Chipotle Results

Chipotle Announces First Quarter 2019 Results

EPS Increases 46.9% As Restaurant Margins Expand to 21%, and Sales Comp Accelerates To 9.9%

Chipotle

Chipotle Mexican Grill, Inc. (NYSE: CMG) yesterday reported financial results for its first quarter ended March 31, 2019.

First quarter highlights, year over year:

  • Revenue increased 13.9% to $1.3 billion
  • Comparable restaurant sales increased 9.9%, net of 30 bps from loyalty deferral, and included 5.8% of comparable restaurant transaction growth and 2% in mix contribution
  • Digital sales grew 100.7% and accounted for 15.7% of sales for the quarter
  • Restaurant level operating margin was 21.0%, an increase from 19.5%
  • Diluted earnings per share was $3.13, net of a $0.27 after-tax impact from expenses related to restaurant asset impairment, corporate restructuring, and certain other costs, a 46.9% increase from $2.13. Adjusted diluted earnings per share excluding these charges was $3.40, a 59.6% increase from $2.13.1
  • Opened 15 new restaurants and closed 2

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.

"The on-going improvement in each of our key operating metrics over the past few quarters gives us confidence that our mission to win today and cultivate the future, is resonating," said Brian Niccol, chief executive officer. "This is the fifth consecutive quarter of accelerating comps, which reinforces our view that when we connect with guests through culturally relevant marketing focused on Chipotle's great taste and real ingredients, and provide more convenient access with less friction, they respond enthusiastically."

Results for the three months ended March 31, 2019:

Revenue for the quarter was $1.3 billion, an increase of 13.9% from the first quarter of 2018. The increase in revenue was driven by a 9.9% increase in comparable restaurant sales and new restaurant openings. Comparable restaurant sales improved primarily as a result of a 5.8% increase in comparable restaurant transactions and included a 30 basis point negative impact as a result of deferred revenue from our Chipotle Rewards loyalty program.

We opened 15 new restaurants during the quarter and closed 2, bringing the total restaurant count to 2,504.

Food, beverage and packaging costs were 32.2% of revenue, a decrease of 20 basis points compared to the first quarter of 2018. The decrease was primarily due to the modest menu price increase at the end of 2018, partially offset by an increased demand for steak (a higher priced ingredient), and higher paper cost.

Restaurant level operating margin was 21.0% in the quarter, an improvement from 19.5% in the first quarter of 2018.  The improvement was driven primarily by comparable restaurant sales increases and lower repair and maintenance expense, partially offset by wage inflation, increased marketing and promotional cost, and delivery expense associated with increased delivery sales.

General and administrative expenses were 7.8% of revenue for the first quarter of 2019, an increase of 110 basis points over the first quarter of 2018. In dollar terms, general and administrative expenses increased compared to the first quarter of 2018 primarily due to $13.1 million in increased performance bonus expense including: non-cash stock-based compensation,  bonus expense, and associated taxes; $3.4 million in outside service expense related to company initiatives to support restaurant growth, including digitizing and modernizing our restaurant experience; $4.3 million related to restructuring; and $1.3 million in other expenses.

The effective tax rate decreased to 22.2% in the first quarter of 2019, compared to 36.9% in the first quarter of 2018.  The decrease was primarily due to unfavorable discrete tax items in the first quarter of 2018 including equity vesting at an amount less than original book value and negative impacts from tax reform, and favorable discrete tax items in the first quarter of 2019 related to stock option exercises.

Net income for the first quarter of 2019 was $88.1 million, or $3.13 per diluted share, compared to net income of $59.4 million, or $2.13 per diluted share, in the first quarter of 2018. Excluding the impact of restaurant asset impairment, corporate restructuring, and certain other costs, adjusted net income was $95.5 million and adjusted diluted earnings per share was $3.40.

Outlook

For 2019, management is anticipating the following:

  • Mid to high single digit comparable restaurant sales growth, up from the prior mid-single digit growth expectation
  • 140 to 155 new restaurant openings
  • An estimated underlying effective full year tax rate on the low end of the previously disclosed range of 27.0% and 30.0%, excluding the potential impact of excess tax deductions from equity vesting or exercises

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 March 31, 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 70,000 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.

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Income

(unaudited)

(in thousands, except per share data)

Three months ended March 31,

2019

2018

Revenue

$

1,308,217

100.0

%

$

1,148,397

100.0

%

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

Food, beverage and packaging

421,367

32.2

371,915

32.4

Labor

348,842

26.7

318,863

27.8

Occupancy

88,770

6.8

85,256

7.4

Other operating costs

174,743

13.4

148,069

12.9

General and administrative expenses

102,671

7.8

77,063

6.7

Depreciation and amortization

53,781

4.1

46,915

4.1

Pre-opening costs

940

0.1

2,649

0.2

Impairment, closure costs, and asset disposals

6,942

0.5

4,859

0.4

Total operating expenses

1,198,056

91.6

1,055,589

91.9

Income from operations

110,161

8.4

92,808

8.1

Interest and other income, net

3,129

0.2

1,394

0.1

Income before income taxes

113,290

8.7

94,202

8.2

Provision for income taxes

(25,158)

(1.9)

(34,756)

(3.0)

Net income

$

88,132

6.7

%

$

59,446

5.2

%

Earnings per share:

Basic

$

3.18

$

2.13

Diluted

$

3.13

$

2.13

Weighted-average common shares outstanding:

Basic

27,696

27,911

Diluted

28,118

27,950

Chipotle Mexican Grill, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except per share data)

March 31,

December 31,

2019

2018

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

277,661

$

249,953

Accounts receivable, net of allowance for doubtful accounts of $203 and $0 as of March 31, 2019 and December 31, 2018, respectively

49,725

62,312

Inventory

18,780

21,555

Prepaid expenses and other current assets

34,217

54,129

Investments

457,363

426,845

Total current assets

837,746

814,794

Leasehold improvements, property and equipment, net

1,366,684

1,379,254

Restricted cash

28,382

30,199

Right of use assets

2,349,993

-

Other assets

20,738

19,332

Goodwill

21,939

21,939

Total assets

$

4,625,482

$

2,265,518

Liabilities and shareholders' equity

Current liabilities:

Accounts payable

$

106,214

$

113,071

Accrued payroll and benefits

119,689

113,467

Accrued liabilities

119,813

147,849

Unearned revenue

57,088

70,474

Current operating lease liabilities

157,665

-

Income tax payable

21,198

5,129

Total current liabilities

581,667

449,990

Deferred rent

-

330,985

Long-term operating lease liabilities

2,513,901

-

Deferred income tax liabilities

12,528

11,566

Other liabilities

33,587

31,638

Total liabilities

3,141,683

824,179

Shareholders' equity:

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

-

-

Common stock, $0.01 par value, 230,000 shares authorized, 36,108 and 35,973 shares issued as of March 31, 2019 and December 31, 2018, respectively

361

360

Additional paid-in capital

1,393,284

1,374,154

Treasury stock, at cost, 8,386 and 8,276 common shares at March 31, 2019 and December 31, 2018, respectively

(2,563,410)

(2,500,556)

Accumulated other comprehensive loss

(5,858)

(6,236)

Retained earnings

2,659,422

2,573,617

Total shareholders' equity

1,483,799

1,441,339

Total liabilities and shareholders' equity

$

4,625,482

$

2,265,518

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(unaudited)

(in thousands)

Three months ended

March 31,

2019

2018

Operating activities

Net income

$

88,132

$

59,446

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

Depreciation and amortization

53,781

46,915

Amortization of operating lease assets

38,105

-

Deferred income tax provision

1,772

5,683

Impairment, closure costs, and asset disposals

4,085

4,859

Bad debt allowance

206

-

Stock-based compensation expense

19,154

12,097

Other

(1,269)

(320)

Changes in operating assets and liabilities:

Accounts receivable

15,946

13,767

Inventory

2,781

2,451

Prepaid expenses and other current assets

(3,712)

(4,793)

Other assets

242

3,855

Accounts payable

(4,256)

17,242

Accrued payroll and benefits

5,853

27,700

Accrued liabilities

(4,773)

6,407

Unearned revenue

(13,386)

(15,276)

Income tax payable/receivable

16,054

18,012

Deferred rent

-

5,420

Operating lease liabilities

(36,492)

-

Other long-term liabilities

358

(2,349)

Net cash provided by operating activities

182,581

201,116

Investing activities

Purchases of leasehold improvements, property and equipment

(64,226)

(57,524)

Purchases of investments

(89,111)

(168,749)

Maturities of investments

60,000

145,000

Net cash used in investing activities

(93,337)

(81,273)

Financing activities

Acquisition of treasury stock

(52,886)

(68,638)

Tax withholding on share-based compensation awards

(10,368)

(3,988)

Stock plan transactions and other financing activities

(277)

(22)

Net cash used in financing activities

(63,531)

(72,648)

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

178

(24)

Net change in cash, cash equivalents, and restricted cash

25,891

47,171

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

280,152

214,170

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

$

306,043

$

261,341

Chipotle Mexican Grill, Inc.

Supplemental Financial and Other Data

(dollars in thousands)

For the three months ended

Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

2019

2018

2018

2018

2018

Number of restaurants opened

15

40

28

34

35

Restaurant closures

(2)

(8)

(32)

(7)

(2)

Restaurant relocations

(4)

(1)

-

Number of restaurants at end of period

2,504

2,491

2,463

2,467

2,441

Average restaurant sales

$

2,048

$

2,004

$

1,980

$

1,950

$

1,941

Comparable restaurant sales increase

9.9%

6.1%

4.4%

3.3%

2.2%

 

Chipotle Mexican Grill, Inc.

Reconciliation of Non-GAAP Financial Measures

(in thousands, except per share amounts)

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, and certain other costs. Adjusted diluted earnings per share is adjusted net income divided by diluted weighted-average common shares outstanding. We believe that these measures enhance investors' ability to compare the past financial performance of our underlying business with our current business performance and reflect the performance of our underlying restaurants separate from asset impairment, corporate restructuring and certain other costs at the corporate level. Management uses these non-GAAP measures for similar purposes. Our adjusted net income and adjusted diluted earnings per share measure may not be comparable to other companies' adjusted income measures.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

Three months ended

March 31,

2019

2018

Net income

$

88,132

$

59,446

Non-GAAP adjustments:

Restaurant closure costs:

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

100

-

Accelerated depreciation(2)

82

-

Duplicate rent expense(4)

521

-

Corporate Restructuring:

Operating lease asset impairment and other office closure costs(3)

1,395

-

Accelerated depreciation(2)

82

-

Duplicate rent expense(4)

1,198

-

Employee related restructuring costs(5)

3,223

-

Other adjustments(6)

930

-

Total non-GAAP adjustments

$

7,531

$

-

Tax effect of non-GAAP adjustments(7)

(174)

-

After tax impact of non-GAAP adjustments

$

7,357

$

-

Adjusted net income

$

95,489

$

59,446

Diluted weighted-average number of common shares outstanding

28,118

27,950

Diluted earnings per share

$

3.13

$

2.13

Adjusted diluted earnings per share

$

3.40

$

2.13

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

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

(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 March 31, 2019, consists of an asset impairment charge related to a reconfiguration of our human resource capital management system to support the restructured organization.

(7) For the three months ended March 31, 2019, includes a write-off of deferred tax assets related to expired stock awards of $1,583.

SOURCE Chipotle Mexican Grill



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