Chipotle raises its prices and saw store traffic rise in the double digits from a year earlier. Yesterday this news was released by the casual dinning trend setter. This is great news for Chipotle owners, but I believe it’s also a very good overall economic sign.
What should you take away from this information as an investor? If this is the only piece of information you have to go on to gauge the health of the economy, you would probably be bullish. The fact that a price increase did not deter customers from consuming is a very bullish sign. Chipotle didn’t say that they would give you 6% more food for a 6% price increase. No, they raised prices to deal with commodity price increases. The company had not done an across the board price increase in the last three years.
An important point to keep in mind when investing is that many investors look to the prior year to measure a company’s performance. They also look to the prior year when looking at the economy as a whole. Therefore, those that point to 2007 or 2008 and speak of how much better it was then compared to now often miss the main yard marker for investment insight.
Growth from quarter to quarter is important, but where a company was a year ago to where it is now is often a more meaningful measurement.
Year over year activity commands such a spotlight because quarterly comparisons can be mired by seasonality issues. For example, weather has a strong impact on business and consumer behavior. Seasonal sales for events like Christmas and back-to-school time can provide data that is not comparable to previous periods.
I see Chipotle’s results as one broad data set that argues for a a continued bull market.
Disclosure – I’m long Chipotle (CMG)