Chipotle’s Story Getting Hairy

Chipotle Mexican Grill has been a darling of the momentum crowd since its IPO, but higher commodity costs, including basics such as avocados, are forcing management to pull a few strings. A 10% price increase did not seem to faze customers of its NYC restaurants, but that might not play in Peoria. Will they be able to sustain earnings growth while becoming sustainable?:

This year we expect to serve more than 52 million pounds of naturally raised meat; more than any other restaurant company. That’s more than 200 million meals made with meat from animals that were raised in a humane way and never given antibiotics or growth hormones. And fed a pure vegetarian diet without any animal byproducts. During the first quarter of 2008 we added naturally raised beef to all of our restaurants in Minnesota. With that change Minnesota joins the number of Chipotle markets that are serving 100% naturally raised meats. And we continue making progress with our naturally raised chicken suppliers. At the end of the first quarter 2008 about 85% of our restaurants serve naturally raised chicken...Last year Chipotle became the first national restaurant company to serve only dairy products that are made from milk from cows that were not treated with the synthetic growth hormone, RBGH.

You have admire their commitment to natural foods, and they are certainly at the forefront of the movement. But short-sellers are looking to fatten up a little at the expense of shareholders whose zeal reminds me of Apple shareholders, or pehaps Iomega circa 1995.

Chipotle has plenty of room to roll out its concept across the country, but with the shares trading in the neighborhood of 38x 2008 earnings, this battleground is just getting started, as far as the bears are concerned.

Hey, shorts gotta eat too. They are the only ones likely to be pleased with a hair in their burrito.  The company hedged its tortilla and cheese costs, effectively locking them in, and now the bulls and bears have to consider doing the same with their stakes.

No position here, but chewing on it while I watch Mr. Market dish out a little multiple compression. Will the stock hold $100? If not, additional support lies a few points lower.

Chipotle Mexican Grill, Inc. F1Q04 (Qtr End 03/31/08) Earnings Call Transcript
Seeking Alpha
---------------------------------------------------------------------------------------------------------------------
The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position

Comments:

<< Back to main