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Three Answers From Chipotle Mexican Grill, Inc. (CMG)

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Earlier this week, I posed three questions for Chipotle Mexican Grill, Inc. (NYSE:CMG) going into its second-quarter earnings announcement.

And wouldn’t you know it? Chipotle Mexican Grill, Inc. (NYSE:CMG) stock popped nearly 5% in after-hours trading on Thursday after the company was kind enough to provide answers to each one.

Without further ado, here’s what the popular burrito maker had to say:

1. How’s the foot traffic?
First, I wanted to know whether customer traffic in Chipotle Mexican Grill, Inc. (NYSE:CMG)’s restaurants has kept up its healthy pace. After all, much of Chipotle’s weakness last year arrived when the company told investors that slowing customer traffic served as a sign for weak consumer spending in the second quarter of 2012.

Chipotle Mexican Grill, Inc. (NYSE:CMG)This time around, however, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s was happy to report second quarter revenue, which grew 18.2% year over year to $816.8 million. This beat analysts estimates that called for $803 million, thanks both to the result of revenue from new locations, and a 5.5% increase in comparable restaurant sales. That healthy comparable sales growth was largely driven by — you guessed it — increased traffic during the quarter.

And for those of you keeping track, that 5.5% growth also shows a marked improvement over the last quarter’s paltry 1% comparable restaurant sales increase, and even beats the pants off of Panera Bread Co (NASDAQ:PNRA) Company‘s respectable 3.3% comp-sales growth in Q1.

Of course, Panera Bread Co (NASDAQ:PNRA) itself is all set to report its own second-quarter earnings on July 23 and, assuming it also benefits from the same trends as Chipotle Mexican Grill, Inc. (NYSE:CMG) did in Q2, the competing fast-casual chain still has a chance to strut its stuff for investors next week.

Even so, the market is currently applauding Chipotle Mexican Grill, Inc. (NYSE:CMG)’s Q2 comp sales results, especially considering they were strong enough to merit boosting their comparable sales guidance for the year. When all is said and done in 2013, Chipotle now expects “low-to-mid-single-digit” comparable sales growth, an improvement over last quarter’s guidance, which called for a “flat-to-low-single-digit” increase.

2. Are food cost increases moderating?
Next, I wondered whether the cost of Chipotle Mexican Grill, Inc. (NYSE:CMG)’s high-quality ingredients might finally show some moderation.

Remember, Chipotle Mexican Grill, Inc. (NYSE:CMG) has so far largely resisted raising prices of its menu items to offset the rising cost of goods, which, in turn, has taken a toll on its margins over the past year.

This quarter was no different, as restaurant level operating margin decreased 160 basis points from the year-ago period, to 27.6% during the quarter, once again primarily driven by higher food and marketing costs. Curiously enough, however, this does mark its third-straight sequential operating margin improvement, up from 26.3% last quarter, and 24.6% in the fourth quarter of 2012.

Even so, food costs in the second quarter still represented 33.1% of revenue, which is an improvement over 33.5% two quarters ago, but a slight sequential increase over last quarter’s 33%, thanks again to stubbornly high commodity costs.

As a result, and when the remaining expenses were accounted for, Chipotle Mexican Grill, Inc. (NYSE:CMG) managed to turn in quarterly net income of $2.82 per share, an increase of just 10.1% from last year. However, that still edged out analysts’ expectations, which called for earnings per share of $2.81.

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