Chipotle (CMG) is on the Hedgeye Restaurants Best Ideas List as a LONG
Being all bulled up on CMG heading into the quarter made the conference call a nail-biter! The moment the CFO said, “we'll hold off on providing 2019 comp guidance until we have a better perspective of the timing and expected impact of each of these initiatives.” I thought my bull thesis was over, and could not even look at where the stock was trading in after hours. Then, later in the call, the CFO said “traffic right around flat” early in 4Q18. I suddenly was impressed with the progress management is making with the turnaround.
We are very comfortable with LONG thesis on CMG. One important change the company is making in 2019 is a change in the marketing budget, taking money from local adverting, and shifting it to national advertising. That is why you are seeing Chipotle commercials on Sunday’s during football.
We continue to be very impressed with the new CEO and the transition he is making at CMG. In that vein, there continues to be a significant amount of low hanging fruit to continue to improve sales and margins as we head into 2019. See our latest deck for the details.
- Average restaurant sales were $1.980 million as of September 30, 2018, up 2% YoY
- The 4.4% 3Q18 same store sales included a 3.8% (was 4.5% in 2Q18) menu price increases (April 2017) and a traffic declines of 1.1% (was a decline of 2.6% in 2Q18)
- Current trends suggest flat traffic in 4Q18 and positive traffic in 1H19
- Sales from out-of-restaurant orders grew 190bps to 10.2%
- New restaurant openings are now 130 to 150 in 2018 and estimates of 140 to 155 in 2019
More details to come, please call or e-mail with any questions.
Howard Penney
Managing Director
Shayne Laidlaw
Director
