Chipotle Mexican Grill, Inc. Announces Third Quarter 2011 Results

DENVER, Oct 20, 2011 (BUSINESS WIRE) -- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its third quarter ended September 30, 2011.

Highlights for the third quarter of 2011 as compared to the third quarter of 2010 include:

  • Revenue increased 24.1% to $591.9 million
  • Comparable restaurant sales increased 11.3%
  • Restaurant level operating margin was 26.7%, a decrease of 100 basis points
  • Food costs were 33.1% of sales, an increase of 250 basis points driven by rising commodity costs
  • Net income was $60.4 million, an increase of 25.3%
  • Diluted earnings per share was $1.90, an increase of 25.0%

Highlights for the nine months ended September 30, 2011 as compared to the prior year include:

  • Revenue increased 23.6% to $1.67 billion
  • Comparable restaurant sales increased 11.2%
  • Restaurant level operating margin was 25.9%, a decrease of 100 basis points
  • Food costs were 32.7% of sales, an increase of 230 basis points driven by rising commodity costs
  • Net income was $157.5 million, an increase of 18.8%
  • Diluted earnings per share was $4.96, an increase of 18.7%

"Chipotle's strong performance in the quarter and throughout the year is the result of our strong food culture, where we are constantly striving for more sustainable sources for all of our ingredients; and our special people culture, where top performers throughout the company are creating an extraordinary dining experience for each customer," said Steve Ells, Founder, Chairman and Co-CEO of Chipotle.

Third quarter 2011 results

Revenue for the quarter was $591.9 million, up 24.1% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 11.3% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic in the quarter as well as the impact of menu price increases implemented between March and August.

During the quarter we opened 32 new restaurants including our new ShopHouse Southeast Asian Kitchen, bringing the total restaurant count to 1,163.

Restaurant level operating margin was 26.7% in the quarter, a decrease of 100 basis points from the prior year period. The decrease was primarily driven by food cost inflation partially offset by leverage from higher restaurant sales.

G&A costs were 6.3% of revenue, down 70 basis points from the prior year period. The decrease as a percent of revenue was driven by favorable sales leverage, and an all manager conference held during the third quarter of 2010, partially offset by an increase in non-cash stock-based compensation.

Net income for the third quarter of 2011 was $60.4 million, or $1.90 per diluted share, compared to $48.2 million, or $1.52 per diluted share, in the third quarter of 2010.

Results for the nine months ended September 30, 2011

Revenue for the first nine months of 2011 was $1.67 billion, up 23.6% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 11.2% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic.

During the first nine months of the year, we opened 82 new Chipotle restaurants as well as ShopHouse, bringing the total restaurant count to 1,163.

Restaurant level operating margin was 25.9% for the first nine months, a decrease of 100 basis points from the prior year period. The decrease was primarily driven by increased food costs partially offset by the impact of leverage from higher restaurant sales.

G&A costs for the first nine months of 2011 were 6.7% of revenue, up 10 basis points from the prior year period primarily due to higher stock based compensation and partially offset by greater sales leverage.

Net income for the first nine months of 2011 was $157.5 million, or $4.96 per diluted share, compared to $132.5 million, or $4.18 per diluted share, in the first nine months of 2010.

"I'm very pleased with our performance in the third quarter and throughout the year, but I'm even more pleased we're delivering these strong financial results by advancing our special people culture, where top performers are empowered to deliver high standards in their restaurants. Our people culture is the strongest it has ever been, and it's getting stronger every day, which gives me great confidence that we are well on our way toward our vision to change the way people think about and eat fast food," commented Co-CEO Monty Moran.

Outlook

For 2011, management expects the following:

  • Openings at or above the high end of our 135-145 opening range
  • Low double digit comparable restaurant sales growth for the full year
  • An effective tax rate of approximately 38.4%

For 2012, management expects the following:

  • 155-165 new restaurant openings
  • Low single digit comparable restaurant sales growth
  • An effective tax rate of approximately 39.2%

Definitions

The following definitions apply to these terms as used throughout this release:

Comparable restaurant sales increases represent the change in period-over-period sales for the comparable restaurant base. A restaurant becomes comparable in its 13th full calendar month of operation.

Average restaurant sales refers to the average trailing 12-month sales for restaurants in operation for at least 12 full calendar months.

Restaurant level operating margin represents total revenue less restaurant operating costs, expressed as a percent of total revenue.

Conference Call

Chipotle will host a conference call to discuss the third quarter 2011 financial results today at 4:30 PM Eastern Time. The conference call can be accessed live over the phone by dialing 1-888-500-6974 or for international callers by dialing 1-719-457-2707. A replay will be available one hour after the call and can be accessed by dialing 1-877-870-5176 or 1-858-384-5517 for international callers; the password is 4159826. The replay will be available until October 27, 2011. The call will be webcast live from the Company's website at chipotle.com under the investor relations section. An archived webcast will be available one hour after the end of the call.

About Chipotle

Steve Ells, Founder, Chairman and Co-Chief Executive Officer, started Chipotle with the idea that food served fast did not have to be a typical fast food experience. Today, Chipotle continues to offer a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in a distinctive atmosphere. Through our vision of Food With Integrity, Chipotle is seeking better food not only from using fresh ingredients, but ingredients that are sustainably grown and naturally raised with respect for the animals, the land, and the farmers who produce the food. Chipotle opened its first restaurant in 1993 and currently operates over 1,100 restaurants. For more information, visit chipotle.com.

Forward-Looking Statements

Certain statements in this press release, including statements under the heading "Outlook" of our expected number of new restaurant openings, comparable restaurant sales increases and effective tax rate in 2011 and 2012, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We use words such as "anticipate", "believe", "could", "should", "estimate", "expect", "intend", "may", "predict", "project", "target", and similar terms and phrases, including references to assumptions, to identify forward-looking statements. The forward-looking statements in this press release are based on information available to us as of the date any such statements are made and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, the following: factors that could affect our ability to achieve and manage our planned expansion, such as the availability of a sufficient number of suitable new restaurant sites and the availability of qualified employees;the uncertainty of our ability to achieve expected levels of comparable restaurant sales increases; the performance of new restaurants and their impact on existing restaurant sales; increases in the cost of food ingredients and other key supplies; the risk of food-borne illnesses and other health concerns about our food; the potential for increased labor costs or difficulty retaining qualified employees, including as a result of immigration enforcement activities; risks relating to our expansion into new markets; the impact of federal, state or local government regulations relating to our employees and the sale of food or alcoholic beverages; risks associated with our Food With Integrity strategy, including supply shortages; changes in consumer preferences, general economic conditions or consumer discretionary spending; the effect of competition in the restaurant industry; risks related to the ongoing development of our marketing strategy; the effects of continuing economic uncertainty on our business and on our suppliers, landlords and potential developers; risks relating to litigation; risks relating to our insurance coverage and self-insurance; our dependence on key personnel; security risks associated with the acceptance of electronic payment cards; the uncertainty of our ability to protect our name, logo and other proprietary information or the reputation of our brand; the potential effects of inclement weather; risks related to the tax treatment of our separation from McDonald's; and other risk factors described from time to time in our SEC reports, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, all of which are available on our Web site at chipotle.com.

Chipotle Mexican Grill, Inc.
Condensed Consolidated Statement of Income
(unaudited)

(in thousands, except per share data)

 
 
      Three months ended September 30,
      2011     2010
       
Revenue     $591,854     100.0%     $476,874     100.0%
                         
Restaurant operating costs

(Exclusive of depreciation and amortization shown separately below):

                       
Food, beverage and packaging     195,793     33.1     145,688     30.6
Labor     138,046     23.3     115,234     24.2
Occupancy     37,117     6.3     32,096     6.7
Other operating costs     63,167     10.7     51,977     10.9
General and administrative expenses     37,254     6.3     33,522     7.0
Depreciation and amortization     18,741     3.2     17,319     3.6
Pre-opening costs     2,448     0.4     1,943     0.4
Loss on disposal of assets     1,278     0.2     1,511     0.3
Total operating expenses     493,844     83.4     399,290     83.7
Income from operations     98,010     16.6     77,584     16.3
                         
Interest and other income     567     0.1     395     0.1
Interest and other expense     (119)     0.0     (14)     0.0
Income before income taxes     98,458     16.6     77,965     16.3
Provision for income taxes     (38,025)     (6.4)     (29,737)     (6.2)
Net income     $60,433     10.2%     $48,228     10.1%
                         
Earnings per share:                        
Basic     $1.93           $1.55      
Diluted     $1.90           $1.52      
Weighted average common shares outstanding:                        
Basic     31,331           31,031      
Diluted     31,832           31,629      
                         

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Income

(unaudited)

(in thousands, except per share data)

       
     

 

 

 

Nine months ended September 30,

      2011     2010
       
Revenue     $1,672,799     100.0%     $1,353,401     100.0%
                         
Restaurant operating costs

(Exclusive of depreciation and amortization shown separately below):

                       
Food, beverage and packaging     546,822     32.7     411,518     30.4
Labor     401,039     24.0     334,041     24.7
Occupancy     108,627     6.5     94,956     7.0
Other operating costs     182,773     10.9     148,623     11.0
General and administrative expenses     111,438     6.7     89,857     6.6
Depreciation and amortization     55,740     3.3     51,106     3.8
Pre-opening costs     5,350     0.3     5,169     0.4
Loss on disposal of assets     4,316     0.3     4,292     0.3
Total operating expenses     1,416,105     84.7     1,139,562     84.2
Income from operations     256,694     15.3     213,839     15.8
                         
Interest and other income     1,517     0.1     1,097     0.1
Interest and other expense     (2,788)     (0.2)     (178)     0.0
Income before income taxes     255,423     15.3     214,758     15.9
Provision for income taxes     (97,951)     (5.9)     (82,222)     (6.1)
Net income     $157,472     9.4%     $132,536     9.8%
                         
Earnings per share:                        
Basic     $5.05           $4.24      
Diluted     $4.96           $4.18      
Weighted average common shares outstanding:                        
Basic     31,195           31,278      
Diluted     31,772           31,731      
                         

Chipotle Mexican Grill, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except per share data)

             
     

September
30, 2011

   

December
31, 2010

             
Assets     (unaudited)      
Current assets:            
Cash and cash equivalents     $409,875     $224,838

Accounts receivable, net of allowance for doubtful accounts
of $6 and $102 as of September 30, 2011 and December 31, 2010,
respectively

    5,765     5,658
Inventory     8,768     7,098
Current deferred tax asset     5,883     4,317
Prepaid expenses and other current assets     22,679     16,016
Income tax receivable     --     23,528
Investments     34,759     124,766
Total current assets     487,729     406,221
Leasehold improvements, property and equipment, net     719,346     676,881
Long term investments     99,718     -
Other assets     14,641     16,564
Goodwill     21,939     21,939
Total assets     $1,343,373     $1,121,605
Liabilities and shareholders' equity            
Current liabilities:            
Accounts payable     $49,011     $33,705
Accrued payroll and benefits     42,965     50,336
Accrued liabilities     33,382     38,892
Current portion of deemed landlord financing     130     121
Income tax payable     2,955     --
Total current liabilities     128,443     123,054
Deferred rent     136,596     123,667
Deemed landlord financing     3,563     3,661
Deferred income tax liability     63,561     50,525
Other liabilities     11,769     9,825
Total liabilities     343,932     310,732
Shareholders' equity:            

Preferred stock, $0.01 par value, 600,000 shares authorized, no
shares issued as of September 30, 2011 and December 31, 2010

    --     --

Common stock, $0.01 par value, 230,000 shares authorized, 34,350
and 33,959 shares issued as of September 30, 2011 and December
31, 2010, respectively

    343     340
Additional paid-in capital     667,150     594,331

Treasury stock, at cost, 3,038 and 2,885 common shares at
September 30, 2011 and December 31, 2010, respectively

    (282,728)     (240,918)
Accumulated other comprehensive income     690     606
Retained earnings     613,986     456,514
Total shareholders' equity     999,441     810,873
Total liabilities and shareholders' equity     $1,343,373     $1,121,605
             

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(unaudited)

(in thousands)

       
     

Nine months ended
September 30,

      2011         2010
                 
Operating activities                
Net income     $157,472         $132,536

Adjustments to reconcile net income to net cash provided
by operating activities:

               
Depreciation and amortization     55,740         51,106
Deferred income tax provision (benefit)     11,470         (3,039)

Loss on disposal of assets

    4,316         4,292
                 
Bad debt allowance     29         (228)
Stock-based compensation     32,621         17,846
Excess tax benefit on stock-based compensation     (38,483)         (5,887)
                 
Other     2,476         -
Changes in operating assets and liabilities:                
Accounts receivable     (136)         545
Inventory     (1,670)         (1,560)
Prepaid expenses and other current assets     (6,669)         (4,553)
Other assets     9         (903)
Accounts payable     6,738         4,883
Accrued liabilities     (12,893)         (4,948)
Income tax payable/receivable     64,966         (8,411)
Deferred rent     12,940         11,994
Other long-term liabilities     1,943         2,523
Net cash provided by operating activities     290,869         196,196
                 
Investing activities                

Purchases of leasehold improvements, property and

equipment

    (92,867)         (71,179)
Acquisition of interests in equity method investment     (586)         -
Purchase of investments     (99,702)         (90,000)
Maturities of investments     90,007         50,000
Net cash used in investing activities     (103,148)         (111,179)
                 
Financing activities                
Acquisition of treasury stock     (41,810)         (111,480)
Proceeds from option exercises     535         11,295
Excess tax benefit on stock-based compensation     38,483         5,887

Payments on deemed landlord financing

    (89)         (68)
                 
Net cash used in financing activities     (2,881)         (94,366)
                 
Effect of exchange rate changes on cash and

cash equivalents

    197         779
Net change in cash and cash equivalents     185,037         (8,570)
Cash and cash equivalents at beginning of period     224,838         219,566
Cash and cash equivalents at end of period     $409,875         210,996
                 
Supplemental disclosures of cash flow information                

Increase in purchases of leasehold improvements, property, and
equipment accrued in accounts payable

    $8,569         $5,525
 

Chipotle Mexican Grill, Inc.

Supplemental Financial and Other Data

(dollars in thousands)

(unaudited)
       
      For the three months ended
    Sep. 30,     Jun. 30     Mar. 31,         Dec. 31,     Sep. 30,
     

2011

   

2011

   

2011

       

2010

   

2010

Number of restaurants opened     32     39     12         62     22
Restaurant relocations or closures     --     (3)     (1)         (1)     --
Number of restaurants at end of period     1,163     1,131     1,095         1,084     1,023
Average restaurant sales     $1,973     $1,927     $1,885         $1,840     $1,806
Comparable restaurant sales increases     11.3%     10.0%     12.4%         12.6%     11.4%

SOURCE: Chipotle Mexican Grill

###

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