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Chipotle Mexican Grill, Inc. (CMG), BJ’s Restaurants, Inc. (BJRI): What Happens When These Growth Stories Stop?

Over the past several years, we have witnessed some explosive growth stories unfolding in the restaurant sector. A handful of restaurants are crushing the market.

CMG data by YCharts

These restaurants are growing by expanding their chains faster than many competitors. Yet this growth causes investors to wonder: “When will these chains stop expanding, and what happens when they do?”

Past growth

Chipotle Mexican Grill, Inc. (NYSE:CMG)To fully appreciate the growth, we need to consider where each company has come from. Both Chipotle Mexican Grill, Inc. (NYSE:CMG) and BJ’s Restaurants, Inc. (NASDAQ:BJRI) speak for themselves.

Company Locations 2006 Current Locations Increase
Chipotle Mexican Grill 570 1,502 164%
Panera Bread (NASDAQ:PNRA) 1,027 1,673 63%
The Cheesecake Factory (NASDAQ:CAKE) 131 174 33%
BJ’s Restaurants 55 131 138%

Panera Bread Co (NASDAQ:PNRA) is a steady grower — opening on average two new restaurants a week for the past 6+ years. These locations average almost $1.3 million in annual revenue. By opening around 100 per year, Panera Bread Co (NASDAQ:PNRA) increases revenue annually by more than $100 million.

The Cheesecake Factory Incorporated (NASDAQ:CAKE) is the slowest grower in this bunch. While slower than the others listed here, each of its locations is a money-making machine. In the most recent quarter net income per location was $145,356. Compare that to Chipotle Mexican Grill, Inc. (NYSE:CMG), which generates $58,490 per location per quarter. Management is willing to grow a tad slower to ensure that each location performs to these high company standards.

Future growth

These growth stories still have a bright future. No exact growth target has been given by Chipotle Mexican Grill, Inc. (NYSE:CMG)’s management, but many believe the company is targeting at least 3,000 locations — double today’s number.

BJ’s Restaurants, Inc. (NASDAQ:BJRI) is targeting 425 locations — more than triple the current count. One unique growth aspect to this company is its “clustering strategy.” Basically, by choosing one geographic region to expand into, the company can save money on marketing and infrastructure. This year the company will expand into the mid-Atlantic region (Virginia and Maryland) for the first time to start a new cluster of restaurants.

While no firm restaurant targets exist for Panera or The Cheesecake Factory Incorporated (NASDAQ:CAKE), it is reasonable to assume that both of these chains can continue expanding as well. Panera hasn’t even touched the idea of expanding internationally… yet. It is only logical to assume that at some point it will consider it. On its end, the Cheesecake Factory is just starting to expand internationally, with deals in place in the Middle East and Latin America.

Life after the saturation point

In virtually every article you read on restaurants that are growing via expansion, the topic of saturation eventually comes up. Saturation is the point where a chain can’t expand anymore without “cannibalizing” existing restaurants. Once that point is reached, the growth story is over.

I believe we are years away from the saturation point for any of these restaurants. Some would say the saturation point is close. Either way, sooner or later, saturation will be reached. Below are four charts that I believe make these companies attractive investments even beyond the saturation point.

CMG LT Debt data by YCharts

These four companies have been fueling growth without debt. Rather than taking the popular route of “buying” growth, these companies have expanded upon already profitable and growing business. When each of these companies reaches the saturation point, they won’t have to focus on outstanding debt.

CMG Cash and Equivalents data by YCharts

Each company has a respectable cash position. This reflects increased cash flow and net earnings growth.

Company Free Cash Flow TTM Net Income Growth (last five years)
Chipotle $324 million 271%
Panera $140 million 202%
Cheesecake $114 million 76%
BJ’s ($16) million 165%

So far this strong cash position, solid balance sheet, and an ever-increasing influx of cash has largely fueled the growth. But some has been returned to shareholders by reducing outstanding shares.

CMG Shares Outstanding data by YCharts

With the exception of BJ’s Restaurants, Inc. (NASDAQ:BJRI), these companies reduced outstanding shares as a way of generating shareholder value.


Let’s put it all together now. These companies have exploded with growth, but much growth is still ahead. These restaurants are extremely successful, as evidenced by each company’s debt position and strong cash metrics. One day, expansion plans will have to come to a significant slowdown. What to do with all that cash?

These companies won’t have to worry about rising interest rates or satisfying creditors, since each has no long-term liabilities. After the saturation point, these companies will spend significantly less on expanding the business, which should also increase cash flow. Each is committed to creating shareholder value.

What to do with all that cash? The most logical option is rewarding shareholders with a dividend. So far, only the Cheesecake Factory offers a dividend, and it’s fairly meager at 1%. When you think of how much money these companies generate, these could be very attractive dividend plays.

To conclude, I think all four of these companies will continue growing at least over the next five years, making them attractive investments right now. But when the growth is over, I believe these companies will become compelling dividend investments, making them attractive investments even beyond.

The article What Happens When These Growth Stories Stop? originally appeared on

Jon Quast has no position in any stocks mentioned. The Motley Fool recommends BJ’s Restaurants, Chipotle Mexican Grill, and Panera Bread. The Motley Fool owns shares of BJ’s Restaurants, Chipotle Mexican Grill, and Panera Bread. Jon is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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