Bloomberg News

Chipotle Profit Trails Estimates as Sales Growth Slows

October 19, 2012

Chipotle Mexican Grill Inc. (CMG:US), the burrito chain criticized by hedge fund manager David Einhorn, fell after posting third-quarter profit that trailed analysts’ estimates on slowing store sales growth.

The shares (CMG:US) tumbled 15 percent to $243 at the close in New York for the biggest decline since July 20. Chipotle has dropped 28 percent this year.

Chipotle, led by Steve Ells and Montgomery Moran, is facing more competition from Yum! Brands Inc. (YUM:US)’s Taco Bell, which recently began selling higher-priced burritos and bowls as a part of its Cantina Bell menu. Chipotle, along with other restaurants, also has seen higher ingredients costs and raised menu prices at some stores earlier this year.

“They’re coming up against a little bit of a ceiling,” Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. “They need to do something more either on advertising or new product news” to draw more customers into their stores, he said.

Third-quarter sales at Chipotle stores open at least 13 months rose 4.8 percent in the quarter, the slowest growth in 10 quarters. Analysts estimated an increase of 4.9 percent, the average of 27 estimates compiled by Consensus Metrix.

Net income rose 20 percent to $72.3 million, or $2.27 a share, from $60.4 million, or $1.90, a year earlier, the Denver- based company said yesterday in a statement. The average of 25 analysts’ estimates (CMG:US) compiled by Bloomberg was $2.29.

Consumer Confidence

“It looks like there is a little bit of slowing of consumer confidence,” Chief Financial Officer Jack Hartung said on a conference call. “We’ve seen kind of a leveling off of our transaction trends.”

Chipotle also is expecting higher meat and dairy costs next year after a U.S. drought hurt the corn crop and drove up prices, Hartung said.

Comparable-store sales in 2013 will range from little changed to a “low-single digit” percentage rate of growth, Chipotle said in the statement. Same-store sales are a key indicator of a retailer’s growth because new and closed locations are excluded.

Revenue advanced 18 percent to $700.5 million in the three months ended Sept. 30. Analysts estimated $703.7 million, on average.

Einhorn, head of Greenlight Capital Inc., said earlier this month that Chipotle’s valuation is too high and the company will face challenges from Taco Bell. He recommended selling the stock short, referring to the practice of borrowing shares and selling them, with the goal of profiting by repurchasing them later at a lower price.

Chipotle, which has about 1,350 locations, last year opened its first Asian-themed restaurant called ShopHouse in Washington. ShopHouse diners move along a service line and customize their food when ordering, similar to Chipotle stores.

ShopHouse “continues to perform well,” and the company will open another location in Santa Monica, California, in the first half of 2013, Ells said during the conference call.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • CMG
    (Chipotle Mexican Grill Inc)
    • $610.0 USD
    • 1.01
    • 0.17%
  • YUM
    (Yum! Brands Inc)
    • $69.25 USD
    • 0.12
    • 0.17%
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