CHIPOTLE MEXICAN GRILL $504.32 (New York symbol CMG; TSINetwork Rating: Speculative) (303-595-4000; www.chipotle.com; Shares outstanding: 31.1 million; Market cap: $15.7 billion; No dividends paid) is a Denver-based Mexican restaurant chain. It charges slightly higher prices than fast food companies, but it offers better quality food, including naturally raised meat, and superior decor and service.
In the three months ended March 31, 2014, Chipotle’s sales rose 24.4%, to $904.2 million from $726.8 million a year earlier. The company’s restaurants attracted more customers during the quarter, which pushed up same-restaurant sales by 13.4%. Chipotle also opened 44 new outlets and now has a total of more than 1,600. In all of 2014, it aims to open 180 to 195 locations.
Earnings gained 8.5%, to $83.1 million, or $2.67 a share, from $76.6 million, or $2.47.
Chipotle’s profits would have been even higher if not for increased food and ingredient prices. These costs equalled 34.5% of its sales in the latest quarter, up from 33.0% a year ago. Prices rose particularly sharply for beef, avocados and cheese. However, Chipotle now plans to raise its prices, likely around 3% to 5%, by this summer.
The company is a well-established chain with a growing following, especially among health-conscious, environmentally aware consumers.
Still, Chipotle operates in the fickle and extremely competitive U.S. restaurant market. The stock is down from the all-time high of $622.90 it hit in March of this year, but it trades at nearly 40 times Chipotle’s forecast 2014 earnings of $12.60 a share. That’s a high ratio that leaves the stock vulnerable if the company runs into any short-term problems.
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