Daily Gains Letter

Why Chipotle Mexican Grill Represents the Economy’s Overall Predicament

By for Daily Gains Letter |

Why Chipotle Mexican Grill Represents the Economy’s Overall Predicament

Restaurants are one stock market sector that’s worth paying attention to.

If people feel more confident and have more disposable cash, they spend money in restaurants.

Earnings in the group have been all over the map, but this is representative not of weakness in terms of consumer spending within the group, but of the success and weakness of individual chains.

Chipotle Mexican Grill, Inc. (NYSE/CMG) surprised Wall Street by reporting excellent first-quarter earnings results. The company jumped 11.5% on the stock market after the news.

The company’s 2013 first-quarter revenues grew 13.4% to $726.8 million on 48 new restaurant openings. Earnings grew a substantial 22% to $76.6 million and earnings per share grew 24% to $2.45. Comparable store sales grew only one percent.

On the stock market, Cracker Barrel Old Country Store, Inc. (NASDAQ/CBRL) has been on a tear.

The company’s revenues for the fiscal second quarter of 2013, ended February 1, grew 4.4% to $702.7 million. Comparable store sales increased 3.3%, while earnings grew an impressive 37% to $35.2 million. Cracker Barrel recently increased its quarterly dividend by 25%.

Darden Restaurants, Inc. (NYSE/DRI), which includes Red Lobster and Olive Garden, has been a laggard within the group.

Red Robin Gourmet Burgers, Inc. (NASDAQ/RRGB) has been doing extremely well on the stock market. The position is not up to its all-time stock market high set in 2005, but it’s working its way back.

And Burger King Worldwide, Inc. (NYSE/BKW), which expects a small decline in its comparable store sales for the first quarter of 2013, recently forecast adjusted earnings growth of about 25%.

On balance, the restaurant group is looking pretty decent. And this means that consumer spending is holding stable or slightly improving. But the ability of these corporations to continue to grow their earnings is the real story. Rising prices do not seem to be materially affecting demand.

The stock market continues to hold up very well during this earnings season. It’s natural for share prices to pull back on good earnings results. What’s been happening to many companies who have reported earnings that beat consensus is that their share prices have continued to move higher.

This is a sign that investor sentiment has continued to be positive and that institutional investors still want to be buyers in this market.

I will be very surprised if the stock market does not take a significant break right after first-quarter earnings season. Its strong start to the year is very significant in my mind, but the blue-chip leadership can’t be its own island.

My takeaway this earnings season so far is that large-cap revenues are coming in a bit light, but the bottom line continues to hold up well. This is the trend we’ve seen in the last three earnings seasons, and it’s the trend that will likely continue into the second quarter.

A two to three-month break for the stock market would be a healthy development.

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  • Dino Romano

    We are in the beginning of the longest period of WORLDWIDE economic expansion in modern history, fueled by what will be very cheap energy the next 20-25 years. The world's markets are hungry for what we have in goods and lifestyle and the U. S. shall provide them with much of what they want. Waves are Nature's way. We just need to learn how to surf.

  • Quasibozo

    Chipotle should be a model for other providers of the service. Good tasting, HEALTHY food, ample portions, for reasonable money. I generally do not like Mexican Cuisine, but, I love Chipotle's "Burrito Bowl". Marinated and grilled meat portions with rice, beans and vegetables and healthy toppings. Though I only frequent the locations maybe once a month. It's a treat and a welcome alternative to fried foods. The wife and I usually get two meals from one generous purchase. We buy their Clementine beverage to balance the spicyness, and a bag of their Lime Taco chips as well. So two bowls, two sodas, two bags of chips, and a side of guacamole usually comes to about $22.00. And we get another meal out of it. Happy for Chipotle's success.

  • billindallas

    I just can't get on the Chipotle bandwagon. I've tried, and just have been underwhelmed. There are three fast food chains I avoid, these guys are one of them.

    Not sure I'm connecting the dots on the headline for this story, either.

  • Dan Lindner

    If Chipotle is reporting 'excellent earnings results', how exactly is that a 'predicament'? How is that a 'representation of the economy's predicament', as you're claiming? If you mean that the restaurant industry in general represents the economy, then say so!! The author of this article is an unprofessional asshole, name-dropping to try and spice up his headlines. That's really horrible journalism. He seems to do this frequently with when writing articles on this site. Please fire this idiot.

  • bys55

    They make burritos, the workers make minimum wage with minimal benefits if any. One problem with the economy is your shallow analysis.