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No. of Recommendations: 14

I have not listened to the CROX conference call or read their earnings
release but I cannot imagine another company having a better quarter 
than CMG did in Q2.  Here are some of the details: 

- Revenues were up almost 34% YoY and 16% QoQ to $274.3 million
- Restaurant operating margins increased to 23.2% or 150 bps over last
- General & Administrative expenses fell to below 7% of revenue
- Depreciation & amortization expenses fell to below 4% of revenue
- Net Margins grew to 7.3% or 200 bps over prior year
- Net income increase 85% YoY and 60% QoQ to $20 million
- EPS grew 82% YoY and 59% QoQ to .60/share
- EPS also exceeded analysts estimates by 33% (consensus 
was .45/share)
- Comparable SSS increased 11.6% (compare this to current SSS at SBUX, 
PNRA, or other restaurant chains and I think you can see this is an 
extraordinary achievement).   
- 32 new stores were opened in the quarter and 4 franchise locations 
were acquired (previously disclosed in the filing for the 1st 

The comps were driven primarily by increased traffic although 
management attributed 2% of the increase to increased prices in markets 
where they rolled out their “naturally raised” chicken and beef.  

Management took a great deal of time to discuss their development of 
managers and “restaurateurs”.  I think this is more than lip service 
and that Ellis and Moran take a lot of pride in how these programs have 

Management cautioned about projecting comps and guided analysts to 
forecast SSS for the year in a range between “high single digits and 
low double digits”.  Hartung, CFO, provided further color in the Q&A 
period by saying that 10% was about in the middle of the range and that 
he felt comfortable with that rate.  

G&A expenses were positively impacted by a reversal of a reserve 
related to customer credit card information that was stolen from CMG a 
couple of years ago.  This reversal resulted in a reduction of G&A 
expenses of $1.2 Million.  If that amount was included in G&A, EPS 
would have been reduced by .02/share and G&A as a % of revenue would 
have increased to 7.0%.  Management said they believed that the 7% was 
an appropriate level for the rest of the year.   

Using this guidance I have projected some potential numbers for Q3 and 

	              Q3	      Q4	    Full Year
Revenue	        $288,063,000	$302,466,000	$1,100,971,000
Rest. Ops Inc.	  61,357,000	  64,425,000	   238,497,000
Net Income	  16,868,000	  17,738,000	    67,027,000
EPS	                 .51	         .53	          2.01

Some of my assumptions in these estimates are that QoQ revenue growth 
is going to slow to 5%.  Restaurant level margins will shrink in the 
face of increase commodity and labor costs.  They will open 32 new 
stores in each quarter for a total of 704 stores at year end.  
Outstanding shares will average 33,265,000 at year end with another 
100,000 added to the average for Q3 from 33,065,000 in Q2.  

If these estimates hold true, in the short term (next 6 months when YE 
results are announced), I would see the B class shares at $100/share 
and longer term using the consensus growth rate of 27%, I see EPS at 
over $5/share in FY11 and a share price over $200/share.  

Fool On!

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