While Chipotle had what appeared to be a relatively successful quarter, a slowdown in same store sales coupled with famed value investor David Einhorn's recent short thesis on the company were enough to sour the market on the stock pretty quickly. The end-result is that shares have shed about 25% of their value since the beginning of October. At the end of the quarter Chipotle had a total of 1,350 total companywide restaurants open including: One ShopHouse; five restaurants in London; four restaurants in Toronto; and one restaurant in Paris.
The quarter's earnings report showed better than 18% growth in top-line revenue which translated into an almost 20% jump in net income. All-important same-store sales slowed down considerably though, to 4.8%, and when compared to same-store sales growth of more than 11% in the same quarter last year, there was no doubt that an expensive stock by virtually any measure was going to get cheaper.
Concerns of food cost inflation continue, but for the quarter food costs remain under control. Management does expect to see some pressure in the coming quarters and into 2013 with higher dairy and meat prices as a result from this summer's drought. Initial expectations for 2013 show same-store sales growth in the low single digits, and while there are no immediate plans to raise prices, they remain "open to possibility of a price increase next year."
There are some exciting events in regard to the Chipotle's growth strategy. The US footprint will continue to hold priority and management expects to end this year with total openings in the range of 155-165 stores; in 2013 the plan is to open an additional 165-180 restaurants in a mix of developed as well as new markets that will allow them to invest in restaurants with expectations of generating high returns while also introducing growing Chipotle brand in new and developing markets. Other items of interest in regard to store openings include:
- Plans to open the first restaurant in Vancouver, Canada by end-of-year;
- Plans to open the first restaurant in Germany "sometime later next year;"
- The second ShopHouse restaurant to open in Washington DC (Georgetown)
in early 2013; - The first ShopHouse restaurant to open in Los Angeles in the first half of 2013.
Finally, management also announced a new $100 million share repurchase authorization, which they intend to take advantage of should the share price continue to drop. While there are no intentions to fulfill the full amount of the authorization in 2013, we can expect them to be quite aggressive should a compelling opportunity present itself. For investors, the stock price today presents a very compelling value for a company with clearly a long runway of growth ahead.
