Chipotle Mexican Grill (NYSE:CMG) continued its sizzling ways in the first quarter of 2012. During the quarter, Chipotle reported revenues of $640 million, up 26% from the year ago figure. Diluted earnings per share were $1.97, up 35% from the year ago quarter. Analysts were predicting EPS of $1.93 and revenues of $631 million, respectively.
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Chipotle's results continue to be the exception in the restaurant industry. During the quarter, comparable restaurant sales, or sales at Chipotle restaurants operating for at least a year, grew by 12.7%. Overall sales grew by 26%, as Chipotle added 32 new locations during the quarter, bring the total restaurant count to 1,262. To be sure, Chipotle's sizzling is a result of it being a relatively young business with lots of geographic growth potential. Consider that McDonald's (NYSE:MCD), Chipotle's former owner, has over 30,000 locations worldwide. Panera Bread Company (Nasdaq:PNRA), a more reasonable comparison to Chipotle, has over 1,500 locations. So Chipotle's restaurant footprint is just getting started.
Higher food costs concerns were mitigated in the first quarter as the company implemented menu price increases. As a result, restaurant operating margins improved by 220 basis points in the quarter to 27.4%. Management nonetheless commented that margins were still affected by higher food costs.
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Watching From the Sidelines
Despite reporting exceptionally strong growth rates and smashing estimates, Chipotle shares barely moved after the earnings release. That's because investors like me, who love eating at Chipotle, are most likely watching the show from the sidelines. The market loves Chipotle and its sizzling growth so much that shares currently trade for over 60 times earnings and six times sales. The market expects great numbers from Chipotle. While the company still continues to expect opening 155 new stores in 2012 along with positive sales growth, fewer and fewer buyers remain with the shares trading for $430.
Certainly Chipotle's unique position in the restaurant industry and the future growth that likely awaits the company justify a premium valuation; but valuation has been inflated by excitement for the company. Panera Bread trades for 33 times earnings while Starbucks (Nasdaq:SBUX) trades at 35 times earnings, high multiples by restaurant standards. So Chipotle stands alone, and rightly so. It could be years before shares trade for a multiple of 33, unless the markets collapse.
The Bottom Line
So for now, I will have to continue enjoying the company's delicious food and supporting its food philosophy, while wishing for a more digestible valuation.
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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.