Chipotle Mexican Grill, the Denver-based big-burrito chain, cooked up a historic day on Wall Street on Thursday, doubling on its first trading day to $44 a share.
Chipotle’s initial public offering marked the restaurant industry’s second-best debut ever – after Boston Market – and the biggest opening-day gain for a U.S. company since 2000.
Investors, like consumers, embraced the rapidly expanding Chipotle’s growth prospects, despite the restaurant industry’s notorious “flash-in- the-pan” performance over the years.
“It’s a lot better than fast food because it’s so fresh,” Emily Kroth, 28, said between bites of chicken tacos Thursday at the Chipotle on the 16th Street Mall. “It’s very good for the price.”
Chipotle chief executive Steve Ells, who founded the company in 1993 near the University of Denver campus, said of the offering Thursday from New York: “It’s a gratifying experience. It’s been quite a journey.”
The sale made paper millionaires of several Chipotle executives. Ells, already wealthy, watched his holdings swell to more than $45 million.
Chipotle, largely owned by Oak Brook, Ill., hamburger giant McDonald’s Corp., twice increased the offering price, eventually to $22, to take advantage of strong investor demand.
The surge to the $44 close marked the biggest opening-day gain since a 115 percent jump in 2000 by Transmeta, a semiconductor company that now trades at $1.45 a share.
Excluding penny stocks, the offering marked the second-best restaurant debut, trailing only the 1993 offering by Golden-based Boston Chicken, now Boston Market, according to Thomson Financial.
“I don’t think any of us could have imagined this,” Jack Hartung, Chipotle’s chief finance officer, said of the bounce.
The 7.87 million-share stock offering raised $121.4 million in net proceeds.
Chipotle intends to use the proceeds to maintain existing stores and open as many as 90 new ones during the next year. It also plans to repay $30 million to McDonald’s, which first purchased a portion of Chipotle from Ells in 1998 and took a majority stake in 1999.
McDonald’s will retain 68.5 percent of the stock, including 90.4 percent of the voting stock.
Chipotle is increasing its revenue by 33 percent for the nine months ended Sept. 30, according to securities filings. It posted $471 million in revenue in 2004, up 49 percent from 2003.
Analysts and industry experts differed when asked whether Chipotle would suffer the same fate as other hot restaurant stocks that soared only to plummet.
“Chipotle is on a high wire between two high-rise buildings,” said Francis Gaskins, president of IPOdesktop.com. “They will probably make it, but if they have one misstep, they could fall back down.”
Chipotle shares are trading at about 81 times this year’s estimated earnings, placing it well above the industry range of 20 to 25 times earnings, Gaskins said. Jack In The Box Inc. trades at 16.2 times earnings, while McDonald’s trades at 16.8 times earnings.
However, Chipotle has an attractive business model, expanding profit margins and ample space in which to grow, analysts said.
“Not all IPOs that were hot faded,” said Rich Peterson, a senior researcher for Thomson Financial. “Any investor interested in Chipotle needs to see if it meets the needs of their portfolio.”
Class A shares of Chipotle trade on the New York Stock Exchange under the ticker symbol CMG.
Staff writer Will Shanley can be reached at 303-820-1260 or wshanley@denverpost.com.
