In April, Chipotle Mexican Grill (CMG +2.14%) popped by as much as 10% after the company wrapped up an absolutely delicious quarterly report.
As a result, and with shares of the burrito maker trading within sight of their 52-week-high set around this time last year, you can bet investors are antsy wondering how things turned out in this year's second quarter.
Some background
After all, though last year's second-quarter report showed Chipotle's earnings grew 61% year over year on a 21% increase in revenue and 8% growth in same-store sales, it wasn't enough to appease the bulls who had priced the stock for perfection. The result? A one-day, 23% drop that extended its negative influence all the way through to the next earnings report in October.
Of course, that October low ended up being a great time to buy, and Chipotle currently stands up more than 58% since then -- and that includes a steady 33% rise over the past six months.
Here are three burning questions, then, that hungry investors should ask the healthy-burrito maker when it announces earnings on Thursday:
1. How's the foot traffic?
Remember, last year's horrific tumble was partly due to Chipotle's comments that customer traffic slowed significantly during the second quarter of 2012, thanks largely to weak consumer spending.
Thankfully, though, Chipotle did manage to post a 1% increase in comparable restaurant sales during the first quarter this year, primarily the result of healthier foot traffic. In addition, management already warned investors earlier this year to expect flat to low-single-digit comparable sales, at least for as long as they choose not to increase menu prices.
The upside, as I noted at the time, is that by forgoing those price increases, Chipotle is effectively choosing to reinforce the strength of its brand with a long-term focus on building a great business.
However, if customer traffic this quarter slows, investors could read it as a sign diners are choosing Chipotle less often, instead favoring plentiful alternatives like fellow fast-casual specialist Panera Bread or Taco Bell operator Yum! Brands (YUM +2.05%).
Remember, Panera itself achieved 3.3% comparable net sales growth last quarter, telling investors it expects impressive comparable net sales growth during its own second quarter of between 4% and 5%.
And though Yum! Brands is admittedly working through plummeting same-store sales numbers in China due to food quality issues in the region, the fast-food industry stalwart's total system sales still managed to grow 1% thanks to a 6% boost in Yum! Restaurants International and 2% growth in its significant U.S. market.
2. Are food cost increases moderating?
Equally painful for Chipotle lately have been relentless increases in the price it must pay for its high-quality ingredients. In fact, last quarter, food costs represented one-third of the company's total revenue, an increase of 80 basis points over the same year-ago period.
Even so, a press release from Chipotle last month highlighted the fact that it still intends to serve more than 15 million pounds of locally grown produce in its restaurants this year, an increase of 50% over the company's 10-million-pound goal in 2012.
What's more, the rising cost of ingredients has given the chain the opportunity to focus more on efficiency as a driver to maintain healthy margins. As a result, once the smoke clears and food-cost increases wane, Chipotle will emerge a leaner, more effective moneymaking machine.
3. How are those expansion plans coming along?
Finally, I'd like to know how the company's steady expansion is progressing.
Specifically, after opening 48 new locations in the first quarter, Chipotle management told us they remain confident in their ability to deliver at the high end of their previous guidance of opening between 165 and 180 new restaurants by the end of 2013.
Of course, Chipotle can't keep up with Yum! Brands' torrid growth rate -- remember, Yum! opened 315 new locations internationally last quarter, and remains on track to open at least 700 new locations in China alone by the end of 2013, which should bring its total number of global restaurants close to 40,000 by the end of this year between Pizza Hut, KFC, and Taco Bell.
Still, Chipotle is just fine operating with a much smaller store base at just over 1,450 restaurants, and the company also recently announced lease agreements to open four more of its up-and-coming ShopHouse Southeast Asian Kitchen concept restaurants, which could very well mark the beginning of another hugely popular brand for Chipotle shareholders.
While I'd love to hear management's comments on how big they envision ShopHouse could eventually become, remember that there are currently more than 1,500 similar, privately held Panda Express restaurants across the U.S. with which Chipotle's new brand could compete.
Foolish takeaway
In the end, I'm still convinced Chipotle is well positioned to achieve significant growth for years down the road, and answers to these three questions Thursday should help determine how well shareholders will be rewarded in the process.
