Chipotle: Stock might be pricey, but

with these results, no one cares

from Yahoo
A Chipotle Restaurant sign is shown outside a Chipotle Restaurant in San Diego ,California

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A Chipotle Restaurant sign is shown outside a Chipotle Restaurant in San Diego, California in this file photo taken September 24, 2013. Chipotle Mexican Grill Inc on Thursday reported a bigger-than-expected increase in sales at established restaurants and a nearly 30 percent rise in earnings, sending shares up more than 10 percent in extended trading. REUTERS/Mike Blake/Files (UNITED STATES – Tags: BUSINESS)

Chipotle (CMG) investors have gotten used to otherworldly performances from the Denver-based burrito seller, and in a few days they’ll find out if they get to gloat once again — or if they instead get to deal with a rare misstep.

The latter would be stunning, almost certainly leading to a sizable drawdown in the shares, but counting on that to happen might best be left for only the most dedicated contrarians. After the close of trading on Tuesday, fourth-quarter earnings are due, and this time, analysts are planning on a profit of $3.79 a share, up from $2.53 in the same quarter last year. Revenue should advance to $1.08 billion, compared with $844.1 million previously. Same-store sales, which have been absurdly strong in recent quarters, are estimated to climb 16.3% after a 9.3% increase a year ago.

If Wall Street proves to be right, the financials will, again, further solidify Chipotle as the leader of the fast-casual restaurants. At the consensus forecast, earnings per share would be up 49.8% from the fourth quarter last year, while revenue would rise 27.4%. Those readings would surpass both the average estimated growth and the average actual growth over all quarters for the past four years. In that time, analysts have projected year-over-year earnings growth of 22% and revenue growth of 20%. Chipotle has regularly done even better, with an average 26% gain for earnings and 22% on sales. This quarter clearly would outpace that.

Chipotle has seen these types of results because it’s found favor with diners almost everywhere it goes. Its run to 1,700 stores, a total that includes ShopHouse Southeast Asian Kitchen and an investment in the owner of Pizzeria Locale, has been accompanied by a stock that’s been outstanding. Shares are up 11 times from the end of 2008, when they were at $62, to the end of 2014, when they closed at $684. And that even includes a down year in 2012.

So far in 2015, the stock’s up another 4.8%, including setting an all-time high at $727.97 on Jan. 8.

Beyond the numbers, Chipotle’s management presumably will offer further detail on operational matters, in particular how sales are being affected by the removal of carnitas from some of its stores — a move taken because a supplier wasn’t meeting Chipotle’s pork-sourcing standards — and the impact of the late January winter storm in the Northeast. The latter is an issue most every retailer operating in the region will have to address, including chain restaurants.

At some point Chipotle has to slow, as businesses do. But betting against the company’s approach, and its stock, has been a terrible idea. Short sellers aren’t especially interested in the risk, even as Chipotle has risen to be one of the largest U.S. restaurants, with a $22 billion market cap. That’s an impressive achievement for a restaurant chain that sells Tex-Mex-style foods and competes in a crowded market. These days, short interest is right around where it was last year, now at 3.9% of the float.


Those who do like to go against the prevailing view will appreciate that several standard valuation measures on the stock are above their five-year averages. The price-to-earnings ratio on the last 12 months’ earnings is 56 vs. a 47.1 average, whereas the forward multiple is 40.1, above the 35.5 average. Analysts’ consensus price goal is now $745.80, compared with about $712 at the current trading level, and around half of the stock’s followers have a buy rating, with the other half a hold. There are no outright sells.

It’s incredibly difficult to argue against the idea that Chipotle is winning, with the customers who are happy to pay higher prices and with investors who are, too. It’s winning with the better-for-you food movement among restaurants that are trying to provide alternatives to large, entrenched brands like Burger King and McDonald’s (MCD) (the Golden Arches used to own a majority holding in Chipotle). The public has gotten on board with its burrito bowls and chips, with management all the time telling the story of more natural ingredients and concern for the environment. It’s done so well over its two-decade history that traders and the media are on a constant search for the restaurant that can be “the next Chipotle.”

The only surprise with next week’s quarterly earnings will be if it doesn’t keep winning.


See more on Franchise restaurants at

Papa Murphy’s The Rising Dough

Papa Murphy’s (FRSH : NASDAQ : US$9.35), Net Change: 0.30, % Change: 3.31%, Volume: 326,661
Vancouver, Washington-based Papa Murphy’s announced financial results for its quarter ended March 31, 2014
The company earned total revenues of $25.1 million, up $5.5 million Y/Y and the results excludes the $1.8 million of revenues in Q1/14 related to the re-sale of point of sale licenses to franchisees at cost.

Domestic comparable store sales increased 3.3%, including an increase of 7.1% for domestic company-owned stores and 3.1% for domestic franchise stores.
Papa Murphy’s adjusted EBITDA increased 33.7% to 7.5 million for the quarter. 21 new Papa Murphy’s stores were opened system-wide, including 19 new domestic franchises, with 2014 outlook expects 105 new domestic franchises to open.

Ken Calwell, President and CEO, stated, “We are pleased to begin fiscal 2014 with impressive increases in revenue and pro forma profitability. Our success continues to be driven by the collective hard work of our team and franchisees, as we continue to help busy parents and families solve the dinnertime dilemma of providing their family with a high-quality, home-cooked meal, at a great value.”

On May 7 of this year, the company successfully completed an IPO of 5,833,333 shares at $11 per share in which the proceeds to Papa Murphy’s, after deducting underwriter discounts, commissions, and estimated offering expenses, were approximately $55.8 million.

The net proceeds from the IPO were used to pay down $55.5 million of existing debt. Calwell
added that the company is excited about the opportunities head of them and believes that they will continue to drive same store sales growth and improve system-wide profitability by executing their initiatives.

An Open Letter To Burger King

I am a business consultant and herewith offer a few observations at no cost !

I used to have my morning coffee at your rival McDonald’s. I received a coupon promotion for coffee – and for 25 cents I thought I’d give your local restaurant a try. First visit – last week – I find the restaurant not open until 8:00 a.m. – so anyone out for coffee won’t head to BK. One of the great lessons a restaurant learns is that the bank charges interest 24 hours a day .

Second visit 8:05 this week – just me and the staff despite the coffee at a fraction of what others charge . The colors of the restaurant are dull – blue / grey. What you learn is that restaurant patrons do not want to be all alone in a large building.

Why aren’t you advertising to the seniors that fill McDonald’s in the early morning ?People attract people – you are not gaining any ” community ” of early morning patrons or folks grabbing something before their commute / office.

Third visit – the aft ernoon. Much busier – but not to your main rival’s level AND importantly – with only two people asking for coffee : 1) the staff relied on remembering our orders – no display terminal 2) my order – coffee with one cream wrong – and had to be redone 3) the staff calls out orders to each other because there was no display screen for orders

This is not a staff problem – the people were friendly and doing their best. You as an organization are failing your clients , staff and shareholders. Great potential – but they used to say the same about me.   Jack A. Bass

Trading Alert COSI Inc.


Cosi, Inc. owns, operates and franchises restaurants, which sells hot and cold sandwiches, freshly-tossed salads, breakfast wraps, Cosi Squagels, hot melts, flatbread pizzas, S’mores and other desserts, and a range of coffees and specialty coffees along with other soft drink beverages, bottled beverages, including premium still and sparkling water, teas and beer and wine in some locations. The Company’s restaurants are located in a range of markets.
The Company Reports Nov 14th and there may be a battle for control – after years of management change and losses.
Jack A. Bass Managed Accounts have a small position – looking for an upturn in the company fortunes.


Above Average
As of 13 Nov 2013 at 2:58 PM EST.


Open 2.25 P/E Ratio (TTM)
Last Bid/Size 2.35 / 2 EPS (TTM) -0.46
Last Ask/Size 2.37 / 8 Next Earnings 14 Nov 2013
Previous Close 2.23 Beta 1.31
Volume 177,490 Last Dividend
Average Volume 104,757 Dividend Yield 0.00%
Day High 2.42 Ex-Dividend Date
Day Low 2.23 Shares Outstanding 18.1M
52 Week High 3.92 # of Floating Shares 11.62715M
52 Week Low 1.90 Short Interest as % of Float 4.04%

Denny’s Serves Up Grand-Slam Returns

By George Leong, B.Comm. for Profit Confidential

We all know that McDonalds Corporation (NYSE/MCD) is the reigning king of the fast food sector and one of the top performers over the past decade, based on my stock analysis.

In fact, my stock analysis suggests that McDonalds’ rivals are trying to emulate what is working at the company rather than compete against the seller of the iconic “Big Mac.”

Burger King Worldwide, Inc. (NYSE/BKW) may be pursuing a similar strategy to McDonalds’ by diversifying its menu offering with new items and value-conscious options, based on my stock analysis.

Yet while Wall Street focuses on McDonalds and its burger-oriented rivals, my stock analysis reveals that a stock that I feel offers better valuation and potential upside is Denny’s Corporation (NASDAQ/DENN). With a market-cap of $552 million, Denny’s is dwarfed by the $102-billion market cap of McDonalds, but that doesn’t mean there isn’t a buying opportunity with Denny’s, based on my stock analysis.

In fact, Denny’s is up 50% over the past 52 weeks and has easily outperformed the S&P 500’s advance of 26.8% and McDonalds’ 11.8% gain, according to my technical analysis.

Denny’s is best known for its “Grand Slam” breakfast offerings. The company has gone through a major structural reorganization in which it sold many of its stores to franchisors, thereby reducing its own operating costs and collecting fees instead. As of March 27, 2013, 1,525 of the company’s 1,689 restaurants were franchised. The end results have been stronger operating numbers and a steady rise in the company’s share price, according to my stock analysis.

About 98 restaurants are situated in Canada, Costa Rica, Mexico, Honduras, Guam, Curacao, Puerto Rico, Dominican Republic, and New Zealand.

And in an aggressive and bold move, Denny’s has been looking at expanding into the highly competitive Chinese market, where the top players are McDonalds and YUM! Brands, Inc. (NYSE/YUM)—owner of the Kentucky Fried Chicken (KFC) and Taco Bell brands. The company’s deal with Great China International Group was recently cancelled, likely due to some poor results from the top players in China, based on my stock analysis.

On the operations end, Denny’s reported adjusted earnings of $0.08 per diluted share in its first-quarter earnings season, up 48.4% year-over-year and a penny above the Thomson Financial consensus earnings-per-share (EPS) estimates. It was the third straight quarter of outperformance.

On a comparative valuation basis, Denny’s trades at 1.16X trailing sales and has a price-to-earnings-growth (PEG) ratio of 0.92, versus 3.71X sales and a PEG ratio of 2.04 for McDonalds.

Now, don’t get me wrong; I still believe McDonalds will continue to be the top player in the restaurant and fast foods sector going forward. (Read “The Secret to Success in the Fast Food Sector.”) But for some added potential, a small-cap such as Denny’s makes sense for the aggressive investor, based on my stock analysis.



Jamba Juice

Jamba Juice (Photo credit: Wikipedia)

Target: US$3.50

Jamba owns the Jamba Juice brand and restaurant system, which through both company-owned and franchised stores is the largest retailer of smoothies in the US. The company also licenses its brand for development of consumer products and is expanding its franchise system internationally.

Investment recommendation

We maintain our BUY rating and continue to believe that Jamba has successfully developed the operating model for an efficient and profitable growth company.
Investment highlights
 JMBA reported EPS of $(0.09); we and the Street were at $(0.11). While the quarter was mixed vs. our forecast, the trends were generally favorable as a slightly softer comp was met with further profitability gains.
 Comps of -1.2% were pretty resilient when viewed against growth of 7.7% in the prior-year period. Comps through the first two months of Q1/13 are surprisingly strong, trending modestly positive against 12.7% growth in Q1/12.
 F2013 guidance is unchanged, as are our EPS forecasts on modestly higher revenue estimates given the stronger Q1 trends thus far.
The shares trade at 11x F2013 forecasted EBITDA. We view the valuation as attractive given the quality of the brand. Our $3.50 12-month price target is increased from $3 reflects 10x our C2014 EBITDA forecast

McDonald’s Credit Suisse Upgrade

Bolivian McDonald's

Bolivian McDonald’s (Photo credit: lndhslf72)


NYSE : US$95.12

Credit Suisse raised their target price on McDonald’s as they believe MCD is well positioned to return to meaningful share gains in 2012, with upside to numbers if the macro environment stabilizes from a late January slowdown.

However, even if a slowing consumer environment limits absolute upside to numbers, relative outperformance on fundamentals combined with low relative valuation makes risk/reward attractive to the brokerage. The brokerage looks at drivers of 2006-11 share gains, and how they are set to reassert themselves in 2013. Credit Suisse believes that reestablishing a pricing gap, reemphasizing the dollar menu, and a much improved product pipeline (versus difficult competitor compares) can accelerate MCD share gains in 2013.

This analysis makes the brokerage comfortable with their above-consensus US comp estimates despite macro concerns. Credit Suisse already sees fewer risks to MCD’s estimates than to peers’, and a reacceleration in share gains could rapidly reverse valuation trends (relative to other burger quick service restaurants, MCD’s is near all-time lows.)

Any larger macro-driven “flight to stability” trade would only further benefit MCDs relative valuation/share performance, in the brokerage’s opinion.

McDonald’s Thankful GOP Millionaires To Battle Minimum Wage Hike

House Salad at Buffalo Wild Wings

House Salad at Buffalo Wild Wings (Photo credit: Tojosan)


You pay for what you get.

The world’s largest restaurant chain was the biggest hit to the Dow on Wednesday, after President Barack Obama announced a plan to raise the minimum wage. The blizzard that lashed the U.S. Northeast at the end of last week possibly hurting the company’s sales, and Buffalo Wild Wings’ (BWLD) report on Tuesday that same-store sales are declining this year, may also be affecting McDonald’s stock, but most analysts agreed Obama’s call to raise the federal minimum was the main driver.

Obama called for a federal minimum wage increase to $9 an hour, from $7.25; he also proposed tying the minimum wage to the cost of living. The current minimum wage has been in effect since 2009. McDonald’s and its franchisees don’t disclose what they pay their restaurant workers. Its franchisees, as well as other restaurant chains, such as Wendy’s (WEN) and Jack in the Box (JACK), spend money lobbying against minimum-wage increases.

McDonald’s, which has about 14,000 U.S. locations, has been vying with other eateries to lure cash-strapped Americans. Earlier this month, the chain reported that U.S. same-store sales gained 0.9% in January as it advertised its Dollar Menu and tested new items to help boost sales.

YUM Reports

English: kfc of china

English: kfc of china (Photo credit: Wikipedia)

UPDATE: Yum! Brands’ fourth-quarter earnings release is out.

the company reported adjusted earnings of $0.83 per share in Q4, slightly ahead of expectations of $0.82.

Revenues came in at $4.15 billion, also just above estimates of $4.12 billion.

The company said same-store sales in China were down 6 percent in the quarter, partly due to a probe into KFC by the Shanghai FDA.

The company also said it doesn’t see itself achieving earnings growth in 2013.

Below are highlights from the press release:

  • China Division KFC same-store sales turned sharply negative during the last two weeks of December as a result of adverse publicity from the poultry supply situation.
  • Worldwide system sales were flat, prior to foreign currency translation.
    • Worldwide system sales growth was 5%, excluding the 2011 divestiture of LJS and A&W, the 53rd week impact and the acquisition of Little Sheep, including 7% in China, 7% at YRI and 3% in the U.S.
  • Same-store sales grew 3% at YRI and 3% in the U.S. Same-store sales declined 6% in China.
  • Worldwide restaurant margin increased 0.1 percentage point to 14.4%.
  • Worldwide operating profit grew 6%, prior to foreign currency translation. Operating profit grew 10% at YRI, declined 5% in China and declined 5% in the U.S.
    • Excluding the 53rd-week impact, worldwide operating profit grew 11%, including 15% at YRI and 5% in the U.S.

Below are sections on the China situation, the 2013 outlook, and comments from the CEO:


KFC sales in the last two weeks of the fourth quarter were significantly impacted by the intense media attention surrounding an investigation by the Shanghai FDA (SFDA) into poultry supply management at Yum! China. The investigation was prompted by a report broadcast on China’s national television (CCTV), which aired on December 18, 2012. The report showed that a few poultry farmers were ignoring laws and regulations by using excessive levels of antibiotics in chicken. Regrettably, some of this product was purchased by two poultry suppliers of KFC China. The investigation caused further media attention, including social media commentary, and this negatively affected consumer perceptions of poultry safety, and KFC in particular.

On January 25, 2013, the SFDA concluded its investigation and released its recommendations. We appreciate their thorough and diligent review. The SFDA identified issues and provided “Supervisory Recommendations” to Yum! China to strengthen our poultry supply chain practices including refined voluntary self testing procedures, improved reporting and communications and enhanced supplier management. Ourteam in China has taken a comprehensive review of our current system and is in the process of incorporating all of the SFDA’s recommendations. We have always recognized the importance of building a world-class supply chain in China, which is why we have implemented a wide range of quality assurance and testing practices over the years above legal and regulatory standards. The SFDA’s recommendations will further strengthen those practices. The SFDA did not bring a case against Yum! China and no fine was assessed.

The past seven weeks of media attention have been intense and negative towards the KFC brand image. Even though this is a very disappointing setback, we are more committed than ever to continue to strengthen our efforts, restore the confidence of our customers and win back their brand loyalty. To that end, the China team will soon be launching a brand reputation quality campaign to re-assure consumers of our high quality food, along with aggressive marketing plans.


We are confident the YRI and U.S. businesses will deliver annual operating profit growth consistent with our ongoing growth model. Given current uncertainties related to KFC sales in China, it is difficult to confidently forecast our overall financial performance. We have made the assumption that KFC China same-store sales will improve as the year progresses and will be positive in the fourth quarter. With these assumptions, we estimate a mid-single digit EPS decline in 2013 versus prior year, excluding Special Items. This includes an expectation for a significant decline in EPS performance in the first half of the year followed by EPS growth in the second half.

The first quarter for our China business includes only the months of January and February and is highly impacted by consumer spending during the Chinese New Year holiday. The timing of this holiday changes each year. This year it is important to note that while the timing impact of Chinese New Year is neutral to our first quarter, there is a significant negative impact to January sales and a corresponding significant benefit to February sales due to the timing of this week-long holiday. We expect that the underlying performance of our China business will remain relatively unchanged for the balance of the first quarter, with a same-store sales decline of approximately 25% for January and February combined (China’s first quarter).


David C. Novak, Chairman and CEO, said, “We delivered full-year 2012 EPS growth of 13% or $3.25 per share, excluding Special Items. This marks the 11th consecutive year we delivered at least 13% growth, which puts us in an elite group of high-growth companies. We also take satisfaction with our record level of international development in 2012 which lays the foundation for future growth and makes Yum! a leader in emerging market development. With new-unit development at the core of our growth model and the continued rapid expansion of the consuming class overseas, we believe our opportunity for long-term growth has never been better.

“We are obviously proud of our track record of achieving double-digit EPS growth, and I am as confident as ever we can deliver this performance over the long term. However, as a result of adverse publicity from the poultry supply situation in mid-December, China KFC sales experienced a sharp decline. Due to continued negative same-store sales and our assumption that it will take time to recover consumer confidence, we no longer expect to achieve EPS growth in 2013.

“Although we cannot predict how long it will take to restore sales, we are steadfast in our belief that the power and popularity of the KFC brand in China will ultimately drive a full sales recovery. Having weathered other storms in the past, we know that our brands are resilient. As a result, we will stay the course with our target to develop at least 700 new units in 2013 in China to lay the foundation for future growth, and will not let this event detract from our unparalleled China growth opportunity.

“Our growth strategies are unchanged, in China, Yum! Restaurants International, India and the U.S. With our category-leading brands and outstanding people capability, I’m confident we will bounce back strongly and restore our track record of double-digit EPS growth in the years ahead.”

Yum! Brands Update On China Slowdown

Yum! Brands logo

Yum! Brands logo (Photo credit: Wikipedia)

Dec . 4

Yum! Brands

(YUM : NYSE : US$67.08)

Shares of Yum! Brands traded lower after it said that it expects sales in China to decline in the fourth quarter.

The company reaffirmed its F12 EPS growth forecast of 13%, or $3.24 per share, but said that softer business in China will lead to a 4% decline in same-store sales. “For the fourth quarter, stronger-than-expected operating performance from Yum! Restaurants International and our U.S. division is offsetting softer sales in China,” Yum! Chairman and Chief Executive David Novak said in a statement.

He went on to say, “Next year will be another strong year for our China division. We are extremely confident Yum! China remains the best growth story in the restaurant industry.” Analysts were surprised by the first decline in China sales since Q4, with one brokerage saying the drop off in China traffic creates “significant visibility issues.” Yum! saw more than half of its total revenue and operating profit for the third quarter come from China.

The parent of KFC, Taco Bell and Pizza hut has been the most successful American restaurant to establish itself in China and many investors have viewed it as a barometer for Chinese macroeconomic activity.

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