On Thursday, Jan. 30, Chipotle Mexican Grill (CMG -1.29%) reported its fourth-quarter and full-year results for 2013. The company reported blowout numbers that surpassed analyst expectations on both revenue and net income, and shares of the fast-casual restaurant rose 13% in after-hours trading. But now, after shares hit an all-time high after the market closed, is it possible that the best returns for shareholders are in the past?
Chipotle surpassed expectations
For the quarter, management reported that revenue rose 20.7% to $844.1 million. This was 2% higher than the $826.4 million the company was expected to report, and came about as a result of two variables: comparable-store sales and increased restaurant count.
During the quarter, Chipotle announced that comparable-store sales rose an impressive 9.3%. As opposed to generating this rise in comps from an increase in the business' average ticket, the company achieved the jump by higher customer traffic. Another driver of higher sales was a rise in store count. By the end of the quarter, management had added 56 new restaurants, bringing the company's full-year expansion to 185 locations.
On top of beating Mr. Market's revenue expectations, the company saw an improvement in the business' bottom line. For the quarter, earnings per share came in at $2.53, a penny above forecasts and nearly 30% higher than the $1.95 the company reported in the same quarter a year earlier. Despite seeing food, beverage, and packaging costs rise as a percent of sales, the company saw labor, occupancy, and other operating expenses fall.
Chipotle's in a league of its own
In the restaurant sector, probably no company can measure up to Chipotle in terms of growth. Over the past three years, the company's revenue rose nearly 49%, from $1.8 billion to $2.7 billion. On top of attractive revenue growth, however, the business also experienced a 55% jump in net income, from $179 million to $278 million.
In comparison, Panera Bread (PNRA), another fast-casual restaurant, saw its revenue rise 38%, from $1.5 billion to $2.1 billion, while net income rose 55%, from $112 million to $173 million. Just as in the case of Chipotle, Panera benefited from a rise in comparable-store sales and an increase in the number of locations in operation.
Over the past three years, comparable-store sales at Panera grew 20%, while its store count rose 14%. Both of these metrics are strong, but Panera falls short of Chipotle's performance over this period. Between 2010 and 2012, Chipotle experienced a 30% increase in both comparable-store sales and locations in operation.
Not even Buffalo Wild Wings (BWLD) can quite keep up with Chipotle. In terms of revenue growth, the company does take the cake with a 70% jump in sales over the past three years, but it has done so at the cost of profitability. Between 2010 and 2012, net income only rose by 49%.
What this means is that the business is forgoing larger profits now so that it can expand more rapidly and, hopefully, generate a larger return down the road. While this can be a successful expansion technique, shareholders should be careful about the company growing so rapidly that profits plummet.
What we have with Chipotle is a company that is continuing to grow rapidly while increasing its bottom line at an impressive pace. In comparison, rival restaurants like Buffalo Wild Wings and Panera are both growing at a nice pace, but they present shareholders with some downside. Buffalo Wild Wings, for instance, has managed to grow revenue much faster than even Chipotle, but its net income isn't capable of keeping up. On the opposite side of the table, Panera's revenue growth has slowed, but its net income has kept up with Chipotle.
Moving forward, it doesn't look like Chipotle is going to slow down anytime soon. Because of its attractive growth and profitability, it does present shareholders with attractive prospects, but there is some downside that the Foolish investor should be mindful of.
With a P/E ratio of 53, Chipotle is more than twice as pricey as Panera and slightly more expensive than Buffalo Wild Wings, which has a P/E of 40. Yes, the company's past performance has been strong and its future looks bright, but can shareholders stomach such a rich valuation?