Chipotle Mexican Grill's stock has fallen nearly 8% since the company reportedquarterly resultslast week. Is this pullback a buying opportunity? To help you make that decision, here are the key takeaways from the burrito roller's earnings conference call.
This growth story is far from overChipotle remains one of the most impressive growth stories in the restaurant arena. Its rapid store count expansion and industry-leading same-store sales growth are driving strong gains in revenue and earnings per share. Chairman and Co-CEO Steve Ells commented on this during the earnings call:
Chief Financial Officer Jack Hartung added:
Chipotle is steadily increasing its revenue per location even as it expands its restaurant count at a healthy pace. That's a powerful formula for increased profit and cash flow, as well as outstanding shareholder returns.
The current pork shortage will not be the lastChipotle's otherwise stellar results were marred by a pork shortage. In January, the fast-casual chain suspended one of its pork suppliers after a supply chain audit found that it was not fully compliant with Chipotle's standards. To its credit, Chipotle stayed true to its "Food With Integrity" mission and pulled this pork from its supply chain. However, as Ells noted during the call, that left the company with a pork shortage that affected a third of its restaurants:
Chipotle is working with its suppliers to increase their production of "Responsibly Raised" pork, but these initiatives will take time. Management expects the shortage to remain at more than one-third of its restaurants during the peak spring and summer periods.
Chipotle's reliance on the limited number of suppliers that can meet its high standards will likely result in future ingredient shortages. Investors should be aware of this risk.
Chipotle's marketing is unlike that of any other fast-food brandRather than focusing on massive marketing campaigns like many of its competitors, Chipotle benefits from customers who evangelize its food and mission on social media and by word-of-mouth, as explained by Chief Marketing Officer Mark Crumpacker:
Spending less on advertising allows Chipotle to invest more in its food and people. That creates a virtuous cycle that leads to further increases in customer satisfaction and -- often free -- publicity.
Promoting from within is paying dividendsChipotle is committed to investing in its employees and developing leaders from within its ranks of crew members. Management believes this has a direct impact on its operations, as co-CEO Monty Moran explained:
In the past year, Chipotle promoted more than 10,500 crew members into management positions. More than 78% of its "restaurateurs" -- the company's most elite restaurant managers who are all hand-picked by the CEOs -- started as crew members. Undoubtedly, these types of advancement opportunities improve morale and retention, and enable Chipotle to attract some of the best talent in the industry.
The future is brightSeveral macro trends are helping to fuel Chipotle's current growth and point to more share gains in the years ahead. Ells explained this well during the conference call:
With people of all ages becoming more concerned about what they eat -- and with Chipotle's focus on quality food resonating particularly well with younger consumers -- Chipotle remains extremely well positioned to profit from the trend toward healthier living.
The article 5 Things Chipotle Mexican Grill, Inc. Management Wants You to Know originally appeared on Fool.com.
Joe Tenebruso isportfolio manager ofTier 1 Investments, a Motley FoolReal-Money Portfolio.You can connect with him on Twitter@Tier1Investor. Joe is short January 2017 $100 puts on Apple and long January 2017 $90 puts on Apple. The Motley Fool recommends Apple and Chipotle Mexican Grill. The Motley Fool owns shares of Apple and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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