Chipotle's (CMG) Move into Traditional Marketing, Loyalty Push Will Benefit Investors - Analyst

December 18, 2012 11:38 AM EST
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Chipotle Mexican Grill (NYSE: CMG) is trading higher once again today amid more positive comments on sales, growth.

JPMorgan met with co-CEO Monty Moran at an investor event Tuesday, coming away with an overall encouraging prospective, but cautioning against first-quarter 2013 lap.

Management was more open to traditional fast-food marketing. The company may use photographs in ads for the first time and the ad spend will be ROI driven with a sales-driving component. Chipotle may also alter or push its selected-by-store manager "farm team" loyalty campaign.

JPMorgan also noted that, "New unit volumes in F12 are explained by more developing/new markets compared to F11 although F13 will be the same as F12. Developing markets new unit openings are generally in the $1.4m AUV range, while proven markets are generally $1.6m or higher." New unit comps growth in FY13 is expected to be flat with FY12, which is currently at 13 percent from FY10.

Chipotle is still conservative on store development guidance. Current expectations call for 155 - 165 new openings in FY12 and 165 - 180 units in FY13.

JPMorgan sees Chipotle boosting prices 2.5 percent to 4 percent in FY13, but not the early part of the year.

Management also said recent slowdown in quarterly comps growth was attributed to a cautious customer, not competition. Given the size of Yum!'s (NYSE: YUM) Taco Bell (5,250 units and $7 billion in sales, vs. 1,350 units and $2.7 billion in sales for FY12), management did expect a little pressure from the fast-food rival, "but detailed trade area and even specific restaurant data picked up no real discernible impact."

JPMorgan raised Q4 comps estimates by 0.5 points to 4.0 percent while revs are expected to be $695.98 million. EPS moved from $2.10 down to $2.07.

For FY12, JPMorgan lowered revs expectations from $2.73 billion to $2.27 billion and EPS from $8.89 down to $8.86.

Chipotle is up 2.6 percent Tuesday. The stock ended 3.4 percent higher Monday on positive comments from ITG Majestic.

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