As an investor I believe it is vital to the success of my portfolio that I understand the financial health of each of the companies that I own. With this in mind, I would like to share a fast and easy exercise that I perform for each of the stocks that I own. This exercise will give every investor the answer to my opening question…Where did my money go?
All you need for this little exercise is a company’s latest 10Q or 10K, a pen, a sheet of paper and a calculator. Can it get any easier than that?
Today I want to take a look at Chipotle Mexican Grill, Inc. (NYSE:CMG), Chuy’s Holdings Inc (NASDAQ:CHUY) and BJ’s Restaurants, Inc. (NASDAQ:BJRI).
To make this exercise interesting, let’s assume that I took my family out to eat at Chipotle Mexican Grill, Inc. (NYSE:CMG), BJ’s Restaurants, Inc. (NASDAQ:BJRI) and Chuy’s Holdings Inc (NASDAQ:CHUY) and I spent a total of $50 at each restaurant. To determine what each company did with my money, I am looking at their latest income statements and I am dividing each sub-category by revenue. So, for example, Chipotle’s Food and Beverage Expense in thousands ($239,589) / Revenue ($727,017)= .32955 x $50 = $16.48. So, Chipotle used $16.48 of my $50 to pay for the food that my family eats.
Cool? Ok, let’s look at each company using their latest 10Q Income Statement.
Chipotle Mexican Grill, Inc. (NYSE:CMG)
CMG Food and Beverage Expense $16.48 (32.955%)
Labor Expenses $11.79 (23.585%)
Occupancy Costs $3.28 (6.55%)
Other Operating Costs $5.27 (10.544%)
G&A $3.04 (6.0815)
Depreciation Expense $1.57 (3.155%)
Pre-Opening Expenses $0.20 (.397%)
Loss on Disposal of Assets $0.09 (.184%)
Income Tax $3.00 (6.014%)
Net Income $5.27 (10.534%)
BJ’s Restaurants, Inc. (NASDAQ:BJRI)
Cost of Sales $12.25 (24.493%)
Labor $17.44 (34.884%)
Occupancy and Other Operating Costs $10.73 (21.468%)
G&A $3.36 (6.724%)
Depreciation Expense $3.3 (6.068%)
Pre-Opening Expenses $0.19 (.377%)
Interest Expense $0.00265 (.005%)
Income Tax $0.78 (1.55%)
Net Income $2.19 (4.377%)
Chuy’s Holdings Inc (NASDAQ:CHUY)
Cost Of Goods $13.44 (26.89%)
Labor $16.03 (32.068%)
Operating Costs $7.00 (14.02%)
Occupancy Costs $3.09 (6.191%)
G&A $2.99 (5.985%)
Secondary Offering Costs $0.45 (.893%)
Marketing Expenses $0.38 (.754%)
Pre-Opening Expenses $1.04 (2.079%)
Depreciation Expenses $2.11 (4.214%)
Interest Expense $0.03 (.071%)
Income Tax $0.59 (1.18%)
Net Income $2.83 (5.655%)
It should not be a surprise to anyone that Chipotle Mexican Grill, Inc. (NYSE:CMG) is dominating this exercise, since it is by far the largest of the three companies. Its massive size allows Chipotle to spread its corporate expenses, for example, over a larger revenue base.
But this is just one quarter; how do the numbers look over a longer trend? So, now take a look at their latest 10K, which gives a multi-year look at the income statement.
Chipotle Mexican Grill, Inc. (NYSE:CMG)
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Food and Beverage | $16.21 | $15.35 | $15.28 | $16.27 | $16.31 |
| Labor Costs | $13.18 | $12.68 | $12.35 | $11.96 | $11.75 |
| Occupancy Costs | $3.68 | $3.76 | $3.52 | $3.24 | $3.14 |
| Other Operating Costs | $6.16 | $5.75 | $5.53 | $5.53 | $5.25 |
| G&A | $3.35 | $3.27 | $3.23 | $3.29 | $3.36 |
| Depreciation Expense | $1.98 | $2.02 | $1.88 | $1.65 | $1.54 |
| Pre-Opening Expense | $0.44 | $0.28 | $0.21 | $0.19 | $0.22 |
| Loss on Disposal | $0.35 | $0.20 | $0.17 | $0.13 | $0.09 |
| Income Tax | $1.84 | $2.55 | $3.00 | $2.97 | $3.29 |
| Net Income | $2.94 | $4.18 | $4.88 | $4.74 | $5.09 |
Chipotle Mexican Grill, Inc. (NYSE:CMG) is doing an excellent job of maximizing every dollar of revenue that it receives. As the chart above clearly shows, management has improved from the recession lows of 2008 to a very strong showing for 2012. As the economy continues to improve, management has many years of growth ahead of them. With a current restaurant count of 1488, with only 12 of those being international, they should be able to open another 1,000 in the USA alone over the next decade. Then once management becomes comfortable with their international business plan, 500-600 international locations should not be out of reach as they enter new markets.
Then we have the Shop House Asian concept, while management seems to becoming comfortable with their new “magic” formula, it is easy to forecast another 400-500 locations in the next decade. This all adds up to some awesome potential gains for investors over the next decade or so.
How about our other two contestants?
Not wanting to bog busy readers down with too much information, let’s cut to the chase and just look at BJ’s Restaurants, Inc. (NASDAQ:BJRI) and Chuy’s Holdings Inc (NASDAQ:CHUY) net incomes from their 10K’s to see if we can detect any trends.
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| BJRI | $1.38 | $1.53 | $2.25 | $2.54 | $2.22 |
| Chuy’s | $0.002 | $0.024 | ($1.23) | $0.016 | $0.95 |
Other than a “hiccup” in 2012, BJ’s Restaurants, Inc. (NASDAQ:BJRI) has done a solid job improving its bottom line. As the management team has plans of more than doubling the number of restaurants, margins should increase as management is able to spread general and administrative expenses over a larger revenue base. An expanding restaurant base will also improve name recognition, which will have at least two positive impacts on their bottom line. First by lowering their average marketing budget per location and second by helping to improve restaurant comps. This is a stock that is worth at least keeping on your watch list.
The bad showing in 2010 for Chuy’s Holdings Inc (NASDAQ:CHUY) is due in large part to “undistributed earnings allocated to participating interests.” Overlooking 2010, Chuy’s has done a terrific job of improving its net income. Out of the three, I believe Chuy’s has the best upside as they should be able to grow from their current 44 restaurants, to maybe 400-500 over the next decade. Of course, time only will tell.
Foolish bottom line
While I have high hopes for Chuy’s Holdings Inc (NASDAQ:CHUY), I believe Chipotle Mexican Grill, Inc. (NYSE:CMG) offers the safest expectations of the three. The company is a good steady grower and I believe investors should be able to get a 20% yearly return for many years to come. The wild card of course is Shop House, if management can reproduce their magic, CMG may actually turn in better returns than Chuy’s over the next 15 to 20 years.
Utilizing the income statement to better understand how a company deploys its revenue, is a very quick and easy exercise and one that I have found very beneficial to my investing. It quickly highlights trends in the financials and alerts me to areas that I should take a harder look at.
I hope you found this exercise useful. What say you? Feedback is always welcome.
The article Where Did My Money Go? originally appeared on Fool.com and is written by David Paxton.
David Paxton owns shares of Chipotle Mexican Grill, Chuy’s Holdings , and BJ’s Restaurants. The Motley Fool recommends BJ’s Restaurants and Chipotle Mexican Grill. The Motley Fool owns shares of BJ’s Restaurants and Chipotle Mexican Grill. David 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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