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Chipotle Is an Exceptional Growth Company

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While many investors were hoping Noodles and Potbelly could become the next high-growth leaders in the fast-casual restaurant industry, Chipotle continues outperforming the competition by a wide margin. Importantly, the company still has a lot of room to run.

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Chipotle Is an Exceptional Growth Company

  1. 1. Chipotle Is Still an Exceptional Growth Company
  2. 2. Chipotle (NYSE: CMG) has delivered explosive gains over time
  3. 3. Looking for the next Chipotle ✓Noodles (NASDAQ: NDLS) and Potbelly (NASDAQ: PBPB) used to be considered strong candidates for becoming “the next Chipotle.” ✓As successful and growing players in the fast-casual category, both companies offer clear similarities to Chipotle. ✓Noodles and Potbelly are materially smaller than Chipotle. Since it’s easy to generate higher growth rates from a smaller revenue base, these companies could theoretically outperform Chipotle.
  4. 4. Noodles and Potbelly are no Chipotle ✓Noodles and Potbelly are delivering disappointing financial performance lately, while Chipotle continues firing on all cylinders. ✓Many companies in the consumer sector are blaming their poor performance on a harsh economic environment and lackluster consumer spending because of the weather. ✓ The fact that Noodles and Potbelly are delivering slowing growth should come as no big surprise considering the circumstances. However, Chipotle clearly stands out versus industry peers.
  5. 5. Noodles is getting cold ✓Noodles delivered a 10.1% increase in revenue during the first quarter of 2014, reaching $89.5 million during the period. ✓Comparable-restaurant sales declined by 1.4% at company- owned restaurants, fell 3.3% at franchise restaurants and decreased 1.6% on a systemwide basis. ✓Kevin Reddy, chairman and CEO, remarked: “The first quarter was one of the most challenging ones in recent memory due to unprecedented weather throughout the country, but particularly in the markets where we have our highest geographic concentration.”
  6. 6. Potbelly disappoints ✓Potbelly has recently delivered disappointing preliminary results for the second quarter. Sales during the quarter ended in June increased by 6.9% to $83.6 million. ✓ Management estimates that comparable sales during the period declined 1.6% at company-operated restaurants. Adjusting for the change in the timing of the Easter season, comparable-store sales declined by a softer 0.9%. ✓Aylwin Lewis, chairman and CEO, did not look for any excuses: “We are disappointed by our performance during the second quarter, which fell short of our expectations.”
  7. 7. Chipotle continues delivering tasty growth ✓Chipotle delivered a big increase in revenues of 24.4% during the first quarter of 2014, to $904.2 million. ✓Comparable-restaurant sales jumped by an impressive 14.4%, and Chipotle opened 44 new restaurants during the period, bringing the total restaurant count to 1,637 units. ✓Steve Ells, founder, chairman and co-CEO, highlighted the fact that the company is a differentiated player in the business: “Our food culture has always been a defining characteristic of Chipotle and continues to set us apart from other restaurants.”
  8. 8. Abundant room for growth ✓Explosive growth in same-restaurant sales is confirming that there is no sign of market saturation, as new restaurants are not cannibalizing sales at existing locations at all. ✓International markets are still practically untapped: Chipotle has only seven locations in London, three in Paris and one in Frankfurt. ✓Chipotle is venturing into Asian cuisine and pizza via ShopHouse and Pizzeria Locale, respectively. These opportunities are still in their initial stages.
  9. 9. Foolish takeaway ✓Disappointing performance from Noodles and Potbelly is showing that Chipotle is quite an extraordinary name in the restaurant industry. ✓While many competitors are being hurt by a challenging industry environment, Chipotle continues achieving success as it becomes bigger over time. ✓Importantly, Chipotle still has enormous room for growth, so there is no slowdown in sight for this dynamic burrito powerhouse.
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