Chipotle's first-quarter earnings report showed signs that this is still a business with plenty of runway. Comps of 1% were in line with expectations, though management did note that adjusted for the impact of Easter and the leap day in 2012, this number clocked in around 3% and was driven by increased traffic.
Some points to note:
- Catering is making solid progress: It was expanded to 144 more restaurants on April 15 and the company is on track to launch catering in all restaurants by the end of August.
- Sofritas (the restaurant's new tofu offering) was well-received in the test market (San Francisco); Chipotle will be expanding this offering to all units in California in June.
- In the past, management has discussed an additional two ShopHouse Asian restaurants they are opening (one in L.A. and one more in D.C.), and more recently they announced another opening in Hollywood. This brings the overall total to four, and proves this concept is proving to be successful.
- The company finished the quarter with over $700 million in cash and equivalents and zero debt. Management continues to repurchase shares opportunistically; to quote CFO Jack Hartung: "Every dip that we see throughout the year, we are going to be in there buying aggressively."
- Keeping food costs stable is critical and management envisioned a target of 31% of revenues past communications. That target appears a little ambitious thus far in 2013, and management seems intent on a more reasonable expectation of 32% for the year. Either way, any potential price increase will not take place until late summer or early fall, if at all.
- Co-CEO Monty Moran talked about the four pillars of great throughput, which are important: Throughput (how quickly the restaurants move people through the line) is a huge advantage if they continue to manage it well. The four pillars are:
- Ensuring that teams have everything prepared and line is ready for peak hours.
- Having expediters ready to move customers through cashing-out process quickly.
- Having a "linebacker" in place for support in moving people through.
- "Aces in their places": Knowing the team and having each individual where they do their best work.
- Management also feels very confident that these throughput gains are achievable without moving the labor as a percentage of sales up in any meaningful way.
- The government investigation into hiring practices continues; management has been asked for more supporting documentation and are cooperating. This will be a long, drawn-out process.
- There was a question on the call about breakfast hours and experimentation with the breakfast concept. I'll give you the straight answer from co-CEO Steve Ells here:
We only have two restaurants that we open up at sort of a traditional breakfast time. They're both in airports, one at Dulles Airport, and there we are serving our regular menu, and then at the Baltimore airport where we serve a breakfast menu, which includes a new item that we have which is actually really, really delicious. It's called frittatas. We have two varieties of frittatas, a chorizo frittata and a vegetarian -- a vegetable-based frittata. And that's very, very popular and gaining more popularity as we continue to serve it. Those are the only two places really that I would consider us having breakfast.
And there you have it. Chipotle turned in another solid quarter with no real surprises, and the business keeps chugging along. The second quarter is typically their busiest, so we'll see how that all shakes out on the next call. While the stock price has certainly recovered from the depths of last fall, I continue to see Chipotle as an excellent business and a wonderful investment for long-term investors.
