In a recent Pershing Square’s Annual Letter for 2018, billionaire Bill Ackman, the founder and the manager of the fund, discussed in detail his opinions on Chipotle Mexican Grill, Inc. (NYSE:CMG). You can download a copy of the letter – here. Bill Ackman pointed out that the changes in the management have led to the company’s recent success, and that marketing focus has been finally switched to a concentrated plan with an aim to transform Chipotle from a food brand to a ”purpose-driven lifestyle brand.” More precisely, he said:
“Chipotle’s strong performance in 2018 was driven by an organizational transformation and accelerated growth under a new world-class management team. Brian Niccol, formerly CEO of Taco Bell, joined Chipotle as CEO in March 2018. Pershing Square Advisory Board Member and Chipotle Board Member Ali Namvar was a member of the three-person CEO search committee that led the effort to identify and recruit Brian. In his first year at the company, Brian has moved quickly to execute a people and culture transformation, including the addition of key external hires in the roles of Chief Marketing Officer, Chief People Officer, Chief Legal Officer and Chief Development Officer, the elimination of two layers of management to streamline decision making and increase agility, and the relocation of Chipotle’s headquarters to southern California. The new management team has revamped Chipotle’s approach to innovation and marketing. New initiatives now pass through a “stage-gate” process in which the company tests, learns, and iterates on each initiative so that management is highly confident in the probability of success before a national rollout. Marketing spend has been shifted from an inefficient field-based, promotion-driven approach to a centralized strategy that aims to elevate Chipotle from a food brand to a purpose-driven lifestyle brand.
Early signs that the new strategy is working have already emerged as demonstrated by same-store sales growth of 6.1% in the fourth quarter of 2018, including transaction growth of 2.0%. This was the highest level of same-store sales growth in the last six quarters, which had been negative since the summer of 2017. This return to transaction growth was underpinned by robust customer response to the “For Real” marketing campaign launched in October, and accelerated growth in digital sales, including delivery.
Chipotle shares appreciated 49% in 2018 and have increased a further 54% in the first few months of 2019. The company has made clear that driving robust same-store sales growth is the key priority for 2019, with growth initiatives identified in the areas of digital, marketing, menu, and operations. The company began the year with the highly successful introduction of a new menu option called Lifestyle Bowls in January, and then launched the next iteration of its marketing campaign in February. In March, the company launched its highly anticipated loyalty program nationally with further enhancements to digital ordering to speed up both pick-up and delivery expected in the coming months. The company has increased its store opening plans in 2019 as it has been able to achieve returns on new stores approaching peak historical levels.
We remain actively engaged on Chipotle’s board and are confident that management will continue to execute on the brand’s vast unrealized growth potential”
Chipotle Mexican Grill is an American chain of fast- casual restaurants that provides its professional services not only in the US, but also across the United Kingdom, France, Canada, and Germany. It is famous for its Mission-style burritos and delicious tacos. Chipotle is actually Nahuatl or Aztec name for a smoked and dried jalapeño chili pepper. Recently, the company welcomed two new members to its board of directors – Scott Maw and Patricia Fili-Krushel.
Year-to-date, the company’s stock gained 55.36%, and on March 26th it had a closing price of $688.82. Over the past 12 months, the share price has climbed more than 110%. Chipotle Mexican Grill’s has a market cap of $19.27 billion while trading at a price-to-earnings ratio of 110.34.
In its last financial report, Chipotle disclosed revenue of $1.2 billion for Q4 2018, up by 10.4% from the corresponding period in 2017. It also reported diluted EPS of $1.15, down by 25.8% from the same quarter of 2017 when diluted EPS were 1.55. For the full year 2018, the company recorded revenue of $4.9 billion, which is by 8.7% higher than in 2017. It also stated its diluted EPS for the full year 2018, and they were of $6.31, which is by 2.3% higher than in 2017 when the company reported diluted EPS of $6.17. Chipotle can also boast about opening 137 new restaurants while only closing or relocating 54 in 2018.
At the end of the fourth quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in CMG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Pershing Square actually holds the number one position in Chipotle Mexican Grill, Inc. (NYSE:CMG). The fund has a $838 million position in the stock, comprising 14.1% of its 13F portfolio. Coming in second is Renaissance Technologies, managed by Jim Simons, which holds a $535.6 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish contain Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and David Blood and Al Gore’s Generation Investment Management.
Recently, Robert W. Baird restated its ‘Outperform’ rating on the stock while also raising its price target to $760.00 from $650.00, and Wedbush upgraded its rating on it to ‘Neutral’ from ‘Underperform’, while boosting its price target to $640.00 from $500.00 as well.
This article was originally published at Insider Monkey.