Chipotle Continues Rapid Ascent Despite Slowing Profits

Apr 17 2014, 10:35am CDT | by

Chipotle Continues Rapid Ascent Despite Slowing Profits
Photo Credit: Forbes Business

If Chipotle is the Cinderella of the restaurant business, the clock certainly hasn’t struck midnight yet — but it may be getting nearer.

The fast-casual restaurant chain increased revenue again in the first quarter, up 24% to $904 million. That growth came from both new locations (44 of them), and a 13% gain in comparable store sales — proving that Chipotle’s fairy tale rise is still underway.

However, there were warning signs. Chipotle’s net income growth was slower than expected — only 8.5%. Wall Street expected earnings per share of $2.86, while Chipotle only delivered $2.65. Food costs, more than 34% of revenue, grew due to higher commodity costs on beef, avocado, and cheese. That drove down restaurant-level operating margin to just under 26%.

Investors seem optimistic for now. In Thursday morning trading, Chipotle shares were up 4.91% as of 11:00am EDT. The stock is up 70% since a year ago and more than 600% over the last 5 years.

“We are delighted that more and more people are choosing to visit our restaurants every day allowing us to deliver double digit comps during the quarter. Our food culture has always been a defining characteristic of Chipotle and continues to set us apart from other restaurants. We are confident that our special food culture will continue to attract more customers to visit Chipotle as customers better understand and connect how natural and high quality ingredients that are freshly prepared result in better tasting food,” founder, chairman, and co-CEO Steve Ells said in a statement.

Chipotle’s success has led to wide-ranging search for the next fast-casual chain to blow up. Zoe’s Kitchen, which held its initial public offering last week, is the latest to test the market’s appetite.

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