Chipotle Mexican Grill, Inc. Announces Second Quarter 2012 Results

DENVER--(BUSINESS WIRE)--Jul. 19, 2012-- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its second quarter ended June 30, 2012.

Highlights for the second quarter of 2012 as compared to the second quarter of 2011 include:

  • Revenue increased 20.9% to $690.9 million
  • Comparable restaurant sales increased 8.0%
  • Restaurant level operating margin was 29.2%, an increase of 340 basis points
  • Net income was $81.7 million, an increase of 61.2%
  • Diluted earnings per share was $2.56, an increase of 61.0%

Highlights for the six months ended June 30, 2012 as compared to the prior year include:

  • Revenue increased 23.2% to $1.33 billion
  • Comparable restaurant sales increased 10.2%
  • Restaurant level operating margin was 28.3%, an increase of 280 basis points
  • Net income was $144.3 million, an increase of 48.8%
  • Diluted earnings per share was $4.53, an increase of 48.0%

"We are pleased that our continued focus on improving the quality and taste of our food, along with strengthening our people culture, has lead to a better dining experience for our customers, and ultimately better financial results for our shareholders," said Steve Ells, Founder, Chairman and Co-CEO of Chipotle.

Second quarter 2012 results

Revenue for the quarter was $690.9 million, up 20.9% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 8.0% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by the impact of menu price increases, most of which were taken in 2011, as well as from increased traffic.

During the quarter we opened 55 new restaurants, including our first restaurant in Paris, France, bringing the total restaurant count to 1,316.

Restaurant level operating margin was 29.2% in the quarter, an increase of 340 basis points from the prior year period. The increase was primarily driven by leverage from higher average restaurant sales and lower marketing expenses.

G&A costs were 6.1% of revenue, down 120 basis points from the prior year period. The decrease as a percent of revenue was driven by favorable sales leverage, lower employee bonus accruals, and lower legal expenses, partially offset by an increase in non-cash stock-based compensation expense.

Net income for the second quarter of 2012 was $81.7 million, or $2.56 per diluted share, compared to $50.7 million, or $1.59 per diluted share, in the second quarter of 2011.

Results for the six months ended June 30, 2012

Revenue for the first six months of 2012 was $1.33 billion, up 23.2% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 10.2% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic as well as the impact from menu price increases, most of which were taken in 2011.

During the first six months of the year, we opened 87 new Chipotle restaurants, bringing the total restaurant count to 1,316.

Restaurant level operating margin was 28.3% for the first six months, an increase of 280 basis points from the prior year period. The increase was primarily driven by the impact of leverage from higher restaurant sales and from lower marketing costs.

G&A costs for the first six months of 2012 were 6.9% of revenue, or flat to prior year primarily due to leverage from higher sales as well as a lower bonus accrual, offset by higher stock based compensation expense.

Net income for the first six months of 2012 was $144.3 million, or $4.53 per diluted share, compared to $97.0 million, or $3.06 per diluted share, in the first six months of 2011.

"While I'm pleased with the financial results in the quarter, I'm even more delighted that we are developing more restaurateurs than ever before, and our restaurant teams are the strongest they have ever been. We know that having strong leaders in our restaurants, who are hiring and empowering top performers to deliver high standards and an extraordinary dining experience, will lead to more loyal Chipotle customers, and greater shareholder value," commented Co-CEO Monty Moran.

Outlook

For 2012, management expects the following:

  • 155-165 new restaurant openings
  • Mid-single digit comparable restaurant sales growth for the full year
  • An effective tax rate of approximately 39.0%

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 second quarter 2012 financial results today at 4:30 PM Eastern Time. The conference call can be accessed live over the phone by dialing 1-866-431-5320 or for international callers by dialing 1-719-325-2197. 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 7427674. The replay will be available until July 26, 2012. 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 1,300 restaurants. For more information, visit chipotle.com.

Forward-Looking Statements

Certain statements in this press release, including statements about financial results and shareholder returns, as well as statements under the heading "Outlook" of our expected number of new restaurant openings, comparable restaurant sales increases, and effective tax rate in 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; the effects of continuing economic uncertainty on our business and on our suppliers, landlords and potential developers; the impact of increasing general and administrative expenses due to higher non-cash stock-based compensation expense and other increased expenses; 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 Investor Relations page of our Web site at chipotle.com.

 
Chipotle Mexican Grill, Inc.
Condensed Consolidated Statement of Income and Comprehensive Income
(in thousands, except per share data)
(unaudited)
 
    Three months ended June 30,
    2012   2011
     
Revenue   $ 690,932     100.0 %   $ 571,561     100.0 %
                 
Restaurant operating costs

(Exclusive of depreciation and amortization shown separately below):

               
Food, beverage and packaging     221,517     32.1       188,121     32.9  
Labor     159,895     23.1       137,705     24.1  
Occupancy     41,758     6.0       36,195     6.3  
Other operating costs     66,353     9.6       62,221     10.9  
General and administrative expenses     42,295     6.1       41,968     7.3  
Depreciation and amortization     20,543     3.0       18,505     3.2  
Pre-opening costs     3,306     0.5       1,606     0.3  
Loss on disposal of assets     1,475     0.2       1,377     0.2  
Total operating expenses     557,142     80.6       487,698     85.3  
Income from operations     133,790     19.4       83,863     14.7  
                 
Interest and other income (expense), net     377     0.1       (2,006 )   (0.4 )
Income before income taxes     134,167     19.4       81,857     14.3  
Provision for income taxes     (52,484 )   (7.6 )     (31,200 )   (5.5 )
Net income   $ 81,683     11.8 %   $ 50,657     8.9 %
                 
Earnings per share:                
Basic   $ 2.58         $ 1.63      
Diluted   $ 2.56         $ 1.59      
Weighted average common shares outstanding:                
Basic     31,696           31,167      
Diluted     31,951           31,761      

 

Comprehensive income

  $ 80,625         $ 50,764      
                         

Chipotle Mexican Grill, Inc.
Condensed Consolidated Statement of Income and Comprehensive Income
(in thousands, except per share data)
(unaudited)

     
   

Six months ended June 30,

    2012   2011
     
Revenue   $ 1,331,535     100.0 %   $ 1,080,945     100.0 %
                 
Restaurant operating costs

(Exclusive of depreciation and amortization shown separately below):

               
Food, beverage and packaging     428,107     32.2       351,029     32.5  
Labor     311,880     23.4       262,993     24.3  
Occupancy     82,267     6.2       71,510     6.6  
Other operating costs     132,532     10.0       119,606     11.1  
General and administrative expenses     91,629     6.9       74,184     6.9  
Depreciation and amortization     40,627     3.1       36,999     3.4  
Pre-opening costs     5,754     0.4       2,902     0.3  
Loss on disposal of assets     2,725     0.2       3,038     0.3  
Total operating expenses     1,095,521     82.3       922,261     85.3  
Income from operations     236,014     17.7       158,684     14.7  
                 
Interest and other income (expense), net     811     0.1       (1,719 )   (0.2 )
Income before income taxes     236,825     17.8       156,965     14.5  
Provision for income taxes     (92,478 )   (6.9 )     (59,926 )   (5.5 )
Net income   $ 144,347     10.8 %   $ 97,039     9.0 %
                 
Earnings per share:                
Basic   $ 4.57         $ 3.12      
Diluted   $ 4.53         $ 3.06      
Weighted average common shares outstanding:                
Basic     31,553           31,125      
Diluted     31,899           31,740      

 

Comprehensive income

  $ 143,972         $ 97,764      
                         

Chipotle Mexican Grill, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except per share data)

         
   

June 30,
2012

 

December
31, 2011

         
Assets   (unaudited)    
Current assets:        
Cash and cash equivalents   $ 404,797     $ 401,243  

Accounts receivable, net of allowance for doubtful accounts
of $369 and $208 as of June 30, 2012 and December 31, 2011, respectively

    10,351       8,389  
Inventory     10,504       8,913  
Current deferred tax asset     7,310       6,238  
Prepaid expenses and other current assets     28,298       21,404  
Income tax receivable     34,446       --  
Investments     124,736       55,005  
Total current assets     620,442       501,192  
Leasehold improvements, property and equipment, net     804,655       751,951  
Long term investments     169,177       128,241  
Other assets     32,196       21,985  
Goodwill     21,939       21,939  
Total assets   $ 1,648,409     $ 1,425,308  
Liabilities and shareholders' equity        
Current liabilities:        
Accounts payable   $ 55,960     $ 46,382  
Accrued payroll and benefits     56,199       60,241  
Accrued liabilities     37,812       46,456  
Current portion of deemed landlord financing     138       133  
Income tax payable     --       4,241  
Total current liabilities     150,109       157,453  
Deferred rent     154,726       143,284  
Deemed landlord financing     3,459       3,529  
Deferred income tax liability     63,794       64,381  
Other liabilities     15,096       12,435  
Total liabilities     387,184       381,082  
Shareholders' equity:        

Preferred stock, $0.01 par value, 600,000 shares authorized, no
shares issued as of June 30, 2012 and December 31, 2011

    --       --  

Common stock, $0.01 par value, 230,000 shares authorized, 34,896
and 34,357 shares issued as of June 30, 2012 and December 31,
2011, respectively

    349       344  
Additional paid-in capital     789,271       676,652  

Treasury stock, at cost, 3,208 and 3,105 common shares at June 30,
2012 and December 31, 2011, respectively

    (344,023 )     (304,426 )
Accumulated other comprehensive income (loss)     (178 )     197  
Retained earnings     815,806       671,459  
Total shareholders' equity     1,261,225       1,044,226  
Total liabilities and shareholders' equity   $ 1,648,409     $ 1,425,308  
                 

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(unaudited)

(in thousands)

     
    Six months ended

June 30,

    2012   2011
         

Operating activities

       
Net income   $ 144,347     $ 97,039  

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

       
Depreciation and amortization     40,627       36,999  
Deferred income tax provision (benefit)     (1,659 )     8,701  
Loss on disposal of assets     2,725       3,038  
Bad debt allowance     185       3  
Stock-based compensation     37,677       21,978  
Excess tax benefit on stock-based compensation     (73,652 )     (29,673 )
         
Other     207       2,479  
Changes in operating assets and liabilities:        
Accounts receivable     (2,147 )     (524 )
Inventory     (1,593 )     (1,347 )
Prepaid expenses and other current assets     (6,893 )     (15,260 )
Other assets     (10,213 )     64  
Accounts payable     4,899       6,369  
Accrued liabilities     (12,705 )     (12,203 )
Income tax payable/receivable     34,964       47,067  
Deferred rent     11,446       7,919  
Other long-term liabilities     2,660       2,067  
Net cash provided by operating activities     170,875       174,716  
         
Investing activities        
Purchases of leasehold improvements, property and equipment     (90,332 )     (57,681 )
Acquisition of interests in equity method investment     -       (586 )
Purchase of investments     (110,870 )     (89,702 )
Maturities of investments     -       90,007  
Net cash used in investing activities     (201,202 )     (57,962 )
         
Financing activities        
Acquisition of treasury stock     (39,597 )     (22,484 )
Proceeds from option exercises     167       457  
Excess tax benefit on stock-based compensation     73,652       29,673  
Payments on deemed landlord financing     (65 )     (58 )
Net cash used in financing activities     34,157       7,588  
         

Effect of exchange rate changes on cash and
cash equivalents

 

    (276 )     621  
Net change in cash and cash equivalents     3,554       124,963  
Cash and cash equivalents at beginning of period     401,243       224,838  
Cash and cash equivalents at end of period   $ 404,797       349,801  
         
Supplemental disclosures of cash flow information        

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

  $ 4,687     $ 180  
                 
Chipotle Mexican Grill, Inc.

Supplemental Financial and Other Data

(dollars in thousands)

(unaudited)
     
    For the three months ended
  June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,
   

2012

 

2012

 

2011

 

2011

 

2011

Number of restaurants opened   55   32   67   32   39
Restaurant relocations or closures   (1)   --   --   --   (3)
Number of restaurants at end of period   1,316   1,262   1,230   1,163   1,131
Average restaurant sales   $2,106   $2,072   $2,013   $1,973   $1,927
Comparable restaurant sales increases   8.0%   12.7%   11.1%   11.3%   10.0%

###

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