Stephen Frankola sends: Zachstocks published a piece on Chipotle Mexican Grill (CMG) right after they released earnings, expressing caution towards the company’s performance going forward, and its already-rich value.

Zachstocks was concerned that Chipotle’s results were helped by playing games with its store openings and advertising spending.

company significantly cut back on marketing and promotional spending which had a temporary effect of reducing expenses.

While the end result was impressive, the means to get TO this earnings level appears unsustainable. Obviously if you significantly cut marketing and promotional spending, over a short period of time you will begin to see sales dwindle. For that reason, management noted that 2009 marketing spending will mirror 2008 as a percentage of revenue. And since the second quarter was so light in this area, you can bet that the promotional spending will be very high in the third and fourth quarter. This will drive margins lower.

At the same time, management is guiding for 120 to 130 new store [openings] in 2009. With only 50 completed in the first half, that means investors can expect at least a 40% increase in new store openings in the second half. These new stores typically have lower margins until they have been opened long enough to become well established, and there are significant store opening costs associated with the locations.

I take interest as I always wanted to short CMG back in its pre-$100 days, but shares were impossible to borrow. I’m not sure whether or not it’s actually feasable to short now… but it may be worth a look. If the general market weakens, watch for the bloated CMG to lead the decline.

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