdoba restaurants and plans to add 8% more this year. The expansion and sales growth rates for Qdoba seem to still be lagging behind Chipotle Mexican Grill, but Qdoba has what could be the beginning of acceleration on its side. It may be premature just yet to declare Qdoba the next Chipotle Mexican Grill, but it will be interesting to watch and see if these are the beginning stages of explosive growth for Jack in the Box.

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