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Chipotle Mexican Grill, Inc. Announces Second Quarter 2011 Results

2011-07-20

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Chipotle Revenue increased 22.4% to $571.6 million - Comparable restaurant sales increased 10.0%

Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its second quarter ended June 30, 2011.

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

Revenue increased 22.4% to $571.6 million
Comparable restaurant sales increased 10.0%
Restaurant level operating margin was 25.8%, a decrease of 110 basis points
Net income was $50.7 million, an increase of 9.0%
Diluted earnings per share was $1.59, an increase of 8.9%

Highlights for the six months ended June 30, 2011 as compared to the prior year include:

Revenue increased 23.3% to $1.08 billion
Comparable restaurant sales increased 11.1%
Restaurant level operating margin was 25.5%, a decrease of 100 basis points
Net income was $97.0 million, an increase of 15.1%
Diluted earnings per share was $3.06, an increase of 15.5%

"We are continuing to focus on our efforts to serve better tasting food, made with ingredients from more sustainable sources, and on building a people culture that delights our customers and allows us to develop the future leaders we will need to support our growth. In spite of some cost challenges during the quarter, we continue to believe that our relentless focus on these things, which really drive our business, will allow us to produce great results for our shareholders over the long term," said Steve Ells, founder, chairman and co-CEO of Chipotle.

Second quarter 2011 results

Revenue for the quarter was $571.6 million, up 22.4% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 10.0% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic in the quarter.

During the quarter Chipotle opened 39 new restaurants, bringing the total restaurant count to 1,131.

Restaurant level operating margin was 25.8% in the quarter, a decrease of 110 basis points over the prior year period. The decrease was primarily driven by food cost inflation partially offset by leverage from comparable restaurant sales growth.

G&A costs were 7.3% of revenue, up 80 basis points from the prior year period. The increase as a percent of revenue was driven by an increase in non-cash stock-based compensation and by higher legal costs.

Results for the quarter were also impacted by the loss on Chipotle’s investment in ANGR Holdings, LLC, which operated the restaurants awarded on the television program America’s Next Great Restaurant prior to their closure. The loss resulted in a pre-tax charge of $2.4 million, or a diluted EPS impact of 5 cents.

Net income for the second quarter of 2011 was $50.7 million, or $1.59 per diluted share, compared to $46.5 million, or $1.46 per diluted share, in the second quarter of 2010.

Results for the six months ended June 30, 2011

Revenue for the first six months of 2011 was $1.08 billion, up 23.3% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 11.1% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic during the first six months of 2011.

During the first six months of the year, Chipotle opened 51 new restaurants, bringing the total restaurant count to 1,131.

Restaurant level operating margin was 25.5% for the first six 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 comparable restaurant sales growth.

G&A costs for the first six months of 2011 were 6.9% of revenue, up 50 basis points from the prior year period. The increase as a percent of revenue was primarily driven by an increase in non-cash stock-based compensation.

Net income for the first six months of 2011 was $97.0 million, or $3.06 per diluted share, compared to $84.3 million, or $2.65 per diluted share, in the first six months of 2010.

"We’re pleased that our comps and new restaurant sales have performed well, which is a reflection of the experience our customers enjoy when they visit Chipotle, and which our teams and our people culture are responsible for delivering. While we’re working hard to tackle the challenges that arose during this quarter, we’re confident that the stronger our people culture becomes, the better customer experience we will deliver, which will lead to more loyal customers, even stronger sales trends, and better financial results” commented Co-CEO Monty Moran.

Outlook

For 2011, management expects the following:

135-145 new restaurant openings
High single to low double digit comparable restaurant sales growth for the full year
An effective tax rate of approximately 38.2%

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 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.

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.


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

	Three months ended June 30,
	2011				2010

Revenue	$571,561		100.0	%	$466,841		100.0	%

Restaurant operating costs (Exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging	188,121		32.9		141,922		30.4
Labor	137,705		24.1		114,790		24.6
Occupancy	36,195		6.3		31,772		6.8
Other operating costs	62,221		10.9		52,968		11.3
General and administrative expenses	41,968		7.3		30,141		6.5
Depreciation and amortization	18,505		3.2		17,053		3.7
Pre-opening costs	1,606		0.3		1,724		0.4
Loss on disposal of assets	1,377		0.2		1,512		0.3
Total operating expenses	487,698		85.3		391,882		83.9
Income from operations	83,863		14.7		74,959		16.1

Interest and other income	475		0.1		427		0.1
Interest and other expense	(2,481	)	(0.4	)	(85	)	0.0
Income before income taxes	81,857		14.3		75,301		16.1
Provision for income taxes	(31,200	)	(5.5	)	(28,840	)	(6.2	)
Net income	$50,657		8.9	%	$46,461		10.0	%

Earnings per share:
Basic	$1.63				$1.48
Diluted	$1.59				$1.46
Weighted average common shares outstanding:
Basic	31,167				31,373
Diluted	31,761				31,802


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

	Six months ended June 30,

	2011				2010

Revenue	$1,080,945		100.0	%	$ 876,527		100.0	%

Restaurant operating costs (Exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging	351,029		32.5		265,830		30.3
Labor	262,993		24.3		218,807		25.0
Occupancy	71,510		6.6		62,860		7.2
Other operating costs	119,606		11.1		96,646		11.0
General and administrative expenses	74,184		6.9		56,335		6.4
Depreciation and amortization	36,999		3.4		33,787		3.9
Pre-opening costs	2,902		0.3		3,226		0.4
Loss on disposal of assets	3,038		0.3		2,781		0.3
Total operating expenses	922,261		85.3		740,272		84.5
Income from operations	158,684		14.7		136,255		15.5

Interest and other income	950		0.1		702		0.1
Interest and other expense	(2,669	)	(0.2	)	(164	)	0.0
Income before income taxes	156,965		14.5		136,793		15.6
Provision for income taxes	(59,926	)	(5.5	)	(52,485	)	(6.0	)
Net income	$97,039		9.0	%	$84,308		9.6	%

Earnings per share:
Basic	$3.12				$2.68
Diluted	$3.06				$2.65
Weighted average common shares outstanding:
Basic	31,125				31,428
Diluted	31,740				31,808


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

	June 30, 2011		December 31, 2010

Assets
Current assets:
Cash and cash equivalents	$349,801		$224,838
Accounts receivable, net of allowance for doubtful accounts of $68 and $102 as of June 30, 2011 and December 31, 2010, respectively	6,179		5,658
Inventory	8,447		7,098
Current deferred tax asset	5,114		4,317
Prepaid expenses and other current assets	31,279		16,016
Income tax receivable	6,133		23,528
Investments	34,759		124,766
Total current assets	441,712		406,221
Leasehold improvements, property and equipment, net	695,609		676,881
Long term investments	89,712		-
Other assets	14,609		16,564
Goodwill	21,939		21,939
Total assets	$1,263,581		$1,121,605
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$40,258		$33,705
Accrued payroll and benefits	45,383		50,336
Accrued liabilities	31,647		38,892
Current portion of deemed landlord financing	128		121
Total current liabilities	117,416		123,054
Deferred rent	131,592		123,667
Deemed landlord financing	3,596		3,661
Deferred income tax liability	60,023		50,525
Other liabilities	11,892		9,825
Total liabilities	324,519		310,732
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of June 30, 2011 and December 31, 2010	—		—
Common stock, $0.01 par value, 230,000 shares authorized, 34,270 and 33,959 shares issued as of June 30, 2011 and December 31, 2010, respectively	343		340
Additional paid-in capital	647,237		594,331
Treasury stock, at cost, 2,975 and 2,885 shares at June 30, 2011 and December 31, 2010, respectively	(263,402	)	(240,918	)
Accumulated other comprehensive income	1,331		606
Retained earnings	553,553		456,514
Total shareholders' equity	939,062		810,873
Total liabilities and shareholders' equity	$1,263,581		$1,121,605


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

	Six months ended June 30,
	2011		2010

Operating activities
Net income	$97,039		$84,308
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	36,999		33,787
Deferred income tax (benefit) provision	8,701		(7,367	)
Loss on disposal of assets	3,038		2,781
Bad debt allowance	3		(72	)
Stock-based compensation	21,978		11,689
Excess tax benefit on stock-based compensation	(29,673	)	(3,340	)

Other	2,479		(109	)
Changes in operating assets and liabilities:
Accounts receivable	(524	)	1,048
Inventory	(1,347	)	(744	)
Prepaid expenses and other current assets	(15,260	)	(4,025	)
Other assets	64		(534	)
Accounts payable	6,369		5,326
Accrued liabilities	(12,203	)	(5,749	)
Income tax receivable	47,067		2,514
Deferred rent	7,919		7,724
Other long-term liabilities	2,067		1,719
Net cash provided by operating activities	174,716		128,956

Investing activities
Purchases of leasehold improvements, property and equipment	(57,681	)	(41,653	)
Acquisition of interest in equity method investment	(586	)	-
Purchase of investments	(89,702	)	(80,000	)
Maturities of investments	90,007		25,000
Net cash used in investing activities	(57,962	)	(96,653	)

Financing activities
Acquisition of treasury stock	(22,484	)	(58,583	)
Proceeds from option exercises	457		5,459
Excess tax benefit on stock-based compensation	29,673		3,340
Payments on deemed landlord financing	(58	)	(43	)
Net cash provided by (used in) financing activities	7,588		(49,827	)

Effect of exchange rate changes on cash and cash equivalents	621		-
Net change in cash and cash equivalents	124,963		(17,524	)
Cash and cash equivalents at beginning of period	224,838		219,566
Cash and cash equivalents at end of period	$349,801		202,042

Supplemental disclosures of cash flow information
Increase/(decrease) in purchases of leasehold improvements,property, and equipment accrued in accounts payable	$180		$(345	)


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,		Jun 30,
	2011		2011		2010		2010		2010
Number of restaurants opened	39		12		62		22		25
Restaurant relocations or closures	(3	)	(1	)	(1	)	--		--
Number of restaurants at end of period	1,131		1,095		1,084		1,023		1,001
Average restaurant sales	$1,927		$1,885		$1,840		$1,806		$1,763
Comparable restaurant sales increases	10.0	%	12.4	%	12.6	%	11.4	%	8.7	%