Chipotle Mexican Grill, Inc. (NYSE: CMG) is a well-known developer and operator of restaurants with a menu that focuses on burritos, tacos, burrito bowls and salads. The company operates 1,755 restaurants in the United States with a minor presence in other developed countries, including Canada, the United Kingdom, France and Germany. Chipotle has a simple menu and organic product offerings that can be customized to consumers' tastes. Through its shrewd marketing campaigns and focus on high-quality ingredients, Chipotle has created a very positive brand and high appeal among consumers. Despite an E. coli investigation, Chipotle is likely to continue enjoying a solid competitive position and strong future returns.

Chipotle's Revenues

Increasing revenues, especially comparable restaurant sales, are one of the most important benchmarks that investment analysts use to make comparisons across retail and restaurant businesses. Chipotle has demonstrated an impressive comparable restaurant sales increases of 16.8% in 2014, 5.6% in 2013 and 7.1% in 2012. The company opened over 180 new restaurants each year from 2012 to 2014, increasing its location count by over 10% annually.

For the nine-month period ending on Sept. 30, 2015, comparable restaurant sales growth was 5.5%, which represents a deceleration from 17% for the same period in 2014. Overall sales increased from $1.84 million in 2010 to $4.57 million for a trailing 12-month period ending on Sept. 30, 2015, representing about 20% average annual growth rate from 2010 to 2015.

Not many restaurants can achieve such high growth rates, especially comparable restaurants sales increases. Major dining businesses, including McDonald's, Yum and Wendy, showed low single-digit growth rates or declines in comparable restaurant sales. This attests to Chipotle's strong brand equity and ability to generate consistent repeat sales.

Operating Margins

Chipotle's management team remains laser-focused on the company's margins. From 2010 to 2014, Chipotle increased its operating margin from 15.68 to 17.3% despite intense competition among casual dining companies. Chipotle raised its prices numerous times with no noticeable loss of customers. More recently, the company showed its highest operating margin of 18.54% for the trailing 12-month period ending on Sept. 30, 2015. While the E. coli outbreak may cause a decline in the company's margins, it is likely to be a blip, and loyal Chipotle's customers will return to its locations and margins will be restored.

Return Metrics

Unlike some of its rivals, Chipotle is very careful in avoiding capital destruction through growth of its store count at the expense of returns. With its highly efficient operations on site and prudent cost management, Chipotle has demonstrated a return on invested capital (ROIC) that averaged 24% from 2010 to 2015. This is very rare in the highly competitive dining industry, attesting to the company's moat and intangible assets. Returns on equity (ROE) also averaged 24% from 2010 to 2015 with no signs of deterioration. Such high returns ensure that future growth and store expansion will bring more value to Chipotle's shareholders.

Chipotle's Management

Chipotle has a highly skillful management team with a lot of industry experience. Steve Ells, the company's co-CEO and chairman, has been with the company since its inception in 1993, while Montgomery Moran, Chipotle's president and co-CEO, was a long-serving executive as the company's general counsel. Chipotle's executive team proved to be a highly prudent with capital allocation by focusing on growth initiatives with strong excess returns on investment (ROI). Chipotle has returned substantial capital to its shareholders in the form of cumulative share buybacks of $634 million from 2010 to 2014.

Chipotle's Competitive Advantage

Despite increasing competition, Chipotle has several competitive advantage characteristics that will shield it from future competition and preserve its strong returns. Chipotle's motto of "food with integrity" demonstrates the company's commitment to responsibly raised animals, whole ingredients and produce sourced from local farmers. Chipotle underscores its commitment to ingredients that are natural and free of genetically modified components. This represents a key differentiation point for Chipotle that has an exceptionally broad appeal, especially among younger generations of consumers.

In addition to quality ingredients, Chipotle features an attractive restaurant interior design and menu that can be distinctively customized, bringing more value to its customers. After the E. coli outbreak, Chipotle is poised to rectify its past mistakes with food handling and is in the process of changing its safety procedures.

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