Leave it to Chipotle Mexican Grill (NYSE:CMG) to lead by example. The fast-casual darling came through with another blowout quarter on Monday afternoon.
Revenue soared 31% to $1.08 billion, fueled by expansion and a record 19.8% spike in comps. Earnings per share soared 56% to $4.15 as margins benefited from menu increases that kicked in during the second quarter. Analysts were only holding out for a profit of $3.84 a share on $1.06 billion in revenue.
The 1,724-unit chain is rolling like one of its signature burritos. Customers are thankfully not flinching at Chipotle's first major nationwide menu pricing move in three years. Chipotle points out that it's not just the slight increases on the menu boards driving its impressive top-line results. Traffic at the average store is also clocking in higher, leading one to wonder whether Chipotle's pricing elasticity is stronger than it thinks.
Hold the carnitas
One would expect a report like this to send a stock flying to the moon, but there were two things keeping the euphoria in check in after-hours trading on Monday. For starters, Chipotle's stock has been as hot as its tomatillo-red chili salsa. Shares of Chipotle have more than doubled since the beginning of last year. Lofty expectations are often baked in when a stock has a big gain ahead of a report.
The one factor that sent the shares initially lower after the otherwise strong report is its guidance. Chipotle sees comps in the mid-teens for all of 2014. Comps have risen 17% through the first nine months of the year, and that includes the first half of the year before the price increase kicked in. Chipotle should continue to have this favorable year-over-year headwind until halfway through the second quarter of 2015. Why didn't the forecast call for comps in the high teens?
This is the first time Chipotle didn't boost its comps outlook for 2014 since it initiated that forecast a year ago.
- October: "Low single-digit comparable restaurant sales excluding any menu price increases"
- January: "Low to mid single digit comparable restaurant sales excluding any menu price increase"
- April: "High single digit comparable restaurant sales increases, excluding any menu price increase"
- July: "Mid-teens comparable restaurant sales increases"
Now, it's true that the first two announcements were made before the menu price increases. One can also argue that Chipotle's showing its conservative swagger since its mid-teens call this summer was followed by a nearly 20% surge in comps during the last three months. However, the market can get spoiled with Chipotle. That's easy to happen when you're not only the market darling of the restaurant industry but a company that has just pulled off six consecutive periods of accelerating comps growth.
- Q1 2013: 1.1%
- Q2 2013: 5.5%
- Q3 2013: 6.2%
- Q4 2013: 9.3%
- Q1 2014: 13.4%
- Q2 2014: 17.3%
- Q3 2014 19.8%
Chipotle's guidance was even less encouraging looking out to 2015. It initiated its forecast for next year, calling for comps to climb in the low to mid-single digits. That has the market irked, but what did Wall Street think would happen once the May price increases no longer inflate store-level performances? If there's any silver lining to the outlook it's that this is actually better guidance for the year ahead than what Chipotle was offering up a year ago in assessing 2014's prospects. That's not a bad place to be.