Chipotle Announces Third Quarter 2019 Results
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Chipotle Announces Third Quarter 2019 Results

Comp Sales Accelerate To 11% With Nearly 7.5% Transactions Growth

NEWPORT BEACH, Calif., Oct. 22, 2019 /PRNEWSWIRE/ - Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its third quarter ended September 30, 2019.

Third quarter highlights, year over year:

  • Revenue increased 14.6% to $1.4 billion
  • Comparable restaurant sales increased 11.0%, net of 10 bps from loyalty deferral, and included nearly 7.5% of comparable restaurant transactions growth
  • Digital sales grew 87.9% and accounted for 18.3% of sales for the quarter
  • Restaurant level operating margin was 20.8%, an increase of 210 basis points
  • Diluted earnings per share was $3.47, net of a $0.35 after-tax impact from expenses related to restaurant asset impairment, corporate restructuring, and certain other costs, a 155.1% increase from $1.36. Adjusted diluted earnings per share excluding these charges was $3.82, a 76.9% increase from $2.16.1
  • Opened 25 new restaurants including one relocation, and closed one restaurant

1 Adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures. Reconciliations to GAAP measures and further information are set forth in the table at the end of this press release.

"We're pleased with our overall results in the quarter, which reflects further progress on our key strategic initiatives to provide a great guest experience and position Chipotle to deliver above industry growth for many years to come," said Brian Niccol, Chief Executive Officer. "These strong results reinforce that running great restaurants with a purpose of cultivating a better world is a compelling proposition."

Results for the three months ended September 30, 2019:

Revenue in the third quarter increased to $1.4 billion, an increase of 14.6% compared with the same quarter a year ago. The increase was driven by an 11.0% increase in comparable restaurant sales, net of a 10 basis points as a result of deferred revenue from our Chipotle Rewards loyalty program. Comparable restaurant sales improved due to a nearly 7.5% increase in comparable restaurant transactions and a 3.5% increase in the average check, which includes a benefit from menu price increases that were implemented during 2018.

We opened 25 new restaurants during the quarter including one relocation, and closed one restaurant, bringing the total restaurant count to 2,546. Based on the early success of Chipotlanes, we shifted our real estate strategy to seek more sites that can accommodate a Chipotlane. As a result, of the more than 80 restaurants currently under construction, about half of them will have a Chipotlane, which will result in a total of about 60 Chipotlanes by the end of 2019. Given the longer construction timeline associated with Chipotlanes, some of the new openings are likely to shift from Q4 into early 2020, so we expect our total openings for 2019 to fall at or slightly below the low end of our FY 2019 range of 140 to 155 openings. For 2020, we anticipate opening 150 – 165 new restaurants, with more than half including a Chipotlane.

Food, beverage and packaging costs were 33.2% of revenue, a decrease of 20 basis points compared to the third quarter of 2018. The decrease was primarily due to menu price increases nationwide at the end of 2018, partially offset by higher costs of several ingredients.

Restaurant level operating margin was 20.8%, an increase from 18.7% in the third quarter of 2018. The improvement was driven primarily by leverage from the comparable restaurant sales increase, partially offset by wage inflation at the crew level, higher costs of several ingredients, and increased delivery expenses.

General and administrative expenses for the quarter were $115.1 million on a GAAP basis, or $104.8 million on a non-GAAP basis, excluding $7.6 million for settlements of several distinct legal matters and $2.7 million related to transformation expenses. GAAP and non-GAAP general and administrative expenses for the third quarter of 2019 also include underlying general and administrative expenses totaling $72.0 million, $25.1 million related to non-cash stock compensation, $4.8 million related to higher bonus accruals from our strong operating performance and payroll taxes on stock option exercises, and $2.9 million related to other expenses, including our upcoming All Manager Conference.

The effective income tax rate for the three months ended September 30, 2019, was 17.9%, a decrease from 36.8% for the three months ended September 30, 2018, primarily due to excess tax benefits for stock-based compensation, a reduction in non-deductible employee meals, changes in tax position due to legislative guidance, and a non-recurring prior year tax expense attributable to tax reform in the comparable period.

Net income was $98.6 million, or $3.47 per diluted share, an increase from $38.2 million, or $1.36 per diluted share, in the third quarter of 2018. Excluding the impact of restaurant closure costs, corporate restructuring, agreements to settle several legal matters, and certain other costs, adjusted net income was $108.3 million and adjusted diluted earnings per share was $3.82.

Outlook

For 2019, management is anticipating the following:

  • Being at the top end of our prior high single digit comparable restaurant sales growth guidance
  • Being at or slightly below our prior guidance of 140 to 155 new restaurant openings
  • An estimated underlying effective Q4 tax rate in the range of 26% to 29%, before the impact of any stock option exercises

For 2020, management is anticipating the following:

  • 150 to 165 new restaurant openings

Definitions

  • The following definitions apply to these terms as used throughout this release:
  • Comparable restaurant sales, or sales comps, and comparable restaurant transactions, represent the change in period-over-period sales or transactions for restaurants in operation for at least 13 full calendar months.
  • 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 direct restaurant operating costs, expressed as a percent of total revenue.

Conference Call Details

Chipotle will host a conference call to discuss third quarter 2019 financial results on Tuesday, October 22, 2019, at 4:30 PM Eastern time.

The conference call can be accessed live over the phone by dialing 1-888-317-6003 or for international callers by dialing 1-412-317-6061 and use code: 8409689. The call will be webcast live from the company's website on the investor relations page at ir.chipotle.com/events. An archived webcast will be available approximately one hour after the end of the call.

About Chipotle

Chipotle Mexican Grill, Inc. (NYSE: CMG) is cultivating a better world by serving responsibly sourced, classically-cooked, real food with wholesome ingredients without artificial colors, flavors or preservatives. Chipotle had approximately 2,500 restaurants as of September 30, 2019, in the United States, Canada, the United Kingdom, France and Germany and is the only restaurant company of its size that owns and operates all its restaurants. With more than 80,000 employees passionate about providing a great guest experience, Chipotle is a longtime leader and innovator in the food industry. Chipotle is committed to making its food more accessible to everyone while continuing to be a brand with a demonstrated purpose as it leads the way in digital, technology and sustainable business practices. Steve Ells, founder and executive chairman, first opened Chipotle with a single restaurant in Denver, Colorado in 1993. For more information or to place an order online, visit WWW.CHIPOTLE.COM.

Forward-Looking Statements

Certain statements in this press release, including statements under the heading "Outlook" about our expected comparable restaurant sales, effective tax rate and estimated number of new restaurant openings in 2019 and 2020, 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", "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, including but not limited to the following: the uncertainty of our ability to achieve expected levels of comparable restaurant sales due to factors such as changes in consumers' perceptions of our brand, including as a result of actual or rumored food-borne illness incidents or other negative publicity, the impact of competition, including from sources outside the restaurant industry, decreased overall consumer spending, or the inability to increase menu prices or realize the benefits of menu price increases; the risk of food-borne illnesses and other health concerns about our food or dining out generally; risks associated with our increased focus on our digital business, delivery orders and catering, including our inability to continue to grow these business lines and risks arising from our reliance on third parties to fulfill delivery orders; factors that could affect our ability to achieve our planned expansion, such as the availability of suitable new restaurant sites and our ability to attract and retain qualified employees; the performance of new restaurants and their impact on existing restaurant sales; the potential for increased labor costs or difficulty training and retaining qualified employees, including as a result of market pressures, enhanced food safety procedures in our restaurants, or new regulatory requirements; increases in the cost of food ingredients and other key supplies or higher food costs due to changes in supply chain protocols or new or increased export duties, tariffs or trade restrictions; risks related to our marketing and advertising strategies, which may not be successful and may expose us to liabilities; risks relating to our expansion into new markets, including outside the U.S., or non-traditional restaurant sites; 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 philosophy, including supply shortages and potential liabilities from advertising claims and other marketing activities related to this philosophy; privacy and cyber security risks associated with our acceptance of electronic payments or electronic storage and processing of confidential customer or employee information; risks relating to litigation, including possible governmental actions related to food-borne illness incidents, as well as class action litigation regarding employment laws, advertising claims or other matters; risks relating to the impact of social media, including the rapid proliferation of information about our restaurants or brand that may be unfavorable; risks regarding our ability to protect our brand and reputation; risks associated with our reliance on certain information technology systems; risks associated with our dependence on key personnel; 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 the investor relations page of our website at ir.Chipotle.com.

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Income

(unaudited)

(in thousands, except per share data)

 
 

Three months ended September 30,

 

2019

 

2018

Revenue

$

1,403,697

 

100.0

%

 

$

1,225,007

 

100.0

%

Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

                     

Food, beverage and packaging

 

466,496

 

33.2

     

409,213

 

33.4

 

Labor

 

373,645

 

26.6

     

332,865

 

27.2

 

Occupancy

 

91,409

 

6.5

     

86,691

 

7.1

 

Other operating costs

 

180,259

 

12.8

     

167,488

 

13.7

 

General and administrative expenses

 

115,070

 

8.2

     

109,524

 

8.9

 

Depreciation and amortization

 

52,206

 

3.7

     

52,654

 

4.3

 

Pre-opening costs

 

3,064

 

0.2

     

2,127

 

0.2

 

Impairment, closure costs, and asset disposals

 

5,927

 

0.4

     

6,454

 

0.5

 

Total operating expenses

 

1,288,076

 

91.8

     

1,167,016

 

95.3

 

Income from operations

 

115,621

 

8.2

     

57,991

 

4.7

 

Interest and other income, net

 

4,411

 

0.3

     

2,493

 

0.2

 

Income before income taxes

 

120,032

 

8.6

     

60,484

 

4.9

 

Provision for income taxes

 

(21,450)

 

(1.5)

     

(22,280)

 

(1.8)

 

Net income

$

98,582

 

7.0

%

 

$

38,204

 

3.1

%

Earnings per share:

                     

Basic

$

3.55

       

$

1.37

     

Diluted

$

3.47

       

$

1.36

     

Weighted-average common shares outstanding:

                     

Basic

 

27,775

         

27,802

     

Diluted

 

28,388

         

28,017

     

 

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Income

(unaudited)

(in thousands, except per share data)

 
 

Nine months ended September 30,

 

2019

 

2018

Revenue

$

4,146,145

 

100.0

%

 

$

3,639,924

 

100.0

%

Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

                     

Food, beverage and packaging

 

1,371,147

 

33.1

     

1,194,224

 

32.8

 

Labor

 

1,090,540

 

26.3

     

993,570

 

27.3

 

Occupancy

 

270,102

 

6.5

     

258,719

 

7.1

 

Other operating costs

 

548,311

 

13.2

     

490,728

 

13.5

 

General and administrative expenses

 

339,136

 

8.2

     

271,740

 

7.5

 

Depreciation and amortization

 

157,629

 

3.8

     

148,762

 

4.1

 

Pre-opening costs

 

6,122

 

0.1

     

6,790

 

0.2

 

Impairment, closure costs, and asset disposals

 

17,356

 

0.4

     

56,635

 

1.6

 

Total operating expenses

 

3,800,343

 

91.7

     

3,421,168

 

94.0

 

Income from operations

 

345,802

 

8.3

     

218,756

 

6.0

 

Interest and other income, net

 

11,487

 

0.3

     

6,210

 

0.2

 

Income before income taxes

 

357,289

 

8.6

     

224,966

 

6.2

 

Provision for income taxes

 

(79,547)

 

(1.9)

     

(80,432)

 

(2.2)

 

Net income

$

277,742

 

6.7

%

 

$

144,534

 

4.0

%

Earnings per share:

                     

Basic

$

10.02

       

$

5.19

     

Diluted

$

9.83

       

$

5.17

     

Weighted-average common shares outstanding:

                     

Basic

 

27,730

         

27,844

     

Diluted

 

28,268

         

27,967

     

 

Chipotle Mexican Grill, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except per share data)

 
 

September 30,

 

December 31,

 

2019

 

2018

 

(unaudited)

   

Assets

         

Current assets:

         

Cash and cash equivalents

$

386,565

 

$

249,953

Accounts receivable, net of allowance for doubtful accounts of $81 and $0 as of September 30, 2019 and December 31, 2018, respectively

 

49,489

   

62,312

Inventory

 

23,871

   

21,555

Prepaid expenses and other current assets

 

62,211

   

54,129

Income tax receivable

 

3,824

   

-

Investments

 

428,796

   

426,845

Total current assets

 

954,756

   

814,794

Leasehold improvements, property and equipment, net

 

1,425,446

   

1,379,254

Restricted cash

 

28,697

   

30,199

Operating lease assets

 

2,479,464

   

-

Deferred income tax assets

 

9,634

   

-

Other assets

 

18,001

   

19,332

Goodwill

 

21,939

   

21,939

Total assets

$

4,937,937

 

$

2,265,518

Liabilities and shareholders' equity

         

Current liabilities:

         

Accounts payable

$

118,483

 

$

113,071

Accrued payroll and benefits

 

145,766

   

113,467

Accrued liabilities

 

141,159

   

147,849

Unearned revenue

 

61,809

   

70,474

Current operating lease liabilities

 

166,802

   

-

Income tax payable

 

-

   

5,129

Total current liabilities

 

634,019

   

449,990

Deferred rent

 

-

   

330,985

Long-term operating lease liabilities

 

2,642,737

   

-

Deferred income tax liabilities

 

-

   

11,566

Other liabilities

 

38,734

   

31,638

Total liabilities

 

3,315,490

   

824,179

Shareholders' equity:

         

Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of September 30, 2019 and December 31, 2018, respectively

 

-

   

-

Common stock, $0.01 par value, 230,000 shares authorized, 36,320 and 35,973 shares issued as of September 30, 2019 and December 31, 2018, respectively

 

363

   

360

Additional paid-in capital

 

1,439,811

   

1,374,154

Treasury stock, at cost, 8,519 and 8,276 common shares at September 30, 2019 and December 31, 2018, respectively

 

(2,660,872)

   

(2,500,556)

Accumulated other comprehensive loss

 

(5,887)

   

(6,236)

Retained earnings

 

2,849,032

   

2,573,617

Total shareholders' equity

 

1,622,447

   

1,441,339

Total liabilities and shareholders' equity

$

4,937,937

 

$

2,265,518

 

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(unaudited)

(in thousands)

 
 

Nine months ended

 

September 30,

 

2019

 

2018

Operating activities

         

Net income

$

277,742

 

$

144,534

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

         

Depreciation and amortization

 

157,629

   

148,762

Amortization of operating lease assets

 

117,622

   

-

Deferred income tax (benefit) provision

 

(15,146)

   

26,424

Impairment, closure costs, and asset disposals

 

10,216

   

56,635

Bad debt allowance

 

85

   

116

Stock-based compensation expense

 

65,657

   

48,219

Other

 

(3,044)

   

(1,933)

Changes in operating assets and liabilities:

         

Accounts receivable

 

19,039

   

13,442

Inventory

 

(2,312)

   

1,562

Prepaid expenses and other current assets

 

(17,514)

   

(5,041)

Other assets

 

2,864

   

1,500

Accounts payable

 

(4,162)

   

18,183

Accrued payroll and benefits

 

30,471

   

45,146

Accrued liabilities

 

25,552

   

13,463

Unearned revenue

 

(8,665)

   

(20,517)

Income tax payable/receivable

 

(8,985)

   

(12,366)

Deferred rent

 

-

   

17,096

Operating lease liabilities

 

(112,478)

   

-

Other long-term liabilities

 

472

   

(2,728)

Net cash provided by operating activities

 

535,043

   

492,497

Investing activities

         

Purchases of leasehold improvements, property and equipment

 

(237,965)

   

(209,999)

Purchases of investments

 

(328,107)

   

(297,217)

Maturities of investments

 

328,448

   

295,000

Net cash used in investing activities

 

(237,624)

   

(212,216)

Financing activities

         

Acquisition of treasury stock

 

(151,621)

   

(116,401)

Tax withholding on share-based compensation awards

 

(10,420)

   

(4,627)

Stock plan transactions and other financing activities

 

(665)

   

(150)

Net cash used in financing activities

 

(162,706)

   

(121,178)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

397

   

(665)

Net change in cash, cash equivalents, and restricted cash

 

135,110

   

158,438

Cash, cash equivalents, and restricted cash at beginning of period

 

280,152

   

214,170

Cash, cash equivalents, and restricted cash at end of period

$

415,262

 

$

372,608

Supplemental disclosures of cash flow information

         

Income taxes paid

$

103,439

 

$

66,091

Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities

$

40,250

 

$

31,063

Acquisition of treasury stock accrued in accounts payable and accrued liabilities

$

748

 

$

600

 

Chipotle Mexican Grill, Inc.

Supplemental Financial and Other Data

(dollars in thousands)

 
   

For the three months ended

   

Sep. 30,

 

Jun. 30,

 

Mar. 31,

 

Dec. 31,

 

Sep. 30,

   

2019

 

2019

 

2019

 

2018

 

2018

Number of restaurants opened

   

25

   

20

   

15

   

40

   

28

Restaurant closures

   

(1)

   

(1)

   

(2)

   

(8)

   

(32)

Restaurant relocations

   

(1)

   

-

   

-

   

(4)

   

-

Number of restaurants at end of period

   

2,546

   

2,523

   

2,504

   

2,491

   

2,463

Average restaurant sales

 

$

2,154

 

$

2,099

 

$

2,048

 

$

2,004

 

$

1,980

Comparable restaurant sales increase

   

11.0%

   

10.0%

   

9.9%

   

6.1%

   

4.4%

Chipotle Mexican Grill, Inc.
Reconciliation of Non-GAAP Financial Measures
(in thousands, except per share amounts)
(unaudited)

The following provides a reconciliation of non-GAAP financial measures presented in the text above to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Adjusted net income is net income excluding restaurant asset impairment, corporate restructuring, distinct legal proceedings, and certain other costs. Adjusted general and administrative expense is general and administrative expense excluding distinct legal proceedings and transformation expenses. We present these non-GAAP measures in order to facilitate meaningful evaluation of our operating performance across periods. These adjustments are intended to provide greater transparency of underlying performance and to allow investors to evaluate our business on the same basis as our management, which uses these non-GAAP measures in evaluating the company's performance. Our adjusted net income, adjusted diluted earnings per share, and adjusted general and administrative expenses measures may not be comparable to other companies' adjusted measures. These adjustments are not necessarily indicative of what our actual financial performance would have been during the periods presented and should be viewed in addition to, and not as an alternative to, our results prepared in accordance with GAAP. Further details regarding these adjustments are included in the tables below.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

           
 

Three months ended

 

September 30,

 

2019

 

2018

Net income

$

98,582

 

$

38,204

Non-GAAP adjustments:

         

Restaurant closure costs:

         

Operating lease asset impairment and other restaurant closure costs(1)

 

182

   

4,656

Accelerated depreciation(2)

 

-

   

437

Duplicate rent expense(3)

 

214

   

-

Corporate Restructuring:

         

Operating lease asset impairment and other office closure costs(4)

 

-

   

(1,076)

Accelerated depreciation(2)

 

-

   

5,543

Duplicate rent expense(3)

 

942

   

953

Employee related restructuring costs(5)

 

1,515

   

14,882

Legal Proceedings(6)

 

7,550

   

-

Other Adjustments(7)

 

2,110

   

644

Total non-GAAP adjustments

$

12,513

 

$

26,039

Tax effect of non-GAAP adjustments

 

(2,791)

   

(3,590)

After tax impact of non-GAAP adjustments

$

9,722

 

$

22,449

Adjusted net income

$

108,304

 

$

60,653

           

Diluted weighted-average number of common shares outstanding

 

28,388

   

28,017

Diluted earnings per share

$

3.47

 

$

1.36

Adjusted diluted earnings per share

$

3.82

 

$

2.16

 

(1) Operating lease asset impairment charges, and other closure expenses for restaurant closures announced in June 2018 due to underperformance.

(2) Accelerated depreciation for restaurant and office closures announced in June 2018 due to underperformance and the corporate restructuring.

(3) Duplicate rent expense for the corporate headquarter relocation and office consolidation announced in May 2018 and for closed restaurants.

(4) Operating lease asset impairment charges and other closure expenses for the corporate headquarter relocation and office consolidation announced in May 2018.

(5) Costs for employee severance, stock modifications, transition expenses, recruitment, relocation costs, third party and other employee-related costs.

(6) For the three months ended September 30, 2019, charges relate to settlements for several distinct legal matters.  These amounts are expected to exceed typical costs for these types of legal proceedings.

(7) For the three months ended September 30, 2019, consists of an asset impairment charge related to our jet.

 

Chipotle Mexican Grill, Inc.

Reconciliation of Non-GAAP Financial Measures

(in thousands, except per share amounts)

(unaudited)

 
 

Three months ended

 

September 30, 2019

General and administrative expenses

$

115.1

Non-GAAP adjustments:

   

Legal Proceedings(1)

 

(7.6)

Transformation expenses(2)

 

(2.7)

Total non-GAAP adjustments

$

(10.3)

Adjusted general and administrative expenses

$

104.8

 

(1) Charges relate to settlements for several distinct legal matters. These amounts are expected to exceed typical costs for these types of legal proceedings.

(2) Transformation expenses include duplicate rent expense of $1,156 and employee related restructuring costs of $1,515 for office and restaurant closures announced in June 2018 due to the corporate restructuring and underperformance.

PR Contact:

Laurie Schalow
(949) 524-4035
MediaRelations@chipotle.com

IR Contact:

Ashish Kohli, CFA
(949) 524-4132
Akohli@chipotle.com

SOURCE Chipotle Mexican Grill

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