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Chipotle Mexican Grill, Inc. Announces Third Quarter 2010 Results

2010-10-21

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Chipotle Revenue increased 23.0% to $476.9 million - Comparable restaurant sales increased 11.4%

Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its third quarter ended September 30, 2010.

Highlights for the third quarter of 2010 as compared to the third quarter of 2009 include:

Revenue increased 23.0% to $476.9 million
Comparable restaurant sales increased 11.4%
Restaurant level operating margin was 27.7%, an increase of 220 basis points
Net income was $48.2 million, an increase of 39.9%
Diluted earnings per share was $1.52, an increase of 40.7%

Highlights for the nine months ended September 30, 2010 as compared to the prior year include:

Revenue increased 19.7% to $1.35 billion
Comparable restaurant sales increased 8.3%
Restaurant level operating margin was 26.9%, an increase of 180 basis points
Net income was $ 132.5 million, an increase of 39.1%
Diluted earnings per share was $4.18, an increase of 41.2%

“We’re delighted that our continuing efforts to serve the very best food made from high quality ingredients raised with respect for the animals, the environment, and the farmers are resonating with our customers, allowing us to deliver double digit comps during the quarter. Our focus on strengthening our food culture, our people culture and our business model is resulting in even stronger customer loyalty and allowing us to deliver industry leading financial results,” said Founder, Chairman, and Co-CEO Steve Ells.

Third quarter 2010 results

Revenue for the quarter was $476.9 million, up 23.0% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 11.4% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic in the quarter.

During the quarter Chipotle opened 22 new restaurants, bringing the total restaurant count to 1,023.

Restaurant level operating margin was 27.7% in the quarter, an increase of 220 basis points over the prior year period. The increase was primarily driven by the impact of comparable restaurant sales growth.

G&A costs were 7.0% of revenue, up 70 basis points from the prior year period. The increase as a percent of revenue was driven by the impact of holding the biennial All Managers’ Conference in the third quarter and higher stock based compensation expense, partially offset by the positive impact of comparable restaurant sales growth.

Net income for the third quarter of 2010 was $48.2 million, or $1.52 per diluted share, compared to $34.5 million, or $1.08 per diluted share, in the third quarter of 2009.

Results for the nine months ended September 30, 2010

Revenue for the first nine months of 2010 was $1.35 billion, up 19.7% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 8.3% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic during the first nine months of 2010.

Year to date, Chipotle has opened 67 restaurants, including one restaurant in London and one in Toronto, Canada.

Restaurant level operating margin was 26.9% for the first nine months of 2010, an increase of 180 basis points over the prior year period. The increase was primarily driven by the impact of comparable restaurant sales growth, along with a decline in food costs.

G&A costs for the first nine months of 2010 were 6.6% of revenue, up 10 basis points from the prior year period. The increase as a percent of revenue was driven by higher stock based compensation expense and the biennial All Managers’ Conference, partially offset by the positive impact of comparable restaurant sales growth.

Net income for the first nine months of 2010 was $132.5 million, or $4.18 per diluted share, compared to $95.2 million, or $2.96 per diluted share, in the first nine months of 2009.

“Our strong people culture continues to drive our success in attracting loyal customers and delivering exceptional results. Our restaurant teams are ambitious, passionate, and dedicated to delivering the best dining experience possible, while developing talented future leaders from crew. Our Restaurateurs and restaurant managers who aspire to become Restaurateurs are committed to hiring and developing top performers to achieve high standards in our restaurants every day,” commented Monty Moran, Co-CEO.

Outlook

For 2010, management expects the following:

120-130 new restaurant openings
High single digit comparable restaurant sales growth
An effective tax rate of approximately 38.3%

For 2011, management expects the following:

135-145 new restaurant openings
Low single digit comparable restaurant sales growth
An effective tax rate of approximately 38.4%

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 13^th 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.


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

	Three months ended September 30,
	2010					2009

Revenue	$	476,874		100.0	%	$	387,581		100.0	%

Restaurant operating costs:
Food, beverage and packaging		145,688		30.6			119,473		30.8
Labor		115,234		24.2			96,419		24.9
Occupancy		32,096		6.7			28,677		7.4
Other operating costs		51,977		10.9			44,118		11.4
General and administrative expenses		33,522		7.0			24,555		6.3
Depreciation and amortization		17,319		3.6			15,451		4.0
Pre-opening costs		1,943		0.4			2,535		0.7
Loss on disposal of assets		1,511		0.3			1,544		0.4
Total operating expenses		399,290		83.7			332,772		85.9
Income from operations		77,584		16.3			54,809		14.1

Interest and other income		395		0.1			132		0.0
Interest and other expense		(14	)	0.0			(74	)	0.0
Income before income taxes		77,965		16.3			54,867		14.2
Provision for income taxes		(29,737	)	(6.2	)		(20,403	)	(5.3	)
Net income	$	48,228		10.1	%	$	34,464		8.9	%

Earnings per share:
Basic	$	1.55				$	1.09
Diluted	$	1.52				$	1.08
Weighted average common shares outstanding:
Basic		31,031					31,625
Diluted		31,629					31,949

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

	Nine months ended September 30,
	2010					2009

Revenue	$	1,353,401		100.0	%	$	1,130,873		100.0	%

Restaurant operating costs:
Food, beverage and packaging		411,518		30.4			349,564		30.9
Labor		334,041		24.7			285,375		25.2
Occupancy		94,956		7.0			83,801		7.4
Other operating costs		148,623		11.0			128,626		11.4
General and administrative expenses		89,857		6.6			74,071		6.5
Depreciation and amortization		51,106		3.8			45,368		4.0
Pre-opening costs		5,169		0.4			5,996		0.5
Loss on disposal of assets		4,292		0.3			4,752		0.4
Total operating expenses		1,139,562		84.2			977,553		86.4
Income from operations		213,839		15.8			153,320		13.6

Interest and other income		1,097		0.1			623		0.1
Interest and other expense		(178	)	0.0			(333	)	0.0
Income before income taxes		214,758		15.9			153,610		13.6
Provision for income taxes		(82,222	)	(6.1	)		(58,361	)	(5.2	)
Net income	$	132,536		9.8	%	$	95,249		8.4	%

Earnings per share:
Basic	$	4.24				$	2.99
Diluted	$	4.18				$	2.96
Weighted average common shares outstanding:
Basic		31,278					31,827
Diluted		31,731					32,168

Chipotle Mexican Grill, Inc. Consolidated Balance Sheet (in thousands, except per share data)

	September 30, 2010			December 31, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	210,996		$	219,566
Accounts receivable, net of allowance for doubtful accounts of $99 and $339 as of September 30, 2010 and December 31, 2009, respectively		4,446			4,763
Inventory		7,175			5,614
Current deferred tax asset		3,758			3,134
Prepaid expenses		18,933			14,377
Available-for-sale securities		90,000			50,000
Income tax receivable		10,091			--
Total current assets		345,399			297,454
Leasehold improvements, property and equipment, net		658,423			636,411
Other assets		6,610			5,701
Goodwill		21,939			21,939
Total assets	$	1,032,371		$	961,505

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	35,641		$	25,230
Accrued payroll and benefits		39,085			41,404
Accrued liabilities		28,590			31,216
Current portion of deemed landlord financing		117			96
Income tax payable		--			4,207
Total current liabilities		103,433			102,153
Deferred rent		118,394			106,395
Deemed landlord financing		3,693			3,782
Deferred income tax liability		36,448			38,863
Other liabilities		9,374			6,851
Total liabilities		271,342			258,044

Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of September 30, 2010 and December 31, 2009		—			—
Common stock, $0.01 par value, 230,000 shares authorized, 33,749 and 33,473 shares issued as of September 30, 2010 and December 31, 2009, respectively		338			335
Additional paid-in capital		575,554			539,880
Treasury stock, at cost, 2,810 and 1,990 shares at September 30, 2010 and December 31, 2009, respectively		(225,796	)		(114,316	)
Accumulated other comprehensive income		864			29
Retained earnings		410,069			277,533
Total shareholders' equity		761,029			703,461
Total liabilities and shareholders' equity	$	1,032,371		$	961,505

Chipotle Mexican Grill, Inc. Consolidated Statement of Cash Flows (unaudited) (in thousands)

	Nine months ended September 30,
	2010			2009

Operating activities
Net income	$	132,536		$	95,249
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		51,106			45,368
Deferred income tax (benefit) provision		(3,039	)		10,381
Loss on disposal of assets		4,292			4,752
Bad debt allowance		(228	)		(245	)
Stock-based compensation		17,846			11,479
Other		-			172
Changes in operating assets and liabilities:
Accounts receivable		545			755
Inventory		(1,560	)		(1,069	)
Prepaid expenses		(4,553	)		(1,594	)
Other assets		(903	)		(637	)
Accounts payable		4,883			3,230
Accrued liabilities		(4,948	)		1,676
Income tax receivable/payable		(14,298	)		(4,691	)
Deferred rent		11,994			12,497
Other long-term liabilities		2,523			1,770
Net cash provided by operating activities		196,196			179,093

Investing activities
Purchases of leasehold improvements, property and equipment, net		(71,179	)		(80,282	)
Purchase of available-for-sale securities		(90,000	)		-
Maturity of available-for-sale securities		50,000			99,990
Net cash provided by (used in) investing activities		(111,179	)		19,708

Financing activities
Proceeds from option exercises		11,295			11,406
Excess tax benefit on stock-based compensation		5,887			10,257
Payments on deemed landlord financing		(68	)		(61	)
Acquisition of treasury stock		(111,480	)		(70,001	)
Net cash used in financing activities		(94,366	)		(48,399	)
Effect of exchange rate changes on cash and cash equivalents		779			-
Net change in cash and cash equivalents		(8,570	)		150,402
Cash and cash equivalents at beginning of period		219,566			88,044
Cash and cash equivalents at end of period	$	210,996		$	238,446

Supplemental disclosures of cash flow information
Increase in purchases of leasehold improvements, property and equipment accrued in accounts payable	$	5,525		$	5,435

Chipotle Mexican Grill, Inc. Supplemental Financial and Other Data (dollars in thousands)
(unaudited)

	For the three months ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
	2010			2010			2010			2009			2009
Number of restaurants opened		22			25			20			45			26
Restaurant relocations or closures		--			--			--			--			(1	)
Number of restaurants at end of period		1,023			1,001			976			956			911
Average restaurant sales	$	1,806		$	1,763		$	1,736		$	1,728		$	1,736
Comparable restaurant sales increases		11.4	%		8.7	%		4.3	%		2.0	%		2.7	%