Goldman Sachs Comments on Meeting with Chipotle Mexican Grill

In a report published by Goldman Sachs, it met with Chipotle Mexican Grill CMG co-CEO Monty Moran and CFO Jack Hartung.

Goldman Sachs said that several positives came out of the meeting. “(1) Future growth - Management stuck to its standing guidance of 3,000 potential US units. However, we walked away believing the opportunity could be much bigger given the success of the A-models in secondary locations, and think CMG may be at below 30% of its full US unit potential. (2) SSS - We believe underlying SSS trends continue to run in the low double digits (excluding weather). Furthermore, we see 2H SSS estimates as overly conservative given the potential for continued underlying growth, 2-3pts from pricing and 2pts from new stores entering the comp base. (3) Leverage - There is plenty of room for further margin expansion from labor leverage. CMG's best units do 300 transactions/hr at lunch, roughly 2x the overall company average, and technology such as handheld credit card machines are further alleviating bottlenecks at busier locations. (4) Commodities – We walked away thinking CMG's guidance for MSD food inflation may turn out to be conservative. There are incremental nearterm issues from the southwest freeze, but management believes this will likely be resolved by April. CMG continues to hold the line on pricing until 2H11, but actually believes the concept may be underpriced today.
(5) Labor issue - The financial ramifications of replacing illegal workers may be overblown. The newly hired workers in Minnesota actually cost less than those that they replaced as many of the legacy workers were paid more than the company average due to seniority.”

Chipotle Mexican Grill closed yesterday at $246.85.