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CMG reported another quarter of upside surprises on both the top and bottom lines.  Earnings came in at $1.52 per share versus the street at $1.31 per share and comps came in +11.4% relative to the street’s 8% estimate.  On a two-year average basis, this +11.4% comp implies an 185 bp acceleration from the prior quarter and the company said the same-store sales growth was driven primarily by traffic.

Restaurant-level margins improved 220 bps YOY.  Relative to my earnings expectations, the biggest upside was driven by the higher-than-expected comp growth (I was modeling 9% growth).  As a result of this impressive top-line growth, the company got leverage on every line of the P&L, outside of G&A, which was higher YOY due to a manager’s conference during the third quarter and higher YOY stock based compensation expense.  For reference, the company had guided to no leverage on the food, labor and other operating expense lines.

Management slightly raised its full-year comp guidance to high single digit growth from its prior range of mid to high single digit growth.  For FY11, CMG’s initial guidance includes low single digit comp growth and 135 to 150 new units, which implies about 12% to 14% unit growth, in line with FY10 expectations.

Howard Penney

Managing Director