Chipotle Mexican Grill, Inc. Announces Fourth Quarter and Full Year 2013 Results

2014-02-03
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  • Chipotle Revenue increased 20.7% to $844.1 million - Comparable restaurant sales increased 9.3%

    Chipotle Mexican Grill, Inc. (NYSE: CMG) reported financial results for its fourth quarter and full year ended December 31, 2013.

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

    • Revenue increased 20.7% to $844.1 million
    • Comparable restaurant sales increased 9.3%
    • Restaurant level operating margin was 25.6%, an increase of 100 basis points
    • Net income was $79.6 million, an increase of 29.8%
    • Diluted earnings per share was $2.53, an increase of 29.7%
    • Opened 56 new restaurants

    Highlights for the twelve months ended December 31, 2013 as compared to the prior year include:

    • Revenue increased 17.7% to $3.21 billion
    • Comparable restaurant sales increased 5.6%
    • Restaurant level operating margin was 26.6%, a decrease of 50 basis points
    • Net income was $327.4 million, an increase of 17.8%
    • Diluted earnings per share was $10.47, an increase of 19.7%
    • Opened 185 new restaurants

    “We are very proud of our accomplishments during 2013. Over the past 20 years, we have created a very unique and special restaurant company. Chipotle is a place that appeals to a diverse customer base throughout the country and beyond. We offer our customers a range of flavors from a focused selection of beautiful, top-quality ingredients that are expertly prepared by a passionate team of extraordinary people. Our focus on our unique people and food cultures has created an impressive demand for a restaurant experience that is redefining fast food for the better,” said Steve Ells, Founder, Chairman and Co-CEO of Chipotle.

    Results for the fourth quarter 2013

    Revenue for the quarter was $844.1 million, up 20.7% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 9.3% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by the impact of increased traffic.

    During the quarter we opened 56 new restaurants, bringing the total restaurant count to 1,595.

    Food costs were 33.9% of revenue, an increase of 40 basis points driven mostly by higher avocado costs and to a lesser extent from tomato and corn salsa costs, partially offset by lower dairy and steak costs.

    Restaurant level operating margin was 25.6% in the quarter, an increase of 100 basis points from the prior year period. The increase was due to favorable sales leverage and lower marketing costs, partially offset by higher food costs.

    G&A costs were 6.6% of revenue, up 40 basis points from the prior year due to higher bonus expenses and employee taxes. Net income for the fourth quarter of 2013 was $79.6 million, or $2.53 per diluted share, compared to $61.4 million, or $1.95 per diluted share, in the fourth quarter of 2012.

    Results for the full year ended December 31, 2013

    Revenue for the full year of 2013 was $3.21 billion, up 17.7% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 5.6% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic.

    During the full year 185 new restaurants were opened, bringing the total restaurant count to 1,595.

    Food costs were 33.4% of revenue, an increase of 80 basis points mostly from higher salsa, meat, and dairy costs.

    Restaurant level operating margin was 26.6% for the full year 2013, a decrease of 50 basis points from the prior year. The decrease was primarily driven by higher food costs partially offset by favorable sales leverage from higher restaurant sales.

    G&A costs for the full year 2013 were 6.3% of revenue, 40 basis points lower than the prior year. The decrease as a percent of revenue was driven by costs in 2012 from our biennial All Managers' Conference and by the positive impact of comparable restaurant sales growth.

    Net income for the full year 2013 was $327.4 million, or $10.47 per diluted share, compared to $278.0 million, or $8.75 per diluted share for 2012.

    “Our fourth quarter and 2013 results demonstrated our ability to focus on and run great restaurants. Our empowered restaurant teams continued to delight our customers and provide an exceptional dining experience to our guests as more people were attracted to and visited our restaurants than ever before,” said Monty Moran, co-CEO of Chipotle.

    Outlook

    For 2014, management expects the following:

    • 180 – 195 new restaurant openings
    • Low to mid single digit comparable restaurant sales excluding any menu price increases
    • An estimated effective tax rate of 39.2%, which excludes federal work opportunity and R&D credits, which have not been renewed for 2014.

    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.

    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 and Responsibly Raised™ with respect for the animals, the land, and the farmers who produce the food. In order to achieve this vision, we focus on building a special people culture that is centered on creating teams of top performers empowered to achieve high standards. This people culture not only leads to a better dining experience for our customers, it also allows us to develop future leaders from within. Chipotle opened with a single restaurant in 1993 and currently operates more than 1,550 restaurants including six ShopHouse Southeast Asian Kitchen restaurants, and is an investor in an entity that owns and operates one Pizzeria Locale.

           

    Chipotle Mexican Grill, Inc.

    Condensed Consolidated Statement of Income and Comprehensive Income

    (unaudited)

    (in thousands, except per share data)

     
    Three Months ended December 31
    2013 2012
    Revenue $ 844,147   100.0 % $ 699,161   100.0 %
    Restaurant operating costs
    (Exclusive of depreciation and amortization shown separately below):
    Food, beverage and packaging 285,912 33.9 234,330 33.5
    Labor 193,818 23.0 167,301 23.9
    Occupancy 52,795 6.3 45,391 6.5
    Other operating costs 95,389 11.3 80,350 11.5
    General and administrative expenses 55,844 6.6 43,174 6.2
    Depreciation and amortization 24,903 3.0 22,141 3.2
    Pre-opening costs 4,775 0.6 3,383 0.5
    Loss on disposal of assets   1,607   0.2     903   0.1  
    Total operating expenses   715,043   84.7     596,973   85.4  
    Income from operations 129,104 15.3 102,188 14.6
    Interest and other income, net   390   -     462   0.1  
    Income before income taxes 129,494 15.3 102,650 14.7
    Provision for income taxes   (49,872 ) (5.9 )   (41,297 ) (5.9 )
    Net income $ 79,622   9.4 % $ 61,353   8.8 %
    Other comprehensive income:
    Foreign currency translation adjustments   222     242  
    Comprehensive income $ 79,844   $ 61,595  
    Earnings per share:
    Basic $ 2.57   $ 1.96  
    Diluted $ 2.53   $ 1.95  
    Weighted average common shares outstanding:
    Basic   31,019     31,303  
    Diluted   31,425     31,486  
     

    Chipotle Mexican Grill, Inc.

    Condensed Consolidated Statement of Income and Comprehensive Income

    (in thousands, except per share data)

           
     
    Year ended December 31
    2013 2012
    Revenue $ 3,214,591   100.0 % $ 2,731,224   100.0 %
    Restaurant operating costs
    (Exclusive of depreciation and amortization shown separately below):
    Food, beverage and packaging 1,073,514 33.4 891,003 32.6
    Labor 739,800 23.0 641,836 23.5
    Occupancy 199,107 6.2 171,435 6.3
    Other operating costs 347,401 10.8 286,610 10.5
    General and administrative expenses 203,733 6.3 183,409 6.7
    Depreciation and amortization 96,054 3.0 84,130 3.1
    Pre-opening costs 15,511 0.5 11,909 0.4
    Loss on disposal of assets   6,751   0.2     5,027   0.2  
    Total operating expenses   2,681,871   83.4     2,275,359   83.3  
    Income from operations 532,720 16.6 455,865 16.7
    Interest and other income, net   1,751   0.1     1,820   0.1  
    Income before income taxes 534,471 16.6 457,685 16.8
    Provision for income taxes   (207,033 ) (6.4 )   (179,685 ) (6.6 )
    Net income $ 327,438   10.2 % $ 278,000   10.2 %
    Other comprehensive income:
    Foreign currency translation adjustments   596     827  
    Comprehensive income $ 328,034   $ 278,827  
    Earnings per share:
    Basic $ 10.58   $ 8.82  
    Diluted $ 10.47   $ 8.75  
    Weighted average common shares outstanding:
    Basic   30,957     31,513  
    Diluted   31,281     31,783  
     

    Chipotle Mexican Grill, Inc.

    Condensed Consolidated Balance Sheet

    (in thousands, except per share data)

       
    December 31
    2013 2012
     
    Assets
    Current assets:
    Cash and cash equivalents $ 323,203 $ 322,553
    Accounts receivable, net of allowance for doubtful accounts of $1,190 and $1,187 as of 24,016 16,800
    December 31, 2013 and 2012, respectively
    Inventory 13,044 11,096
    Current deferred tax asset 13,212 8,862
    Prepaid expenses and other current assets 34,204 27,378
    Income tax receivable 3,657 9,612
    Investments   254,971     150,306  
    Total current assets 666,307 546,607
    Leasehold improvements, property and equipment, net 963,238 866,703
    Long term investments 313,863 190,868
    Other assets 43,933 42,550
    Goodwill   21,939     21,939  
    Total assets $ 2,009,280   $ 1,668,667  
    Liabilities and shareholders' equity
    Current liabilities:
    Accounts payable $ 59,022 $ 58,700
    Accrued payroll and benefits 67,195 71,731
    Accrued liabilities   73,011     56,421  
    Total current liabilities 199,228 186,852
    Deferred rent 192,739 167,057
    Deferred income tax liability 55,434 48,947
    Other liabilities   23,591     19,885  
    Total liabilities   470,992     422,741  
    Shareholders' equity:
    Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of
    December 31, 2013 and 2012, respectively - -
    Common stock $0.01 par value, 230,000 shares authorized, and 35,245 and 34,912
    shares issued as of December 31, 2013 and 2012, respectively 352 349
    Additional paid-in capital 919,840 816,612
    Treasury stock, at cost, 4,212 and 3,819 common shares at December 31, 2013
    and 2012, respectively (660,421 ) (521,518 )
    Accumulated other comprehensive income 1,620 1,024
    Retained earnings   1,276,897     949,459  
    Total shareholders' equity   1,538,288     1,245,926  
    Total liabilities and shareholders' equity $ 2,009,280   $ 1,668,667  
     

    Chipotle Mexican Grill, Inc.

    Condensed Consolidated Statement of Cash Flows

    (in thousands)

       
     
    Years ended December 31
    2013 2012
    Operating activities
    Net income $ 327,438 $ 278,000
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization 96,054 84,130
    Deferred income tax provision (benefit) 2,103 (18,057 )
    Loss on disposal of assets 6,751 5,027
    Bad debt allowance 19 1,046
    Stock-based compensation expense 63,657 64,276
    Excess tax benefit on stock-based compensation (38,379 ) (73,210 )
    Other 507 522
    Changes in operating assets and liabilities:
    Accounts receivable (7,238 ) (9,438 )
    Inventory (1,950 ) (2,180 )
    Prepaid expenses and other current assets (6,806 ) (5,954 )
    Other assets (1,354 ) (20,539 )
    Accounts payable 2,052 7,849
    Accrued liabilities 12,020 21,307
    Income tax payable/receivable 44,334 59,357
    Deferred rent 25,715 23,765
    Other long-term liabilities   3,857     4,062  
    Net cash provided by operating activities   528,780     419,963  
     
    Investing activities
    Purchases of leasehold improvements, property and equipment (199,926 ) (197,037 )
    Purchases of investments (387,639 ) (213,462 )
    Maturities of investments   159,250     55,000  
    Net cash used in investing activities   (428,315 )   (355,499 )
     
    Financing activities
    Acquisition of treasury stock (138,903 ) (217,092 )
    Proceeds from employee stock plan transactions 316 481
    Excess tax benefit on stock-based compensation 38,379 73,210
    Other financing payments   (143 )   (133 )
    Net cash used in financing activities   (100,351 )   (143,534 )
     
    Effect of exchange rate changes on cash and cash equivalents 536 380
    Net change in cash and cash equivalents 650 (78,690 )
    Cash and cash equivalents at beginning of period   322,553     401,243  
    Cash and cash equivalents at end of period $ 323,203   $ 322,553  
     
    Supplemental disclosures of cash flow information
    Income taxes paid $ 160,973   $ 138,385  
    Increase (decrease) in purchases of leasehold improvements, property and
    equipment accrued in accounts payable $ (1,736 ) $ 4,455  
     

    Chipotle Mexican Grill, Inc.

    Supplemental Financial and Other Data

    (dollars in thousands)

             
    For the three months ended
    December 31, September 30, June 30, March 31, December 31,
    2013 2013 2013 2013 2012
    Number of restaurants opened 56 37 44 48 60
    Number of restaurants at end of period 1,595 1,539 1,502 1,458 1,410
    Average restaurant sales $ 2,169 $ 2,140 $ 2,119 $ 2,105 $ 2,113
    Comparable restaurant sales increases 9.3 % 6.2 % 5.5 % 1.0 % 3.8 %
     



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