We recently shared Pershing Square’s Q1 2019 Investor Letter, in which the fund reported a 36.9% increase of NAV per share during the first three months of 2019. If you are interested in more details you can track down a copy of the letter here. In the letter, the fund also shared its opinion on the stocks in its equity portfolio, including Chipotle Mexican Grill, Inc. (NYSE:CMG), for which it said it believes is yet to deliver strong profits and to grow its sales in the upcoming years.
“Chipotle Mexican Grill (“CMG”)
CMG’s first quarter results continued to demonstrate the significant progress that CEO Brian Niccol and his team have made in dramatically improving performance and positioning the company for long-term sustainable growth. Same-store sales grew 10% in the quarter led by transaction growth of approximately 6%, a significant acceleration in sequential growth – better than that of any other large publicly traded restaurant company.
Management raised its full year same-store sales guidance to mid-to-high single-digit growth from mid-single-digit growth. Digital sales doubled from the prior year quarter to nearly 16% of sales, including robust growth in delivery, which has driven incremental sales and improved margins. Key drivers for continued same-store sales progress in the coming quarters include the new loyalty program launched in March, the completion of the rollout of the digitized second make line by the end of 2019 from half to all stores, and a continued focus on improving speed of service and store employee retention.
Restaurant margins expanded 150 basis points in the quarter to 21%, the highest since 2015. Management estimates that every $100,000 increase in average restaurant sales should translate into a one percentage point increase in restaurant margins, implying margins of 25% once Chipotle gets back to peak average restaurant sales of $2.5 million, which were previously achieved with essentially no contribution from digital or delivery.
Chipotle’s store count exceeded 2,500 stores in the quarter, with management reiterating the opportunity for up to 5,000 stores on the earnings call, and Brian citing the potential for up to 7,000 stores in a recent interview. Despite the 63% year-to-date increase in the share price, we believe that Chipotle is in the early innings of its transformation, and that its robust pipeline of initiatives in the stage gate process, accelerated footprint expansion, and a world-class management team should drive superlative growth in sales and profits for years to come.”
Susan Law Cain / Shutterstock.com
Chipotle Mexican Grill is a 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 gained wide popularity mainly thanks to its Mission-style burritos and tasteful tacos. Since the beginning of the year, Chipotle’s stock gained 49.44%, and on May 24th it had a closing price of $662.56. Chipotle Mexican Grill has a market cap of $18.36 billion while trading at a price-to-earnings ratio of 90.55
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards CMG over the last 14 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Pershing Square actually held the most valuable stake in Chipotle Mexican Grill, Inc. (NYSE:CMG), which was worth $838 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $535.6 million worth of shares. Moreover, Citadel Investment Group, AQR Capital Management, and Generation Investment Management were also bullish on Chipotle Mexican Grill, Inc. (NYSE:CMG), allocating a large percentage of their portfolios to this stock.
“A massive and surprising new transition could determine the next group of millionaires,” says Chaikin, who predicted the 2020 market crash. “While leaving 99% of the public worse off than before.”
“If you own regular stocks, you’re in for a big surprise,” he adds.
“I grew up in a world where you could do extremely well by investing in ordinary companies,” Chaikin says. “It’s how I spent the majority of my 50-year career on Wall Street.
