The Chipotle Mexican Grill (NYSE:CMG) Success- Not Very Successful


With the third quarter wrapping up, some companies proudly announced their achievements other not so. Among the names was Chipotle Mexican Grill (NYSE:CMG) with its impressive figures. Its sales level, earnings, revenues all shot up to record levels. The company called it a celebration but certain elements in terms of outlook left a bad impression behind. It seemed that long term loses were disguised in the quarterly success.

Looking into the quarter, the revenues rose by 31.1% to $1.08 billion. Same store sales soared 18.8%, earnings by 56%. In his remark Co CEO Steve Ells stated that the company has successfully managed to take business away from the traditional fast foods through a healthier and high quality selection in ingredients, a memorable dining experience, a progressive work culture and higher prices tagged with higher quality on its menu. Everything seemed to work in the company’s favour, all moves well planned and well executed.

But when you look closely, in terms of same-store sales, the mid-teen growth for 2014 might be slowing down in the fourth quarter. Even though investors are still expecting long term hyper growth but figures suggest otherwise. Chipotle (NYSE:CMG)’s nine month growth for mid-teen was 17% and it seems after the fourth quarter it might be down to 15% highlighting a serious growth lag. Looking into the past years we see a very small percentage change in the same store sales. In 2011 the figures rounded up to $2.1 million, in 2013 it was $2.11 million and in 2013 it showed a $2.17 million. Analyzing the results from this perspective, it’s easy to conclude there wasn’t much growth on an individual level than what’s the hype all about?

Determining this level is actually tricky as restaurants start with their same store sales count only after 13 months of being in the business. So if restaurants perform poorly in the first year but start off well in the second after having gained popularity and seeing repeat customers then the results only show the good performance it started in the second year. Whereas in reality it just means that these restaurants are catching up with the rest of the chain. Similar was the story with Chipotle (NYSE:CMG), the restaurant sales were hardly budging but the quarterly or yearly figures painted a very different picture. Fooling everyone.

But the 2014 figures hit home by showing that the company shift from $2.10 million to $2.5 million wasn’t due to price increases of per unit sales. As both were down sequentially. This was because of new units opening that the net income and revenue both went up. Chipotle (NYSE:CMG) might be a well-known brand but its revenues are generated through expansion or unit growth rather than sales per unit.

This scenario might be much dangerous in the long run then it seems at this point. Certain measures need to be taken to install parameters of success. Only then the company will be able to determine where it actually stands.