Chipotle Mexican Grill, Inc. Announces Second Quarter 2013 Results

DENVER - (BUSINESS WIRE) - Jul. 18, 2013 - Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its second quarter ended June 30, 2013.

Highlights for the second quarter of 2013 as compared to the second quarter of 2012 include:

  • Revenue increased 18.2% to $816.8 million
  • Comparable restaurant sales increased 5.5%
  • Restaurant level operating margin was 27.6%, a decrease of 160 basis points
  • Net income was $87.9 million, an increase of 7.6%
  • Diluted earnings per share was $2.82, an increase of 10.2%
  • Opened 44 new restaurants

Highlights for the six months ended June 30, 2013 as compared to the prior year include:

  • Revenue increased 15.9% to $1.54 billion
  • Comparable restaurant sales increased 3.4%
  • Restaurant level operating margin was 27.0%, a decrease of 130 basis points
  • Net income was $164.4 million, an increase of 13.9%
  • Diluted earnings per share was $5.27, an increase of 16.3%
  • Opened 92 new restaurants

“This month marks Chipotle’s 20th anniversary. What started out as one restaurant serving burritos and tacos, has evolved into a national brand which is changing the way people think about and eat fast food. Our vision has connected with our loyal customers, who visit Chipotle to enjoy great tasting food made from premium ingredients. It's rewarding to look back and see what we've accomplished, but it's even more inspiring to think about what lies ahead over the next twenty years.” said Steve Ells, Founder, Chairman and co-CEO of Chipotle.

Second quarter 2013 results

Revenue for the quarter was $816.8 million, up 18.2% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 5.5% increase in comparable restaurant sales. Comparable restaurant sales growth was driven by increased traffic and from the benefit of one additional trading day in the quarter as compared to the second quarter of 2012.

During the quarter we opened 44 new restaurants, bringing the total restaurant count to 1,502.

Food costs were 33.1% of revenue, an increase of 100 basis points driven by higher commodity costs. Higher commodity costs were driven by increased prices for all of our salsa ingredients, as well as for dairy items and chicken. These increases were partially offset by lower avocado prices.

Restaurant level operating margin was 27.6% in the quarter, a decrease of 160 basis points from the prior year period. The decrease was primarily driven by higher food and marketing costs.

General and administrative expenses were 6.2% of revenue, an increase of 10 basis points due to higher legal and payroll costs partially offset by favorable sales leverage.

Net income for the first quarter of 2013 was $87.9 million, or $2.82 per diluted share, compared to $81.7 million, or $2.56 per diluted share, in the second quarter of 2012. Income taxes were negatively impacted by non-recurring tax adjustments that reduced earnings by $0.03 per share.

Results for the six months ended June 30, 2013

Revenue for the first six months of 2013 was $1.54 billion, up 15.9% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 3.4% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic.

During the first six months of the year, we opened 92 new restaurants, bringing the total restaurant count to 1,502.

Restaurant level operating margin was 27.0% for the first six months, a decrease of 130 basis points from the prior year period. The decrease was primarily from higher food costs and higher marketing costs.

General and administrative expense for the first six months of 2013 was 6.2% of revenue, or a decrease of 70 basis points from the prior year period. The decrease was from lower stock based compensation expense and lower employee related payroll taxes.

Net income for the first six months of 2013 was $164.4 million, or $5.27 per diluted share, compared to $144.3 million, or $4.53 per diluted share, in the first six months of 2012.

“We are delighted with our strong financial performance during the second quarter. We know that empowered cultures create excellent teams, who deliver a special dining experience for each customer who visits Chipotle. They attract great employees and develop them to be the very best leaders from within the organization, which not only supports our great operations, but also makes our strong performance sustainable as we add more restaurants,” said Monty Moran, co-CEO

Outlook

For 2013, management expects the following:

  • 165 – 180 new restaurant openings
  • Low to mid single digit comparable restaurant sales
  • An effective full year tax rate of approximately 38.9% (39.4% for the remainder of 2013).

Definitions

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

Comparable restaurant sales 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 2013 financial results on Thursday, July 18, 2013 at 4:30 PM Eastern time.

The conference call can be accessed live over the phone by dialing 1-888-337-8192 or for international callers by dialing 1-719-325-2284. 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 6035922. The replay will be available until July 25, 2013. 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-CEO, 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 from using ingredients that are not only fresh, but that—where possible—are sustainably grown responsibly raised with respect for the animals, the land, and the farmers who produce the food. A similarly focused people culture, with an emphasis on identifying and empowering top performing employees, enables us to develop future leaders from within. Chipotle opened with a single restaurant in 1993 and currently operates more than 1,500 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 trends, potential menu price increases, and effective tax rates in 2013, 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: the uncertainty of our ability to achieve expected levels of comparable restaurant sales increases due to factors such as decreased consumer spending and economic uncertainty, our possible inability to increase menu prices or realize the benefits of menu price increases, or the impact of competition; 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 performance of new restaurants and their impact on existing restaurant sales; increases in the cost of food ingredients and other key supplies; the potential for increased labor costs or difficulty retaining qualified employees, including as a result of immigration enforcement activities; the risk of food-borne illnesses and other health concerns about our food; risks relating to our expansion into new markets; the impact of federal, state or local government regulations relating to our employees, our restaurant design, or the sale of food or alcoholic beverages; risks associated with our Food With Integrity strategy, including supply shortages and potential liabilities related to advertising claims and other marketing activities related to Food With Integrity; 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; risks relating to litigation; risks relating to our insurance coverage and self-insurance; our dependence on key personnel; risks related to our marketing and advertising strategies; security risks associated with the acceptance of electronic payment cards or electronic storage of confidential customer or employee information; 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 and Comprehensive Income

(in thousands, except per share data)

(unaudited)

                                 
      Three months ended June 30
      2013     2012
Revenue     $ 816,786       100.0   %     $ 690,932       100.0   %
Restaurant operating costs                                
(Exclusive of depreciation and amortization shown separately below):                                
Food, beverage and packaging       270,510       33.1           221,517       32.1    
Labor       185,804       22.7           159,895       23.1    
Occupancy       48,564       5.9           41,758       6.0    
Other operating costs       86,296       10.6           66,353       9.6    
General and administrative expenses       50,952       6.2           42,295       6.1    
Depreciation and amortization       23,597       2.9           20,543       3.0    
Pre-opening costs       3,246       0.4           3,306       0.5    
Loss on disposal of assets       1,399       0.2           1,475       0.2    
Total operating expenses       670,368       82.1           557,142       80.6    
Income from operations       146,418       17.9           133,790       19.4    
Interest and other income, net       330       0.0           377       0.1    
Income before income taxes       146,748       18.0           134,167       19.4    
Provision for income taxes       (58,895 )     (7.2 )         (52,484 )     (7.6 )  
Net income     $ 87,853       10.8   %     $ 81,683       11.8   %
                                 
Earnings per share:                                
Basic     $ 2.84               $ 2.58          
Diluted     $ 2.82               $ 2.56          
Weighted average common shares outstanding:                                
Basic       30,901                 31,696          
Diluted       31,176                 31,951          
Comprehensive income     $ 87,820               $ 80,625          
                                 
                                 

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Income and Comprehensive Income

(in thousands, except per share data)

(unaudited)

                                 
      Six months ended June 30
      2013     2012
Revenue     $ 1,543,537       100.0   %     $ 1,331,535       100.0   %
Restaurant operating costs                                
(Exclusive of depreciation and amortization shown separately below):                                
Food, beverage and packaging       510,099       33.0           428,107       32.2    
Labor       357,273       23.1           311,880       23.4    
Occupancy       96,184       6.2           82,267       6.2    
Other operating costs       162,952       10.6           132,532       10.0    
General and administrative expenses       95,163       6.2           91,629       6.9    
Depreciation and amortization       46,533       3.0           40,627       3.1    
Pre-opening costs       6,132       0.4           5,754       0.4    
Loss on disposal of assets       2,739       0.2           2,725       0.2    
Total operating expenses       1,277,075       82.7           1,095,521       82.3    
Income from operations       266,462       17.3           236,014       17.7    
Interest and other income, net       596       0.0           811       0.1    
Income before income taxes       267,058       17.3           236,825       17.8    
Provision for income taxes       (102,621 )     (6.6 )         (92,478 )     (6.9 )  
Net income     $ 164,437       10.7   %     $ 144,347       10.8   %
                                 
Earnings per share:                                
Basic     $ 5.31               $ 4.57          
Diluted     $ 5.27               $ 4.53          
Weighted average common shares outstanding:                                
Basic       30,956                 31,553          
Diluted       31,202                 31,899          
Comprehensive income     $ 163,300               $ 143,972          
                                     
                 

Chipotle Mexican Grill, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except per share data)

                 
      June 30     December 31
      2013     2012
      (unaudited)        
               
Assets                
Current assets:                
Cash and cash equivalents     $ 281,632       $ 322,553  
Accounts receivable, net of allowance for doubtful accounts of $1,215 and $1,187 as of       14,961         16,800  
June 30, 2013 and December 31, 2012, respectively                
Inventory       11,270         11,096  
Current deferred tax asset       10,045         8,862  
Prepaid expenses and other current assets       34,938         27,378  
Income tax receivable       -         9,612  
Investments       202,164         150,306  
Total current assets       555,010         546,607  
Leasehold improvements, property and equipment, net       895,819         866,703  
Long term investments       290,284         190,868  
Other assets       45,879         42,550  
Goodwill       21,939         21,939  
Total assets     $ 1,808,931       $ 1,668,667  
Liabilities and shareholders' equity                
Current liabilities:                
Accounts payable     $ 63,305       $ 58,700  
Accrued payroll and benefits       69,564         71,731  
Accrued liabilities       46,013         56,421  
Income tax payable       3,825         -  
Total current liabilities       182,707         186,852  
Deferred rent       178,809         167,057  
Deferred income tax liability       57,464         48,947  
Other liabilities       22,508         19,885  
Total liabilities       441,488         422,741  
Shareholders' equity:                
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of                
June 30, 2013 and December 31, 2012, respectively       -         -  
Common stock $0.01 par value, 230,000 shares authorized, and 34,966 and 34,912                
shares issued as of June 30, 2013 and December 31, 2012, respectively       350         349  
Additional paid-in capital       855,893         816,612  
Treasury stock, at cost, 4,090 and 3,819 common shares at June 30, 2013 and                
December 31, 2012, respectively       (602,583 )       (521,518 )
Accumulated other comprehensive income (loss)       (113 )       1,024  
Retained earnings       1,113,896         949,459  
Total shareholders' equity       1,367,443         1,245,926  
Total liabilities and shareholders' equity     $ 1,808,931       $ 1,668,667  
                     
                 

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(in thousands)

                 
      Six months ended June 30
      2013     2012
Operating activities                
Net income     $ 164,437       $ 144,347  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization       46,533         40,627  
Deferred income tax provision (benefit)       7,301         (1,659 )
Loss on disposal of assets       2,739         2,725  
Bad debt allowance       39         185  
Stock-based compensation expense       34,333         37,677  
Excess tax benefit on stock-based compensation       (4,251 )       (73,652 )
Other       262         207  
Changes in operating assets and liabilities:                
Accounts receivable       1,795         (2,147 )
Inventory       (181 )       (1,593 )
Prepaid expenses and other current assets       (7,596 )       (6,893 )
Other assets       (3,365 )       (10,213 )
Accounts payable       6,078         4,899  
Accrued liabilities       (12,551 )       (12,705 )
Income tax payable/receivable       17,688         34,964  
Deferred rent       11,794         11,446  
Other long-term liabilities       2,698         2,660  
Net cash provided by operating activities       267,753         170,875  
Investing activities                
Purchases of leasehold improvements, property and equipment       (80,130 )       (90,332 )
Purchases of investments       (230,397 )       (110,870 )
Maturities of investments       78,750         -  
Net cash used in investing activities       (231,777 )       (201,202 )
Financing activities                
Acquisition of treasury stock       (81,065 )       (39,597 )
Proceeds from employee stock plan transactions       261         167  
Excess tax benefit on stock-based compensation       4,251         73,652  
Other financing payments       (70 )       (65 )
Net cash provided by (used in) financing activities       (76,623 )       34,157  
Effect of exchange rate changes on cash and cash equivalents       (274 )       (276 )
Net change in cash and cash equivalents       (40,921 )       3,554  
Cash and cash equivalents at beginning of period       322,553         401,243  
Cash and cash equivalents at end of period     $ 281,632       $ 404,797  
Supplemental disclosures of cash flow information                
Increase (decrease) in purchases of leasehold improvements, property and equipment accrued                
in accounts payable     $ (1,432 )     $ 4,687  
                     
                                         

Chipotle Mexican Grill, Inc.

Supplemental Financial and Other Data

(dollars in thousands)

                                         
      For the three months ended
      Jun. 30,     Mar. 31,    

Dec. 31,

    Sep. 30,     Jun. 30,
      2013     2013     2012     2012     2012
Number of restaurants opened       44         48         60         36         55  
Restaurant relocations       -         -         -         (2 )       (1 )
Number of restaurants at end of period       1,502         1,458         1,410         1,350         1,316  
Average restaurant sales     $ 2,119       $ 2,105       $ 2,113       $ 2,119       $ 2,106  
Comparable restaurant sales increases       5.5 %       1.0 %       3.8 %       4.8 %       8.0 %

Source: Chipotle Mexican Grill, Inc.

Contact:

Chipotle Mexican Grill, Inc.
Investor Relations
Alex Spong
303-222-2552

###

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