The company has posted impressive top-line and bottom-line growth rates in the past helped by new restaurant additions and existing restaurants posting more than 10% comparable sales growth. The stock has declined by more than 10% in the second quarter after recent reports suggested that the comparable sales may be
We have a
Don't be Surprised by Slowing Comparable Sales GrowthThe company's comparable restaurant sales grew 12.7% in the first quarter, which were somewhat amplified by menu price increases in the first quarter in the Pacific region. (Prices were increased for the remaining regions throughout the summer). Since a significant proportion of restaurants had their menu prices increased before the end of second quarter of 2011, it is quite natural for the comparable sales growth to slow down. Moreover, Chipotle does not plan to increase menu prices in 2012. In the absence of price hikes, we might see comp sales growth for 2012 lower when compared to that for 2011. For the long term, we expect growth to be in the region of 6% to 8%. Besides comp sales growth, additional revenue will be generated from new restaurant additions. The company added 32 new restaurants in the first quarter and plans to add around 155-165 in total for 2012. As of March 31, Chipotle had 1,262 restaurants, all of which are company-operated (i.e. none of them being franchised). Margins to Remain Steady We don't expect any significant change in the margins. A lack of menu price increases means that beverage and packaging costs (as a percentage of revenue) will rise but the company has benefited from lower fixed costs such as labor and occupancy costs in the past (again, as a percentage of revenues). We expect this trend to continue since it is likely that the comparable sales growth will outpace the fixed costs.
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