CHIPOTLE MEXICAN GRILL (New York symbol CMG; www.chipotle.com) 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% in the quarter, 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 to $543.
Investing in stocks: New Ruby Tuesday CEO brings reputation of turning around underachieving chains
RUBY TUESDAY, INC. (New York symbol RT; www.rubytuesday.com) owns 679 casual dining restaurants in the U.S., with franchisees operating 31 in the U.S. and 45 overseas. The company also runs 20 Lime Fresh restaurants and franchises eight (six domestic and two international).
In the three months ended March 4, 2014, Ruby Tuesday’s sales fell 3.8%, to $295.6 million from $307.4 million a year earlier. Same-restaurant sales declined 1.9%. Continued weak consumer spending was the main reason for the decline. Competition remains intense in the casual-dining business.
Excluding one-time items, Ruby Tuesday lost $4.5 million, or $0.07 a share, compared to a year-earlier profit of $6.3 million, or $0.10. That beat the consensus estimate of an $0.08-a-share loss.
The company’s new CEO, J.J. Buettgen, has a history of turning around well-established but underachieving restaurant chains. His plans for Ruby Tuesday include moving the company’s restaurants back to a casual bar and grill atmosphere and revamping the menu. Meanwhile, he has closed 30 underperforming restaurants and plans to launch a major new marketing campaign.
In the latest edition of Stock Pickers Digest, we look at the earnings forecast for Chipotle and its ability to sustain its profitability in a fiercely competitive environment. We also consider Ruby Tuesday in light of the risks that accompany a major turnaround campaign. We conclude with our clear buy-hold-sell advice on these two stocks.
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