Chipotle Mexican Grill, Inc. (CMG), Panera Bread Co (PNRA), Yum! Brands, Inc. (YUM): Searching for Sustainable Revenue Growth

Chipotle Mexican Grill, Inc. (NYSE:CMG)Of the three restaurant chains, Chipotle Mexican Grill, Inc. (NYSE:CMG)Panera Bread Co (NASDAQ:PNRA), and Yum! Brands, Inc. (NYSE:YUM), which one has the best future growth prospects? Earning season is almost over and only 67% of S&P 500 companies beat expectations on the bottom-line (earnings) and only 53% beat expectations on the top-line (revenue). Finding sustainable growth in today’s economy is a real challenge.

All three restaurant chains recently reported their quarterly earnings. The table below compares several revenue and growth metrics, and the last column identifies which company has the best performance in that category. Let’s start our review by comparing the revenue of the three companies to see how fast they are growing the top-line.

Revenue and Growth Comparison
Company Chipotle Mexican Grill Q2FY13Ending June 30, 2013 Panera Bread Company Q2FY13Ending June 25, 2013 Yum! BrandsQ2FY2013

Ending June 15, 2013

Preferred company
Qtrly Revenue Growth (yoy) 18.2% 12.07% -8.3% Chipotle Mexican Grill
Revenue forward guidance 16% – 18% 8% – 12% 1% Chipotle Mexican Grill
Same Store Sales Increase/Decrease 5.5% 3.8% 1% Chipotle Mexican Grill
Annual growth in new store openings 11.7% – 12.8% 6.9% – 7.6% 5.3% Chipotle Mexican Grill

Chipotle Mexican Grill

As of June 30, Chipotle Mexican Grill, Inc. (NYSE:CMG) had 1,502 restaurants, of which 1,490 were located throughout the United States, five in Canada, six in London, and one in Paris. The company’s restaurants include two ShopHouse Southeast Asian Kitchen restaurants, its new concept serving Asian inspired cuisine. The company opened 92 restaurants during the six months ending June 30, and expects to open an additional 73 to 88 restaurants in the second half of 2013, including up to four additional ShopHouse restaurants.

Chipotle Mexican Grill, Inc. (NYSE:CMG)’s comparable restaurant sales increased 3.4% for the first six months of 2013, and 5.5% for the second quarter of 2013, and expect full year comparable restaurant sales increases in 2013 to be in the low to mid-single digits. During the first half of 2013, the company launched catering services in select markets, and expects to offer catering in all Chipotle Mexican Grill, Inc. (NYSE:CMG) restaurants in the U.S. by the end of the year.

Panera Bread

As of June 30, Panera Bread Co (NASDAQ:PNRA) had 1,652 company-owned and franchise-operated bakery-cafe locations in 44 states, the District of Columbia, and Ontario, Canada. During the second quarter fiscal 2013, the company opened 18 new bakery-cafes and its franchisees opened 19 new bakery-cafes. As a result, there were 1,708 bakery-cafes opened system-wide as of June 25. For 2013, the company maintains its target of unveiling approximately 115–125 system-wide units.

While Panera Bread Co (NASDAQ:PNRA) did report a very good quarter, it missed expectations and lowered forward guidance. Panera Bread Co (NASDAQ:PNRA)’s revenue jumped 11% to $589 million, missing analysts’ expectations of $596 million. The company had predicted growth of 4% to 5% at company-owned bakery-cafes; however, same-store sales grew only 3.8% at company-owned bakery-cafes and 3.5% at franchise-operated bakery-cafes. The company has lowered its forecast for same-store sales to 2% to 4% for the second-half of 2013.

Average weekly sales, or AWS, for company-owned new bakery-cafes through the second quarter were $50,983 compared to $48,484 in the same period of fiscal 2012. AWS for franchise-operated new bakery-cafes through the second quarter fiscal 2013 were $49,855 compared to $47,109 in the same period of fiscal 2012. The average weekly net sales performance for new company-owned bakery-cafes is expected to be at the high-end of the previously provided targeted range of $40,000 to $42,000 for fiscal 2013.

Panera Bread Co (NASDAQ:PNRA) recorded double-digit growth rates on both top and bottom lines, but the market had already been expecting strong growth, so this was something of a miss compared to expected earnings. The stock now trades at a trailing P/E of 26, and a forward PE of 22. Therefore, Panera will have to continue to generate high earnings growth. However, this trailing earnings multiple does represent a discount to Chipotle Mexican Grill, Inc. (NYSE:CMG).

Yum! Brands

As of June 30 Yum! Brands, Inc. (NYSE:YUM) has over 39,000 restaurants in more than 130 countries and territories. During the quarter, total international development was 315 new restaurants; 76% of this development occurred in emerging markets. The China Division opened 100 new units in the second quarter, and 326 new units year-to-date. Yum! Brands, Inc. (NYSE:YUM) Restaurants International, or YRI, opened 205 new units in 50 countries, including 129 in emerging markets. Outside the United States, the Yum! Brands, Inc. (NYSE:YUM) system opened over five new restaurants per day, making it a leader in international retail development.

However, the company has now reported three consecutive disappointing quarters, and a highlight of the most recent second quarter report on July 10 was a 20% drop in same store sales in China, a 63% decline in Chinese operating profit, and a 5.0 percentage point decline in margins. The overall worldwide system sales grew only 1%, including 6% at YRI (stores outside U.S., China, and India), 2% in the U.S. System, but sales declined 12% in China. June same-store sales declined an estimated 10% for the China Division, improving from a 19% decline in May. This included an estimated decline of 13% at KFC and 6% growth at Pizza Hut Casual Dining.

From the Yum! Brands, Inc. (NYSE:YUM) column you can see its issues in China are having a material effect on company revenue and growth. Yum! Brands’ revenue is down 12% in China, causing global revenue to be down 8.3% this quarter. Same store sales in China were down 20%, which reduced global same store sale to an anemic 1%.

The China Division sales and profits were significantly impacted by adverse publicity surrounding the Avian flu, the poultry supply incident in December, and now the report of tainted ice from its ice machines. The Chinese media seems to be focused on Yum! Brands stores and is finding one negative news story after another. I am not sure if Yum! Brands, Inc. (NYSE:YUM) can overcome all this negative publicity in China, but if it does, the growth story looks appealing with a total international development of 315 new restaurants, of which 76% are in emerging markets.


All three companies have compelling growth stories and should be good long-term investments. Chipotle Mexican Grill, Inc. (NYSE:CMG) is starting a new chain of ShopHouse Southeast Asian Kitchen restaurants, its new concept serving Asian inspired cuisine, and this may accelerate its growth in the future. After Panera Bread Co (NASDAQ:PNRA) reported disappointing results for the second quarter, the stock price fell about 10%. The company’s CFO has enough confidence in the company that he has recently purchased 1,500 shares of the stock. Yum! Brands is struggling in China; however, if it can overcome the negative media campaign in China then Yum! Brands’ recovery may be an unusual opportunity for some long-term profits. On the top-line all three companies are worth owning, but I feel that Chipotle Mexican Grill is the better choice for the long-term, buy-to-hold investor.

The article Searching for Sustainable Revenue Growth originally appeared on and is written by Art Crabtree.

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

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