Why Shares of Chipotle Destroyed the S&P 500 Today

Today was a good day for the S&P 500, with the value of the index rising by 0.65% to its all-time high. However, as good as this news may appear for investors, it pales in comparison to the performance of Chipotle Mexican Grill (CMG 6.33%), the best performing component of the S&P 500 today. After reporting earnings of $2.66 per share, 4.3% below analyst's expectations of $2.78, shares of the casual-dining restaurant soared 16.10% to close at their all-time high as well (quite a coincidence if I do say so myself) of $509.74.

Growth! Growth!! Growth!!!
What is most surprising to me isn't the company's explosive share price growth. That is, to some extent, to be expected of a company that has seen its revenue grow by 105% over its past five fiscal years, while seeing net income rise by 255.5% over the same time. Rather, what impresses me is that the company has been able to see a massive increase in its share price even in spite of an earnings miss, especially one of such magnitude. However, it is likely that the other factors behind Chipotle's quarter allowed the market to forgive its earnings shortfall.

For instance, when looking at the company's third quarter (the one it just reported earnings for) and comparing its results to the same quarter a year ago, we see that the company experienced a number of positive results. One example is its 15.3% net profit increase from $72.3 million last year to $83.4 million this year. According to the company, the increase in profit it saw for the quarter can be chalked up to an increase in its advertising spending, as well as the opening of 37 new stores. In addition to new store openings, and in conjunction with advertising expenditures, Chipotle saw a rise in its same-store sales, which increased by 6.2% when compared to the same quarter a year ago.

Competitor Growth Comparisons
Obviously, this is all positive news for the company, especially during a time when competitors have been seeing challenges not just growing but maintaining profitability. While companies like Chipotle have been flourishing lately, companies in the lower-end of the food industry, namely fast food enterprises like Yum! Brands (YUM -0.18%), have suffered.

As an example of this, Yum! Brands has seen its revenue rise by only 20.6% over the past five years, while its net income has increased by about 65.7%. Admittedly, these metrics are attractive to say the least, but they are a far cry from Chipotle's growth. The strain felt on competitors like Yum! Brands, though, has appeared more recently, with revenue for Yum! Brands having decreased by 2.9% for its most recent quarter when compared to the same quarter a year ago and with earnings per share declining by 68% in said quarter.

Another high riser that has benefited from increased consumer popularity over the past few years has been Panera Bread Company (PNRA), a casual-dining restaurant chain that specializes in (you guessed it!) bread. Over the past five years, Panera has seen its revenue increase by about 64%, whereas its net income has risen by 157.3% from $67.4 million to $173.4 million. Even looking over the past few quarters, Panera has performed exceptionally well (though not as well as Chipotle), with its revenue for the second quarter of this year compared to the same quarter a year ago rising by 11% from $530.6 million to $589 million. On top of this, the company's net income has increased 15.6% from $44.1 million a year ago to $51 million in its most recent fiscal quarter.

Moving Forward with the Burrito!
Moving forward, Chipotle expects to continue is path toward growth, but it is unlikely that it will be as explosive at it has in the past few years. While management has already leveraged its resources to open 129 new stores year-to-date, it expects to increase that number to between 165 and 180 locations by the end of the year.

For its 2014 fiscal year, the company expects to see slightly better growth expectations as it presses on in the hopes of opening between 180 and 195 locations by the end of the year. In addition to new openings and increased advertising, the company expects to improve its profit margins (which have been hindered lately by costs rising) by implementing price increases that, according to its CFO, will probably range between 3% and 5%. Although this may scare some investors, it is unlikely that increasing its steak bowl from $6.65 to $6.98 will do the same to very many consumers.