Chipotle Sales, Earnings Sizzle In First Quarter

By KEVIN HARLIN, INVESTOR’S BUSINESS DAILY Posted 04/19/2012 07:03 PM ET

Burrito chain Chipotle Mexican Grill (CMG) sizzled past earnings forecasts late Thursday, thanks to strong sales and a better handle on food costs.

Earnings surged 35% to $1.97 per share, 4 cents above consensus estimates. Sales climbed 26% to $640.6 million, beating analyst forecasts for $630.9 million.

Sales at restaurants open at least a year grew 12.7%, the seventh straight quarter of double-digit growth.

 Exceptionally mild weather in much of the country boosted sales by 1% to 2% in the quarter, the company said. The extra Leap Year day helped too. Chipotle sees mid-single-digit same-store growth for 2012.

Shares rose 1% in after-hours trading following a 1.7% drop in the regular session.

Chipotle, No. 18 on the current IBD 50 list, has been a top performer in the strong fast-casual dining segment, according to Darren Tristano, executive vice president with restaurant consulting firm Technomic.

he said.

Food costs remain an issue for Chipotle, which missed Q4 2011 earnings forecasts in part on those raw material expenses.

Q1 food costs climbed about 6% or 7%, Chipotle estimated on a conference call with analysts. Those inputs accounted for 32.2% of restaurant operating costs, flat vs. Q4 but up from 32% a year ago, the company said.

Cheaper avocados from Mexico and Chile, and moderating dairy prices helped offset higher chicken and beef costs.

Chipotle expects food costs to climb in the second and third quarters as it returns to pricier California avocados this summer, and shifts to sour cream made from pasture-raised cows. It sees full-year food inflation in the mid-single digits.

Chipotle raised prices 4.9% in March in its high-cost California and Pacific region, but says it doesn’t plan more hikes in 2012.

“We’re not compelled to take short-term pricing increases to drive quarterly results,” CFO John Hartung said on the conference call.

Denver-based Chipotle opened 32 restaurants in Q1 for a total of 1,262. It says it’s on pace for 155 to 165 new locations this year. It plans to open its first Paris restaurant this spring. It has two in London now and expects three more to open in the United Kingdom before year-end.

In September Chipotle opened ShopHouse Southeast Asian Kitchen in Washington, D.C., its first non-Mexican-themed eatery. It says it will open a second ShopHouse in D.C. later this year.

McDonald’s (MCD), which once owned a majority stake in Chipotle, reports Q1 results Friday. Analysts expect the fast-food king to post 7% EPS and sales gains. Strong U.S. sales are being offset by weakness in Europe.

Yum Brands (YUM), parent of Taco Bell, Pizza Hut and KFC, late Wednesday reported better-than-expected Q1 profit and sales, but reported slowing growth and higher costs in China. Its shares fell 2.1% Thursday.

Across the S&P 500, companies have been beating modest expectations. About 21% of those firms have reported, with 82% beating forecasts. Typically about 62% of firms beat views.

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