Traders must be hungry today, because they’re eating up Chipotle Mex Grill (NYSE: ) shares today.
While the markets have remained mixed or just flat out down the entirety of the day. But not the stock for that purveyor of cilantro-lime rice, carnitas, black beans and all-around flavorful goodness.
I know after reading their menu just now, my mouth is watering at the thought of a customized burrito, or maybe one of their delicious quesadillas. Mmmmmm…
OK, before I drool on my desk, let’s get to the possible reasons why shareholders are jumping onto this particular food wagon today. For that, let’s first turn to the second-quarter report the chain published last Friday.
According to Chipotle, profit picked up by 45% as compared to last year’s second quarter, an impressive gain regardless but especially considering the times they’re operating in.
And while analysts expected earnings to be around $0.88/share, with a net income of $35.4 million, the final figures showed a total of $1.10/share.
That’s good news, without a doubt. But is it good enough to last into the next trading week with such enthusiasm?
According to Kristin Graham, who wrote a less-than-flattering article about the Mexican food restaurant today, the answer is “no.” And while I’m not turning automatically bullish on the stock, she does make some very good observations:
No Spice Left At Chipotle
'The burrito vendor spiced up its top line with a 6.5% hike in menu prices and by opening new stores. Raising prices was also a driving force behind the margin improvement. Like many of its peers, Chipotle struggled to lure in new customers and traffic actually fell 3.5%. As a result, comparable sales rose just 1.7%.
'Peeking behind the headline figures presented less than awe-inspiring results. However, Chipotle still has a lot going for itself. Free cash flow grew 158% to $62.9 million. The company’s balance sheet now boasts a cash reserve of $208.3 million - more than double the cash it held last year. And management is putting that cash to good work. The company repurchased $95 million, or 1.7 million shares, of class B shares at an average price of $54. Chipotle B shares are currently fetching approximately $78.53 per share.
'In addition, management’s new marketing initiatives to tout its use of organic ingredients appear promising. The company is committed to increasing consumer awareness of how food is raised in the U.S. and this is certainly a competitive edge Chipotle holds over many of its quick-serve competitors.
