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What: Shares of Chipotle Mexican Grill (NYSE:CMG) were sizzling today, climbing as much as 14% after the company posted strong sales in its third-quarter earnings reports.
So what: The burrito chain actually missed on earnings expectations, delivering a per-share profit of $2.66 against expectations of $2.78, due to higher food costs, but the high-flying fast-casual star has always been a growth story and investors know that bottom-line profits will eventually follow with top-line sales. Revenue in the quarter jumped 18% to $826.9 million, beating estimates of $820.3 million, and, better yet, same-store sales bumped up 6.2%, topping the consensus at 4.7%. Management said it expects the strong organic growth rate to continue in the fourth quarter, and may raise prices 3% to 5% next year to counter rising food costs.
Now what: Even though Chipotle missed earnings estimates, this was about as good of a quarter as investors could have asked for. The 6% comp seems to indicate that long-rumored threats such as Taco Bell's new Cantina Bowl lineup have not taken a bite out of the category leader, and that individual stores have not reached capacity, despite long lines, as some had feared. With nearly 200 new store openings on line for 2014, and an expected price increase, Chipotle should have no problem maintaining its hot growth rate into next year. The valuation may be too hot for some, but with only 1,500 total locations, Chipotle still has plenty of room to run.
Fool contributor Jeremy Bowman owns shares of Chipotle Mexican Grill. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.