Chipotle / Kohl's

Wondering if anyone has looked at Chipotle (CMG) or Kohl's (KSS) stock for their own portfolios or perhaps covers it at work - have done some work on Kohl's but just starting to look at Chipotle. Looking at each for long term holds (12+ mos).

On the Kohl's side I see:
+ Beat up stock price putting stock down to 4.7x FY2011 EBITDA
+ Management buying back stock at a very quick clip
+ Smart management team - highly regarded as problem solvers and great managers
+ Great real estate strategy that kept them out of crappy malls
+ Potential LBO candidate - strong cash flows and trading cheaply enough
+ Good deal of debt but well covered by cash flow, and long maturities/good rates (~6%)
- Potential dragging on of low prices in a continued downturn, but less an issue if holding for a long time
- Obviously a very seasonal business
- Customers starting to see through the '50-80% off' strategy they play every week (but management knows customers are on to it)

Chipotle:
+ Ridiculous growth rate and expansion opportunities in UK and Canada (but likely already priced in - need to see what current market price implies)
+ Dominant proposition/distinction from peers
+ Replicable model, simple menu, and good stores/design/efficiency
+ Ties w McDonald's give it access to cheap beverage and food vendors
- Potential threat of competition either from other burrito joints or other health/fresh fast casual food (custom salad joints taking off)
- Uncertain future of connection with McDonald's - seems strange that Chipotle is pitching this whole eco-friendly pro-farmer thing while McDonald's clearly has a different view of what constitutes 'food' - curious if the average consumer knows or cares though

Would love to hear thoughts from anyone who's taken a look at these.

Can anyone tell me how to attach a file to this? Have a quick and dirty model on KSS to establish some base price range targets and look at LBO.

And of course, this is not a recommendation to buy either stock.

frgna

 

Kohls is a company that caters to the middle-class.

Think about it. Dockers. Levis. Name-brand clothing for middle-class suburban white kids. It is the big box store next to Best Buy and Montgomery Ward's that Mom dragged you to for shopping when you were 10.

There will be a middle-class recovery. Kohls will be in better shape in 30 years than it is today. I just don't see any catalysts for it right now.

 
Best Response
IlliniProgrammer:
Kohls is a company that caters to the middle-class.

Think about it. Dockers. Levis. Name-brand clothing for middle-class suburban white kids. It is the big box store next to Best Buy and Montgomery Ward's that Mom dragged you to for shopping when you were 10.

There will be a middle-class recovery. Kohls will be in better shape in 30 years than it is today. I just don't see any catalysts for it right now.

Not from an investment point but I actually like Kohl's...I grew up in a suburban area and they had pretty good stuff for good prices. Hell, whenever I visit my parents I want to go there so I don't have to spend a shitload on clothes that barely look any better.

Can't say the same for Chipotle though. Feel like I'm the only one that doesn't fucking rave about them like they're the messiah. Every time I've gone there I've had a crappy experience. There are local places that taste way better.

 

CMG stock is too expensive. Its already had its run.

Plus the stores suck, so idk what youre talking about. They are not efficient (1 register during lunch rush?) and the design is terrible (concrete and tin furnature with massive lines weaving thru dining room) Not to mention the food sucks. Got a steak burrito this week, and the steak was so hard I all but chipped a tooth.

 

Another downside of Chipotle is that a lot of people (including myself) have a problem spending $16 on a burrito when they can get one for $2.50 at taco bell. I understand Chipotle's is better, but $14 better? Perhaps not.....na actually definitely not, lol

GBS
 
GoldmanBallSachs:
Another downside of Chipotle is that a lot of people (including myself) have a problem spending $16 on a burrito when they can get one for $2.50 at taco bell. I understand Chipotle's is better, but $14 better? Perhaps not.....na actually definitely not, lol
Is chipotle 16 bucks some places?!
If I had asked people what they wanted, they would have said faster horses - Henry Ford
 
oR3DL1N3o:
CHIPOTLE IS WAYYYY TOO EXPENSIVE. THERE IS NO WAY I WOULD EVER PAY 7.95 FOR A FUCKING BURRITO

You get a much bigger portion that you would at Taco Bell though. Anymore it seems like I can spend at least $8 for a combo at Wendy's or a place like that so I feel like it's good value for what you get IMO.

 

nice model - some questions:

1) how does KSS differentiates itself from JCP, M, TGT, ROSS, and TJX? 2) what is your reasoning behind the sales growth? the retail pie isn't likely to grow so you have to be taking market share away from someone else 3) how many stores are you projecting that KSS will open?
4) gross margin looks high - management has said that KSS is going to aggressively cut opening prices - see margin compression in Q1/12 5) you need to account for the share buybacks (ie: reduce the # of shares)

 

Yeah, CMG is actually sounding more like a short now - will be interesting to run the numbers. Mistmaker where in Canada you from? I'm in T-Dot area currently w my girlfriend visiting her family.

Agree sounds like well late jeff/charlie 09 - I've literally spent 15 minutes on it, wasn't aware Mickey's was completely out now. Jeff I agree they can be more efficient but that's a simple improvement - what I do like about the stores is they are easy to keep clean looking and they don't look all crappy after 5 years. Really no need to remodel steel and concrete, tend to keep their look pretty well. Steak is by far the worst - go for the barbacoa, way better! Charlie if you can find that article it's a silver banana.

BigHedgeHog - all numbers are just placeholders for now, I haven't yet torn into any analyst reports/etc, just wanted to get a barebones version going based on 10-k's financials alone. Gonna dig deeper into drivers/peers once I get a few hours alone w Thomson OneBanker. Thanks very much for the heads ups, precisely what I was looking to get here. Do you know if they have explicit plans to buy back more shares?

Naboo that's interesting on JCP/coupon strategy - I might spread a few numbers for them too and see how they look. I'm sure the KSS team are well familiar with JCP's travails so it'll be interesting to see what they come up with.

Where is a Chipotle burrito $16? In London it's ~£8 for a burrito, and I don't know that they serve a pricier market. Maybe NYC? The difference is at Taco Bell - which I also love to eat - you get grade D ground 'meat', days old lettuce/tomatoes, and instant diarrhea - I've always said you don't buy food at Taco Bell, you rent it for a few hours at best and then return it back to nature. My feel is it's a completely different product offering, different price point.

oR3D - I worked in restructuring advisory for 3 yrs and most recently interned for a credit/distressed fund. Just finished grad school and targeting distressed investing jobs.

frgna

if you like it then you shoulda put a banana on it
 

Illini I also grew up upper midwest - I hear Kohl's (Wisconsin co.) deliberately designed their stores to be easily accessible in even the coldest climates - parking lots at two entrances, etc.

Agree there are no obvious catalysts - just thinking for the moment it is undervalued and 4-5 quarters of strong earnings should prove to the market that the team is capable and the company well positioned. It's a stock I wouldn't mind holding 5+ yrs and see what happens. Gut says the stock can be acquired today at a pretty cheap price and you get a chance at some considerable upside. I do think Kohl's will continue to take share away from the peers, Sears stores are looking more and more like they belong in a wartorn eastern european country. TGT's another I think will be a strong performer and I'll be looking at them soon. Don't know if this is true but I feel like Kohl's offering is a bit cheaper than TGT's and TGT really attracts a younger crowd where Kohl's like you said is where the Midwest moms love to hang out. TGT is awesome though - killer company and you should see the corporate staff walking the Minneapolis skyways sometime. Let's just say it's a popular destination for fashionable young business grads.

Fyi, I'm looking at these both a) for investing some of my and my family's money (small stuff, but good experience) and b) prep for interviews. Also, it's just pretty fun. :)

frgna

if you like it then you shoulda put a banana on it
 

Again, I'm biased because I never liked CMG in the first place, but while maybe there's still some upside to the stock I think at one point it's going to face a harsh reality. CMG is practically cult status now, damn, at some time in the future the shine from the experience will wear off and eating $12 burritos everyday is going to get old. Don't forget the $3 guac. Props to them for getting those margins right now though. Won't expect it to last forever.

 
Cardinal:
CMG is the best bang for your buck lunch spot there is. Seriously bitching about $8 for lunch??? Where do you usually eat MCD or do you bring your PBJ with the crust cut off from home?

The PBJ...my mommy makes them for me. She even cuts them diagonally like I ask her to...I love her so much!!!!!@@

So, dear sir, when you're done underestimating their cost and using too many question marks, listen to this:

Before you go all ad hominem on me, when exactly did I bitch about the price? I just quoted a price. I have this thing when I go out called a satisfaction/price ratio. That is, I'm willing to spend a lot of money on food as long as its satisfying. CMG costs fair amount of money for just a fucking burrito and honestly is barely that satisfying. You know that feel after you've had a big-ass mass prepared burrito? Yeah. I'd much rather spend less money on crappy food or spend $0-10 more to get an actual meal.

And If I HAD to have Mexican, there are other local places that taste way better and don't make you feel like you're in an assembly line, for a third the cost.

 

I added guacamole on said burrito guys, sry for leaving that out before

Edit: I refuse to just sit back and allow shit to be talked about PBJ with the crust cut off. That sandwich is as important to childhood as tee-ball and NARBs

GBS
 

CMG mkt cap at $20 bn on $425 mm of EBITDA - assuming a 10% discount rate that's perpetual growth of 8% - which is actually not too crazy given it's been ~20% over recent past. Though since they're no debt that implies a 50x EBITDA multiple if I'm not mistaken. This all seems to imply they're at a price where people are hoping everything goes right for chipotle - i.e. not a good time to invest.

What gets me though is why hasn't any other company been able to make a big dent in the fresh/fast food market? Who else is actually doing anything even close to competing with what Chipotle does? It feels like they've monopolized that price segment and that's what could actually see them beat the 8%.

Agree that Chipotle is not that expensive at all - burrito and a coke and you're under $10. Comparable would be takeout sushi ($15 to get full), Noodles and Co (also over $10), and a handful of others. Arby's/BK/etc, I do not really consider in the same category.

1,000,000% agree, do not DARE knock the PB&J - I take mine crust cut off, lightly toasted, with a diagonal cut OR cut with a star shaped cookie cutter. I miss mommy.

if you like it then you shoulda put a banana on it
 

Chipotle is a solid company but the stock price is already representative of its future growth/potential. IMO

I would be weary about investing in a company like Kohl's after seeing what has happened to Bestbuy over the last few years. Online shopping has completely killed Bestbuy in the last couple of years and it seems like it can only get worse in the future. I would be weary of Kohl's for the same reason. They don't produce anything unique that can't be sold online or sold by any other store. I wouldn't be surprised to see these types of stores all but gone in the next 15-20 years.

 
future-ib:
Chipotle is a solid company but the stock price is already representative of its future growth/potential. IMO

I would be weary about investing in a company like Kohl's after seeing what has happened to Bestbuy over the last few years. Online shopping has completely killed Bestbuy in the last couple of years and it seems like it can only get worse in the future. I would be weary of Kohl's for the same reason. They don't produce anything unique that can't be sold online or sold by any other store. I wouldn't be surprised to see these types of stores all but gone in the next 15-20 years.

That's an interesting point - on that mark, curious if anyone has done work on Amazon, only because I really love their process (Amazon Prime - £49 a year covers unlimited next day shipping, are you kidding me??? Love it) and they seem to have a really good first-mover in online sales, good reputation, customer service etc. The gf and I order tons of stuff off Amazon.

if you like it then you shoulda put a banana on it
 
future-ib:
Chipotle is a solid company but the stock price is already representative of its future growth/potential. IMO

I would be weary about investing in a company like Kohl's after seeing what has happened to Bestbuy over the last few years. Online shopping has completely killed Bestbuy in the last couple of years and it seems like it can only get worse in the future. I would be weary of Kohl's for the same reason. They don't produce anything unique that can't be sold online or sold by any other store. I wouldn't be surprised to see these types of stores all but gone in the next 15-20 years.

I think you bring up a good point. However, I think Kohl's (and all other brick and mortar clothiers) will retain market share for the simple reason that people like to try on clothes before they purchase. I do think they will give up market share to the internet, though much slower than electronic retailers like Best Buy. Similarly, I don't think the brick and mortar retailers will ever go out completely, again, b/c people like to try clothes on.

What do you think?

"An investment in knowledge always pays the best interest" --Ben Franklin
 
Marzapan:
future-ib:
Chipotle is a solid company but the stock price is already representative of its future growth/potential. IMO

I would be weary about investing in a company like Kohl's after seeing what has happened to Bestbuy over the last few years. Online shopping has completely killed Bestbuy in the last couple of years and it seems like it can only get worse in the future. I would be weary of Kohl's for the same reason. They don't produce anything unique that can't be sold online or sold by any other store. I wouldn't be surprised to see these types of stores all but gone in the next 15-20 years.

I think you bring up a good point. However, I think Kohl's (and all other brick and mortar clothiers) will retain market share for the simple reason that people like to try on clothes before they purchase. I do think they will give up market share to the internet, though much slower than electronic retailers like Best Buy. Similarly, I don't think the brick and mortar retailers will ever go out completely, again, b/c people like to try clothes on.

What do you think?

Another difference is Kohl's moved to online much sooner than BBY did, so they've shifted their sales online much faster (though of course at lower margins) and Marzapan is spot on on people wanting to try the clothes. Think how much a pain it is to find pants that fit, then try to run online and find the exact same size and model just to save 5-10 bucks on the pair? Not worth the hassle IMO. Electronics is totally different that way, on one purchase you might save 50-100 bucks.

I agree Q4 is the wildcard. Any rationale as to why there's a greater probability of a big miss than a big hit though, besides online and general downturn? I.e. what would not yet be priced in?

if you like it then you shoulda put a banana on it
 

So it looks like our consensus to short CMG and long Kohl's was right, Chipotle to $296 from over $400 in June and KSS up to $49 from $44 over the same frame.

Will be fun to see where these guys go from here.

Other ideas: My favorite pony is still Olympus, ran the analysis back in May when it was at 1,100 yen and just busted up to 1,446. Yummy. My target is 1,600-2,000.

Keep an eye on my boy FirstGroup too, ran that one just after Olympus, in May was at £1.98, I target £3.50 to £4.00. Currently at £2.20.

Any other ideas out there? Always love to hear new sectors, stocks, etc that people like/hate. Prepping for interviews now so double-useful and many SB's for good pitches.

frgna

if you like it then you shoulda put a banana on it
 

Personally I am interning with a hedge fund manager and he is high on kohls but i secretly disagree with him. I think kohls is a dying company with Boring clothing. But you can't disagree with the hedge funds that are buying it because they control the market. Cmg I have been short a while because it is overhyped. Let's be honest qdoba and even moes are better. I've never had a good experience there. That's just my opinion. Check out body central as an option that and tempur pedic have been my favorites

 

It's fun to see the different things focus on when they're evaluating. Some base it on market share, some on margin, some on popularity, some on short-term earnings, some on long-term earnings, some on DCF, etc. And some are retarded enough to just say "omg p/e low buy buy buy p/e high short short short yessss"

I hate victims who respect their executioners
 
*Check out body central as an option that and tempur pedic have been my favorites

Tempur is like a rabbit in the headlights. Competition hit them and they still haven't figured out where it came from. They also have 0 strategy on how to deal with this, nonexistent pipeline of products and are caught between a rock and a hard place as they can't drop prices but they are also pricing themselves out of the market as it is. Their number 1 problem though is the distinct strategy.They are worth more but the market is not going to rerate them until there is evidence of some plan going forward.

*sorry, from a shitty old browser here that doesn't show WSO properly so can't quote correctly

 

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I hate victims who respect their executioners
 

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