CMG

An IPO That Doesn’t Look Delicious: Potbelly

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After the extremely positive post-IPO fortune of fast food concept Noodles & Co (NDLS), the surging IPO of Potbelly (PBPB) caught our attention. Let’s take a look at the prospects of this Chicago-based sandwich chain. Background Potbelly is a Chicago-based sandwich chain famous for its toasted sub sandwiches, fresh milkshakes, and in-store musical entertainment. The concept began in Chicago’s Lincoln Park neighborhood as a toasted sub shop with eclectic decorations from the original owner’s antique shop. Current chairman and largest individual shareholder Bryant Keil purchased the original restaurant in 1996 and has since worked to turn it into a chain with 286 restaurants throughout the United States—280 owned by the company, and 6 owned by franchisees. The firm also has … Read more

Will Chipotle Serve Breakfast?

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Amid news about the lack of Fed tapering and the launch of Apple’s iPhone 5S (click ticker for report: ), news broke that fast food chain Chipotle (click ticker for report: ) was testing coffee products at one of its Washington, D.C. locations. Naturally, the question arises: is Chipotle going to serve breakfast? Why We Think It’s a Great Idea There’s little doubt that the consistent comparable same-store sales growth from the likes of Panera (click ticker for report: ), Chipotle, and Noodles & Co. (NDLS) suggests that meals eaten outside of the house continue to rise. At the moment, we’re comfortable saying that McDonald’s (click ticker for report: ) possesses the strongest breakfast offering with a mix of inexpensive … Read more

Chipotle Surprises to the Upside

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Thursday afternoon, restaurant chain Chipotle (click ticker for report: ) posted solid second quarter results. Revenue jumped 18% year-over-year to $817 million, easily exceeding consensus estimates. Earnings per share were also above the Street’s consensus, growing 10% year-over-year to $2.82. Thus far in 2013, the firm has generated $187 million in free cash flow, equal to 15% of total revenue. Outperformance in Chipotle’s second quarter results was largely driven by a 5.5% same-store sales growth rate. Co-CEO Steve Ells explained that all the company needed to bolster comparable store sales relative to consensus was a little marketing. On the conference call, he elaborated on this point, saying: “In addition to our Cultivate Festivals, we are now well into our skillfully … Read more

Does ShopHouse Justify Chipotle’s Valuation?

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Key Takeaways: ·       Chipotle’s internal growth is slowing. ·       Chipotle’s ShopHouse concept is expanding, but we think it could divert attention from the core business. ·       We could open a bearish position in Chipotle in the portfolio of our Best Ideas Newsletter. After its price finally came down to earth in late 2012 (falling to under $250 from over $400 per share), shares of quick-serve burrito restaurant Chipotle (click ticker for report: ) have rocketed back toward the $400 level. Shares have jumped 23% year-to-date, even though the company’s same-store sales growth totaled just 1% in the first quarter. Shares now trade at a premium to our fair value ($338 per share is the high end of our fair value range). With comparable … Read more

McCormick Kicks Off 2013 With Strong Cash Flow

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Spices and flavor giant McCormick (click ticker for report: ) started fiscal year 2013 with a solid first quarter. Revenue increased 3% year-over-year to $934 million, easily exceeding consensus estimates. Earnings per share rose 4% year-over-year to $0.57 per share, in-line with consensus expectations. We were pleased to see a strong surge in operating cash flow, which jumped 39% year-over-year to $32 million. McCormick’s first quarter showed a remarkable divergence between its consumer and industrial businesses. The consumer business segment saw sales jump 7% driven by a 14% sales increase in emerging markets, as well as continued strength in the US and Europe. We think McCormick’s spices provide consumers with a relatively inexpensive way to improve tastes, which is important to … Read more

The Quick-Serve Restaurant Space Could Be Poised for a Rebound

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Wendy’s Every time we look at the restaurant space, we are surprised to see at how small Wendy’s (click ticker for report: ) market capitalization is. Shares have been stuck in neutral for the past year, even though we think the company is in a much better competitive position. Unlike McDonald’s (click ticker for report: ), which has distinctly made itself the preeminent value chain, Wendy’s has mostly held the line on pricing. Wendy’s “Right Price, Right Size” menu has helped, but overall the company has lost traffic. If economic conditions improve, we think Wendy’s could be a beneficiary versus its peers because it has maintained its quality reputation. While the levels of price differences in the burger space (Wendy’s/McDonald’s/Burger … Read more

Yum!’s China Recovery Begins

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After warning that same-store sales could decline as much as 25% during the first quarter in the wake of a poultry supplier scandal that shook consumer confidence in China, Yum! (click ticker for report: ) reported a same-store sales decline of 20% in its China division. Same-store sales at KFC dropped 24%, while Pizza Hut’s sales fell just 2%. We gathered that after McDonald’s (click ticker for report: ) results in China were “strong,” KFC might show some signs of stabilization, and that appears to be the case. More importantly, Yum!’s China division reported same-store sales growth in February. Although aggregate same-store sales grew just 2%, same-store sales at Pizza Hut jumped 13%, and same-store sales were flat at KFC … Read more

Chipotle Surges on…Catering?

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After providing investors with weak preliminary results at the ICR Conference in January, Chipotle (click ticker for report: ) announced final fourth quarter results, which were relatively in line with what we saw a month ago. Revenue grew 17% year-over-year to $699 million, in line with consensus expectations and prior guidance. Earnings per share were a penny below expectations, growing 8% year-over-year to $1.95 per share. Same-store sales for the quarter grew 3.8%, also equal to what the company provided us a month ago. Rising input costs continue to hurt profitability, as the cost of food and beverages was 130 basis points higher at 33.5% of revenue. We think the firm could easily cut costs, but its commitment to high-quality … Read more

Growth Slowing at Chipotle

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Fast-growing restaurant chain Chipotle (click ticker for report: ) announced its preliminary fourth-quarter results ahead of its presentation at the ICR Conference. Productivity growth at the restaurant appears to be slowing, as same-store sales climbed just 3.8% year-over-year. Overall revenue growth remains strong, up 17% year-over-year to $699 million, slightly above consensus estimates. However, earnings look incredibly disappointing, as the firm estimates earnings per share of $1.92-$1.97—well below the consensus estimate of $2.09 and only a small increase from the same period a year ago. According to the firm’s press release, food costs jumped 130 basis points to 33.5% of sales—the main culprit behind restaurant operating margins dropping 150 basis points compared to the same period a year ago. Though … Read more