The James Dean Stocks

 | Jul 22, 2014 | 6:26 AM EDT  | Comments
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If you give 'em what they want, you can raise the price and they want more! That's the takeaway of two different earnings reports last night: Chipotle (CMG) and Netflix (NFLX). And it's a particularly glorious one at that.

First of all, Chipotle put up some numbers that made all other publicly-traded restaurants look like they are serving rancid chicken and beef. These numbers -- comp sales up 17% when we were looking for 10% -- are insanely fabulous and much of it wasn't because of price. It was because of throughput. It was because of skillful management that has enabled Chipotle to handle crowd management. Oh, and let's be sure, that's what it is: crowd management. If you can put through eight more transactions during the peak lunch and dinner hours, you can get a number that is well in excess of what anyone is looking for. That's how you get to $3.50 a share in earnings instead of the Street estimate of $3.09. That's how you get to a comparable-sales number that is literally the second best ever, the first being eight years ago when the company had fewer than a third the stores it has now and the stores were making a third less than they do.

These were mesmerizing numbers, done without specials and with a consistency that continues in July despite some pretty hefty price increases to cover increasing costs of pretty much everything they serve.

How did they do it? The bean counters won't want to hear this, but they did it by relying on Food with Integrity. They really don't do much advertising other than the online shorts that talk about how they are different. It's resonating. The group that's really come on strong is teenage males. How fitting is it that teenage males used to live at McDonald's (MCD). I bet many of the teenage males eating at Chipotle these days wouldn't be caught dead at a McDonald's. They would be embarrassed because it is what their know-nothing, moronic, pre-Web parents ate. Eating at Chipotle's a statement, a statement that says, "Listen up food chain, we are on to you and we have had it with you."

It's a nationwide phenomenon, too, with even bad markets turnings good. At one point in the call they talked about how California was a failed market for Chipotle. Now it is like shooting fish in a barrel. Both the earnings and the food are sustainable, with the latter being helped by Australian grass-fed beef, the answer to the smallest cattle herd in 60 years.

Netflix is a similar success story. Here's a company that directly says the recent increase in subs -- they now have 50 million -- is coming from original content, with "Orange Is the New Black" repeatedly called out on the call. If you haven't seen the show, let's just say it is about the travails and alternative life styles in a woman's prison and it is my favorite program on air today. Netflix isn't in as good a shape as Chipotle. It owes $7.7 billion in obligations; Chipotle doesn't owe a thing. It is trying to grow like mad overseas in part because growth has slowed here. Chipotle can't put stores up fast enough here and will move overseas in a big way when it is good and ready.

But Netflix, too, is about rebellion in its heart. Netflix is about not doing what your moronic, pre-Web triceratops parents did when they bowed in obedience to the network gods. It is about being mad as hell and only watching what you want. Believe me, for that, you would pay a heck of a lot more than what Netflix charges.

For so many operators in so many businesses all I hear about is "challenged this" and "promotional that." When I listen to these managements, you know what I hear? I hear how they can't make it fast enough and they can't get it into your hands quick enough. Chipotle and Netflix are putting every else to shame. 

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