Wall Street analysts on Friday hailed Chipotle Mexican Grill Inc. as the nation’s top restaurant company, after the parent to nearly 1,600 fast-casual restaurants posted stellar fourth-quarter results.

While many other restaurant operators commiserated about soft sales in late 2013, especially because of harsh winter weather, Chipotle recorded a 9.3-percent increase in same-store sales during the quarter, its highest since the first quarter of 2012, when same-store sales climbed 12.7 percent.

The Denver-based company’s stock price climbed nearly 13 percent on Friday following its report, trading at $553.30 per share late in the day, after reaching a high of $568.90 and beating a high of $550.28 recorded over the past 52 weeks.

Same-store sales rose primarily due to increased traffic, along with a 1-percent increase in the average check, Chipotle reported.

In a report Friday, Sterne Agee analyst Lynne Collier said the results were a testament to Chipotle’s position as “the best business model created in the restaurant industry to date.”

In a call with analysts Thursday, Chipotle founder and co-chief executive Steve Ells said there was no single reason for the outstanding performance. He credited the Chipotle experience, saying the company’s strong “people culture” improves customer service.

Ells was ranked No. 2 on The Power List, presented by NRN. View Ells' Power List profile >>

The company has also been working to improve throughput. During the quarter, an average of six more transactions were recorded during peak lunch hours, and five more at dinner.

“Despite the weather, despite whether people were not out and about because they are doing online shopping, they still decided they wanted to dine at Chipotle during December, and we were delighted to see that trend,” Ells said. “I think all the things we’re doing to create the special experience is working.”

The company’s unconventional marketing, such as the animated “Scarecrow” short that skewers big agriculture, also helped, said Ells, as did the rollout of catering to nearly all markets. Available in all markets except New York City, where the service will debut later this year, catering is approaching 1 percent of sales, with some markets like Denver, Seattle, St. Louis and San Francisco averaging 1.5 percent of sales, he said.

Chipotle now offers its vegan protein option, a braised tofu called Sofritas, in 40 percent of restaurants, amounting to 3 percent of sales.

“What’s exciting is that about 40 percent of the Sofritas that we sell are being ordered by people who normally eat meat,” Ells said.

The company plans to reach its goal of eliminating all genetically modified ingredients from its menu by the end of the year. All of the cooking oils used in North America are GMO-free, Ells said, but the company is still working to remove GMOs from its corn and flour tortillas.

Chipotle chief financial officer Jack Hartung said the company is experimenting with mobile payment, which could result in a greater “bond” with guests, though he declined to call it a loyalty program, something Chipotle has avoided.

“Once we have mobile payments we can have a different kind of connection in relationship with our customers,” Hartung said.

Employees have a “rough version” of mobile payment now, and the company plans to expand it, he said.

Chipotle plans to invest $10 million in its technology infrastructure to rework networks used throughout the chain to facilitate mobile payment and other features that might further improve speed of service.

Avocado prices are expected to remain high through 2014, which will likely be exacerbated by lower supplies from California, which has been hit hard by drought. As a result, Hartung said the chain is likely to raise menu prices during the third quarter.

With momentum from the fourth quarter expected to continue, the company said it now expects same-store sales for fiscal 2014 to be in the low- to mid-single-digit range. Previously, the company had projected low-single-digit increases.

When asked about the potential impact of a minimum wage increase to $10, as President Barack Obama outlined in his State of the Union address this week, Hartung said Chipotle’s average wages for hourly employees are already above $9.

“A move to $10 would have an effect, but not too significant, and I would say that the impact on us will be much less than others,” Hartung said. “You would see an impact on our margins, but it will be something we could certainly absorb.”

Chipotle, which ended the year with 1,595 units, expects to open between 180 and 195 new restaurants in 2014.

Contact Lisa Jennings at lisa.jennings@penton.com.
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