Background on CMG 2007Q2 earnings

Last quarter saw profit growth of 56% with an 8.3% growth of same store sales. That's not half bad.

Analysts expect income of 45 cents per share and sales of $262.9million. And, in logic that only high paid investment bankers can understand, most folks expect chipotle to beat those expectations and raise guidance for Q3. Indeed.

The call starts in a half hour and can be listened to via the interweb at this investor relations page. You have to share some details about who you are. I'll be adding more as the call passes.

Press Release Before the call

From there's some juicy details. EPS smashed the expectation at 60 cents per share, sales beat expectations at $274.3million, and same store sales grew at 11.6%. Wow.

One interesting thought I have here is that they just mentioned "market concerns about rising labor and raw materials costs". Chipotle's slow adoption of higher end raw materials may buffer them against these rising prices. Until they go "100%" in any one category they can reduce the mix of organic/natural/RGBH free items. Also, as their suppliers increase the supply of these higher end raw materials it reduces the premium which chipotle has to pay for them.

Discussing Innovation

Just mentioned the "hotter more evenly heated tortillas more quickly with less effort" which must be the one I photographed at 1600 california street.

How to buy Chipotle CMG stock

I got an email today asking

How can I buy Chipotle stock?

Well, if you don’t know how to buy stock then you probably shouldn’t be. Seriously. It’s not hard, you just go to an online broker, setup an account, send them a check to start it, and buy the stock. Done.

Should you buy Chipotle CMG Stock

But regardless of whether or not you can, should you buy Chipotle stock? Well, I don’t know. I’ve written a lot about how it’s been a great year for their stock. On the other hand, stock analysts like Morgan Joseph are coming out saying it’s overpriced. The stock now trades near $80. That’s a price-to-earnings ratio (or P/E) of nearly 60. That’s, um, high. It implies a really really fast rate of growth in the next few years.

Can they grow that fast? I’d say that the market demand is still strong and unsatisfied by current offerings like local store or QDoba/Moes/Baja Fresh, and they have a large enough cash reserve to be able to accelerate the number of stores that they open each year (about $150 million), so what holds them back? Staff. Logistics. Their own internal desired rate of growth. If they grow too quickly that may start to decrease the quality of their stores. Growing fast is pretty hard. I’m not sure they can grow fast enough to justify a P/E of 60. Of course, stock advice is a tricky subject so I could be totally wrong. Who knows. Not me.

I do know I like to eat their burritos. In fact, I think I’ll go to do that right now!

Burritos make you crazy
Burritos get you high
Burritos make you happy and you don’t know why

They full of rice and beans
They can set your sould free
They’re almost as good as swimming with manatee

But why would you even go swimming in a no wake zone
When you can have a nice burrito right here at home
So go swimming if you want to with or without a manatee
don’t forget the best burritos come from chipotle
the best burritos come from chipotle
the best burritos come from chipotle

You can go swimming if you want to with or without a manatee
don’t forget the best burritos come from chipotle

today marks the “analyst call” for chipotle’s quarter 1 2007. the numbers were pretty darn good. yahoo has a piece on it and so does bizjournals. i’m sure the local denver press will cover it tomorrow morning (and then wonder why their circulation is down 1% in the last 6 months while chipotle’s same store sales are up 8.3% in “same store” sales).

There were two things I thought were worth noting from the call:

Food With Integrity - Changing the Way Americans Think about Fast Food

About the food with integrity mission, Ells said:

We recently introduced naturally raised chicken in one of our largest markets, Colorado, and now two-thirds of the chicken we serve is naturally raised. As we advance Food With Integrity, we move closer to our goal of changing the way Americans think about and eat fast food.

Think about that for a minute. It’s not just a burrito join. The mission of Chipotle is Food With Integrity that changes the way you think about and eat fast food. Ok. That’s nice.

Valuing Their People

From my meeting with Houman Iskandani that was inspired by his appearance on their soda cups, it’s clear that chipotle wants to make Rock Stars out of their employees.

Our restaurant managers are the strongest they have ever been, as more of them are being promoted from our talented crew people. By preparing their crew to become future leaders, our best managers are creating a strong and sustainable culture of opportunity and people development.

businessweek did an interview with chipotle founder steve ells. it’s a pretty interesting read though most of it was stuff that i knew already. interesting new nuggets:

chipotle’s size and growth

the 573-unit company is opening a new location every four days…Today, Chipotle employs more than 15,000 people

so, that’s pretty fast growth of stores for a company that doesn’t franchise. it’s almost 100 new stores a year. not too shabby. having 15,000 employees seems crazy because i’ve seen their corporate offices and they were small. i imagine that each store has around 20 employees, so that’s about 11,000 people in the stores themselves. i could see having another couple thousand supporting the stores (like regional managers, transportation of ingredients, and such).

percent of organic or natural foods at chipotle mexican grill

We’ve certainly got enough all-natural pork. Today, more than 60% of our chicken is naturally raised, and we’re well on our way to having enough all naturally raised chicken. We’re 40% all-natural on beef. Almost 30% of our beans are organic.

again, that was mostly stuff i knew was either completely done or under way, but it’s nice to have hard numbers on the subject. if you’ve read much about patagonia’s own quest to use organic cotton and sustainable products in its clothing then you are familiar with this process. the company gets a small number of its suppliers to begin walking towards the eventual goal (be that organic, hormone free, or whatever) and then slowly as the price of that ingredient goes down you can integrate more and more of it into your stores. it’s really really neat to see. congrats to chipotle for slowly continuing this walk one ingredient at a time.

chipotle’s inspiration

there’s lots of concern about the corporate past of chipotle and whether they are owned by mcdonalds. mcdonalds being an “evil company” of course.

it turns out that in the fourth quarter of 2006 (october, to be specific) mcdonalds finished selling all of their shares in chipotle. so, chipotle is now owned by shareholders which means that you can buy some and then whenever you eat their it’s “just to help my portfolio” :)

this story was covered in yahoo news about mcdonalds fourth quarter 2006 financials.

EDIT: these videos were removed. bummer. i asked using the online ask a question form and was told that they are going to add some of their favorites to the chipotle.com site

chipotle mexican grill has been doing a program for a while now where design schools were invited to make videos, stick them on youtube, and then cmg would pick their favorite and that school would get some sort of reward.

this is a lot like the firefoxflicks program except that with youtube doing the hosting, cmg doesn't have to (which is a pretty smart thing, as bob cringely pointed out).

it's not really surprising that cmg - the company that uses low word-count billboards, radio, busses, email and web but hasn't done tv - is now using youtube to have tens of millions of people see their commercials. it's basically free to cmg and the only people watching them are people likely to get a favorable positive association as a result of watching the video. compare that with spending millions to get "denver viewers who watch that 70's show" with a traditional media outlet and it's clear that this whole contest+youtube was a pretty good scheme.

So, now that I'm done rambling:

winner: Southern Methodist University - The Wall

second: University of Nebraska, Lincoln - Dady