Is Chipotle Losing its Sizzle?


Chipotle Mexican Grill (CMG) fans may want to start fashioning their aluminum foil burrito wrappers into umbrellas, because there are clouds on the horizon.

The country's favorite quick-service chain posted mixed quarterly results on Tuesday.

Revenue grew a respectable 17 percent to $699.2 million, but that was largely the handiwork of breakneck expansion as it opened 183 new restaurants for all of 2012 to close out the year with 1,410 locations. The typical store rang up 3.8 percent more in sales during the quarter than it did a year earlier. That's not necessarily bad. Chipotle's more than keeping up with inflation. However, same-store sale growth has been much higher in the past.

Chipotle seems to be growing cautious here. It only plans to open 165 to 180 stores in 2013 -- less than it opened last year.

The flavor gets even less appetizing on the way down to the bottom line. Net income only grew 7 percent to $61.4 million. Profitability failed to keep up with sales because rising food costs crushed operating margins.

Chipotle has been able to pass on these increases to its customers in the past, but it was slow to get around to that this time.

Was Chipotle caught off guard or did it simply not want to push prices higher in light of the success that Yum! Brands (YUM) is having with its Cantina Bell line of bowls and burritos at Taco Bell?

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Chipotle fans may choke on their carnitas at the idea that one could compare it to Taco Bell, but the older fast-food chain's push to offer a slightly more upscale line on the heels of the runaway success of its Doritos Locos tacos may be leaving a mark.

Chipotle sees comps clocking between flat and the low single digits. This is a chain that was able to keep its same-store sales positive even during the darkest recessionary stretches, so the notion of flat sales at the individual store level is a shock.

The stock initially held up reasonably well on the earnings release. Chipotle had delivered a lot of the negative news last month ahead of a conference presentation. However, the former Wall Street darling will have a lot to prove if it's to win over the growth investors who need to be wooed by more than just tasty burritos.

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Motley Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. Motley Fool newsletter services recommend Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill.

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