Morningstar

Chipotle Establishes 2018 as a Transition Year

Investors need to focus more on longer-term unit potential after results that were bogged down in the third quarter.

Securities In This Article
Chipotle Mexican Grill Inc
(CMG)

While the decision to pull back 2018 store openings to 130-150 (versus a five-year average of 200) certainly calls into question its ultimate store potential--we still forecast 4,000 versus management's target of 5,000--we believe it is prudent to adopt a more prudent pace store opening schedule while focusing on customer experience and digital/store utilization initiatives. While Chipotle's other sales drivers are a show-me story, we think the generally positive consumer response to queso (which has had a 4%-6% comp benefit since launch despite reports of tepid consumer reaction) bodes well for future beverage, dessert, and salad innovations. Additionally, mobile ordering, utilization of its second assembly line, and a 5% price increase in 900 restaurants in November offer support for our outlook for 2%-3% comps in 2018.

We plan to trim our near-term top-line growth and margin assumptions, reducing our $400 fair value estimate by 5%-10%. While investors must be willing to accept some quarter-to-quarter volatility, we believe Chipotle may be worth a look for longer-term investors now that we have greater visibility about what to expect in 2018.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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