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Three Questions for Chipotle Mexican Grill, Inc. (CMG)

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Chipotle Mexican Grill, Inc. (NYSE:CMG)In April, Chipotle Mexican Grill, Inc. (NYSE:CMG) popped by as much as 10% after the company wrapped up an absolutely delicious quarterly report.

As a result, and with shares of the burrito maker trading within sight of their 52-week-high set around this time last year, you can bet investors are antsy wondering how things turned out in this year’s second quarter.

Some background
After all, though last year’s second-quarter report showed Chipotle Mexican Grill, Inc. (NYSE:CMG)’s earnings grew 61% year over year on a 21% increase in revenue and 8% growth in same-store sales, it wasn’t enough to appease the bulls who had priced the stock for perfection. The result? A one-day, 23% drop that extended its negative influence all the way through to the next earnings report in October.

Of course, that October low ended up being a great time to buy, and Chipotle currently stands up more than 58% since then — and that includes a steady 33% rise over the past six months.

Here are three burning questions, then, that hungry investors should ask the healthy-burrito maker when it announces earnings on Thursday:

1. How’s the foot traffic?
Remember, last year’s horrific tumble was partly due to Chipotle Mexican Grill, Inc. (NYSE:CMG)’s comments that customer traffic slowed significantly during the second quarter of 2012, thanks largely to weak consumer spending.

Thankfully, though, Chipotle Mexican Grill, Inc. (NYSE:CMG) did manage to post a 1% increase in comparable restaurant sales during the first quarter this year, primarily the result of healthier foot traffic. In addition, management already warned investors earlier this year to expect flat to low-single-digit comparable sales, at least for as long as they choose not to increase menu prices.

The upside, as I noted at the time, is that by forgoing those price increases, Chipotle Mexican Grill, Inc. (NYSE:CMG) is effectively choosing to reinforce the strength of its brand with a long-term focus on building a great business.

However, if customer traffic this quarter slows, investors could read it as a sign diners are choosing Chipotle less often, instead favoring plentiful alternatives like fellow fast-casual specialist Panera Bread Co (NASDAQ:PNRA) or Taco Bell operator Yum! Brands, Inc. (NYSE:YUM).

Remember, Panera Bread Co (NASDAQ:PNRA) itself achieved 3.3% comparable net sales growth last quarter, telling investors it expects impressive comparable net sales growth during its own second quarter of between 4% and 5%.

And though Yum! Brands, Inc. (NYSE:YUM) is admittedly working through plummeting same-store sales numbers in China due to food quality issues in the region, the fast-food industry stalwart’s total system sales still managed to grow 1% thanks to a 6% boost in Yum! Brands, Inc. (NYSE:YUM) Restaurants International and 2% growth in its significant U.S. market.

2. Are food cost increases moderating?
Equally painful for Chipotle lately have been relentless increases in the price it must pay for its high-quality ingredients. In fact, last quarter, food costs represented one-third of the company’s total revenue, an increase of 80 basis points over the same year-ago period.

Even so, a press release from Chipotle Mexican Grill, Inc. (NYSE:CMG) last month highlighted the fact that it still intends to serve more than 15 million pounds of locally grown produce in its restaurants this year, an increase of 50% over the company’s 10-million-pound goal in 2012.

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