Chipotle Mexican Grill, Inc. Second Quarter 2014 Revenues Up 28.6%

 

 

Comparable restaurant sales increased 17.3% - Restaurant level operating margin was 27.3%, a decrease of 30 basis points

Chipotle

Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its second quarter ended June 30, 2014.

Highlights for the second quarter of 2014 as compared to the second quarter of 2013 include:

  • Revenue increased 28.6% to $1.05 billion
  • Comparable restaurant sales increased 17.3%
  • Restaurant level operating margin was 27.3%, a decrease of 30 basis points
  • Net income was $110.3 million, an increase of 25.5%
  • Diluted earnings per share was $3.50, an increase of 24.1%
  • Opened 45 new restaurants

Highlights for the six months ended June 30, 2014 as compared to the prior year include:

  • Revenue increased 26.6% to $1.95 billion
  • Comparable restaurant sales increased 15.5%
  • Restaurant level operating margin was 26.7%, a decrease of 30 basis points
  • Net income was $193.3 million, an increase of 17.6%
  • Diluted earnings per share was $6.14, an increase of 16.5%
  • Opened 89 new restaurants

“We’re pleased that we continued to drive excellent results in the second quarter, including one of our strongest sales comps as a public company. These extraordinary results are made possible by our special food culture, innovative people culture, and strong business model that are not only creating significant shareholder value, but also helping us realize our vision to change the way people think about and eat fast food,” said Steve Ells, Founder, Chairman and co-CEO of Chipotle.

Monty Moran, co-CEO, continued, “Empowered teams of top performers can accomplish amazing things. Our Restaurateurs form the foundation of Chipotle’s culture, setting a standard for everyone else to follow. We are deeply committed to these leaders and the unique people culture they are building in their restaurants, which not only helps provide our guests with an exceptional dining experience, but also enables us to deliver great results to our shareholders.”

Second quarter 2014 results

Revenue for the quarter was $1.05 billion, up 28.6% from the second quarter of 2013. The growth in revenue was driven by a 17.3% increase in comparable restaurant sales and from new restaurants not in the comparable base. Comparable restaurant sales growth was driven primarily by increased traffic and to a lesser extent from an increase in average check, which includes the benefit of the nationwide menu price increases that were fully rolled out by the end of the quarter.

We opened 45 new restaurants during the quarter, bringing the total restaurant count to 1,681.

Food costs were 34.6% of revenue, an increase of 150 basis points, driven by increased prices for beef, avocados, and dairy, partially offset by the menu price increase and lower tomatillo prices.

Restaurant level operating margin was 27.3% in the quarter, a decrease of 30 basis points from the second quarter of 2013. The decrease was primarily driven by higher food and marketing costs, partially offset by favorable sales leverage in labor and occupancy costs.

G & A costs were 7.1% of revenue, an increase of 90 basis points due to higher stock compensation and bonus expenses, partially offset by favorable sales leverage.

Net income for the second quarter of 2014 was $110.3 million, or $3.50 per diluted share, compared to $87.9 million, or $2.82 per diluted share, in the second quarter of 2013.

Results for the six months ended June 30, 2014

Revenue for the first six months of 2014 was $1.95 billion, up 26.6% from the prior year period. The growth in revenue was the result of a 15.5% increase in comparable restaurant sales and from new restaurants not in the comparable base. Comparable restaurant sales growth was primarily driven by increased traffic and to a lesser extent from an increase in our average check.

During the first six months of the year, we opened 89 new restaurants, bringing the total restaurant count to 1,681.

Restaurant level operating margin was 26.7% for the first six months, a decrease of 30 basis points from the prior year period. The decrease was primarily from higher food costs, primarily beef, avocados, and dairy, and higher marketing costs partially offset by favorable sales leverage in labor and occupancy costs.

G & A costs for the first six months were 7.3% of revenue, or an increase of 110 basis points from the prior year period. The increase was from higher stock based compensation expense and higher bonus costs.

Net income for the first six months of 2014 was $193.3 million, or $6.14 per diluted share, compared to $164.4 million, or $5.27 per diluted share, in the first six months of 2013.

Net cash generated from operating activities was $360.4 million, an increase of 34.6% from last year.

Outlook

For 2014, management expects the following:

  • 180 – 195 new restaurant openings
  • Mid-teens comparable restaurant sales increases
  • An effective full year tax rate of approximately 39.1%

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 raised responsibly 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 operates more than 1,600 restaurants, including 17 Chipotle restaurants outside the US, and seven 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

(in thousands, except per share data)

(unaudited)

 
Three months ended June 30
2014 2013
Revenue $ 1,050,073   100.0   % $ 816,786   100.0   %
Restaurant operating costs
(Exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging 363,148 34.6 270,510 33.1
Labor 228,529 21.8 185,804 22.7
Occupancy 56,254 5.4 48,564 5.9
Other operating costs 115,418 11.0 86,296 10.6
General and administrative expenses 74,879 7.1 50,952 6.2
Depreciation and amortization 27,009 2.6 23,597 2.9
Pre-opening costs 3,392 0.3 3,246 0.4
Loss on disposal of assets 1,602   0.2   1,399   0.2  
Total operating expenses 870,231   82.9   670,368   82.1  
Income from operations 179,842 17.1 146,418 17.9
Interest and other income (expense), net 1,144   0.1   330   -  
Income before income taxes 180,986 17.2 146,748 18.0
Provision for income taxes (70,716 ) (6.7 )   (58,895 ) (7.2 )  
Net income $ 110,270   10.5   % $ 87,853   10.8   %
Earnings per share:
Basic $ 3.55   $ 2.84  
Diluted $ 3.50   $ 2.82  
Weighted average common shares outstanding:
Basic 31,049   30,901  
Diluted 31,474   31,176  
Comprehensive income $ 110,139   $ 87,820  
 
               

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Income and Comprehensive Income

(in thousands, except per share data)

(unaudited)

 
Six Months ended June 30
2014 2013
Revenue $ 1,954,236   100.0   % $ 1,543,537   100.0   %
Restaurant operating costs
(Exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging 674,940 34.5 510,099 33.0
Labor 436,737 22.3 357,273 23.1
Occupancy 111,100 5.7 96,184 6.2
Other operating costs 210,555 10.8 162,952 10.6
General and administrative expenses 141,796 7.3 95,163 6.2
Depreciation and amortization 52,763 2.7 46,533 3.0
Pre-opening costs 7,692 0.4 6,132 0.4
Loss on disposal of assets 3,161   0.2   2,739   0.2  
Total operating expenses 1,638,744   83.9   1,277,075   82.7  
Income from operations 315,492 16.1 266,462 17.3
Interest and other income (expense), net 1,833   0.1   596   0.0  
Income before income taxes 317,325 16.2 267,058 17.3
Provision for income taxes (123,986 ) (6.3 )   (102,621 ) (6.6 )  
Net income $ 193,339   9.9   % $ 164,437   10.7   %
Earnings per share:
Basic $ 6.23   $ 5.31  
Diluted $ 6.14   $ 5.27  
Weighted average common shares outstanding:
Basic 31,055   30,956  
Diluted 31,480   31,202  
Comprehensive income $ 193,687   $ 163,300  
 
       

Chipotle Mexican Grill, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except per share data)

 
June 30 December 31
2014 2013
 
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 470,050 $ 323,203
Accounts receivable, net of allowance for doubtful accounts of $1,172 and $1,190 as of 20,242 24,016
June 30, 2014 and December 31, 2013, respectively
Inventory 15,522 13,044
Current deferred tax asset 14,739 13,212
Prepaid expenses and other current assets 36,966 34,204
Income tax receivable - 3,657
Investments 334,580   254,971  
Total current assets 892,099 666,307
Leasehold improvements, property and equipment, net 1,011,916 963,238
Long term investments 304,108 313,863
Other assets 47,520 43,933
Goodwill 21,939   21,939  
Total assets $ 2,277,582   $ 2,009,280  
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 77,648 $ 59,022
Accrued payroll and benefits 86,383 67,195
Accrued liabilities 69,638 73,011
Income tax payable 7,867   -  
Total current liabilities 241,536 199,228
Deferred rent 205,304 192,739
Deferred income tax liability 50,838 55,434
Other liabilities 26,870   23,591  
Total liabilities 524,548   470,992  
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of
June 30, 2014 and December 31, 2013, respectively - -
Common stock $0.01 par value, 230,000 shares authorized, and 35,327 and 35,245
shares issued as of June 30, 2014 and December 31, 2013, respectively 353 352
Additional paid-in capital 991,190 919,840
Treasury stock, at cost, 4,308 and 4,212 common shares at June 30, 2014 and
December 31, 2013, respectively (710,713 ) (660,421 )
Accumulated other comprehensive income 1,968 1,620
Retained earnings 1,470,236   1,276,897  
Total shareholders' equity 1,753,034   1,538,288  
Total liabilities and shareholders' equity $ 2,277,582   $ 2,009,280  
 
       

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(unaudited)

(in thousands)

 
Six months ended June 30
2014 2013
Operating activities
Net income $ 193,339 $ 164,437
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 52,763 46,533
Deferred income tax provision (benefit) (6,124 ) 7,301
Loss on disposal of assets 3,161 2,739
Bad debt allowance (18 ) 39
Stock-based compensation expense 61,401 34,333
Excess tax benefit on stock-based compensation (9,516 ) (4,251 )
Other 3 262
Changes in operating assets and liabilities:
Accounts receivable 3,754 1,795
Inventory (2,476 ) (181 )
Prepaid expenses and other current assets (2,744 ) (7,596 )
Other assets (3,574 ) (3,365 )
Accounts payable 17,696 6,078
Accrued liabilities 15,781 (12,551 )
Income tax payable/receivable 21,041 17,688
Deferred rent 12,584 11,794
Other long-term liabilities 3,360   2,698  
Net cash provided by operating activities 360,431   267,753  
 
Investing activities
Purchases of leasehold improvements, property and equipment (102,840 ) (80,130 )
Purchases of investments (191,281 ) (230,397 )
Maturities of investments 121,250   78,750  
Net cash used in investing activities (172,871 ) (231,777 )
 
Financing activities
Acquisition of treasury stock (50,292 ) (81,065 )
Excess tax benefit on stock-based compensation 9,516 4,251
Other financing proceeds (payments) (55 ) 191  
Net cash used in financing activities (40,831 ) (76,623 )
 
Effect of exchange rate changes on cash and cash equivalents 118 (274 )
Net change in cash and cash equivalents 146,847 (40,921 )
Cash and cash equivalents at beginning of period 323,203   322,553  
Cash and cash equivalents at end of period $ 470,050   $ 281,632  
 
Supplemental disclosures of cash flow information
Increase (decrease) in purchases of leasehold improvements, property and
equipment accrued in accounts payable $ 917   $ (1,432 )
 
                   

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,
2014 2014 2013 2013 2013
Number of restaurants opened 45 44 56 37 44
Restaurant relocations (1 ) (2 ) - - -
Number of restaurants at end of period 1,681 1,637 1,595 1,539 1,502
Average restaurant sales $ 2,307 $ 2,226 $ 2,169 $ 2,140 $ 2,119
Comparable restaurant sales increases 17.3 % 13.4 % 9.3 % 6.2 % 5.5 %
 


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