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Press release from Business Wire

Chipotle Mexican Grill, Inc. Announces Second Quarter 2010 Results

Thursday, July 22, 2010

Chipotle Mexican Grill, Inc. Announces Second Quarter 2010 Results16:01 EDT Thursday, July 22, 2010 DENVER (Business Wire) -- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its second quarter ended June 30, 2010. Highlights for the second quarter of 2010 as compared to the second quarter of 2009 include: Revenue increased 20.1% to $466.8 million Comparable restaurant sales increased 8.7% Restaurant level operating margin was 26.9%, an increase of 90 basis points Net income was $46.5 million, an increase of 31.3% Diluted earnings per share was $1.46, an increase of 32.7% Highlights for the six months ended June 30, 2010 as compared to the prior year include: Revenue increased 17.9% to $876.5 million Comparable restaurant sales increased 6.6% Restaurant level operating margin was 26.5%, an increase of 170 basis points Net income was $ 84.3 million, an increase of 38.7% Diluted earnings per share was $2.65, an increase of 41.0% “The second quarter was filled with a number of very exciting milestones. We opened our first restaurant in London; we opened our 1,000th restaurant in Flower Mound, Texas; and we continued to advance our Food with Integrity program by introducing barbacoa made with naturally raised beef into all of our restaurants. We are excited about the progress we have made toward our vision to change the way the world thinks about and eats fast food and look forward to many more milestones as we begin our journey to the next 1,000 restaurants,” said Founder, Chairman, and Co-CEO Steve Ells. Second quarter 2010 results Revenue for the quarter was $466.8 million, up 20.1% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 8.7% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic in the quarter. During the quarter Chipotle opened 25 new restaurants, bringing the total restaurant count to 1,001. Restaurant level operating margin was 26.9% in the quarter, an increase of 90 basis points over the prior year period. The increase was primarily driven by the impact of comparable restaurant sales growth and a decline in food costs. G&A costs were 6.5% of revenue, down 10 basis points from the prior year period. The improvement as a percent of revenue was attributed to the impact of comparable restaurant sales growth partially offset by increased stock based compensation expense. Net income for the second quarter of 2010 was $46.5 million, or $1.46 per diluted share, compared to $35.4 million, or $1.10 per diluted share, in the second quarter of 2009. Results for the six months ended June 30, 2010 Revenue for the first six months of 2010 was $876.5 million, up 17.9% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 6.6% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic during the first six months of 2010. Restaurant level operating margin was 26.5% for the first six months, an increase of 170 basis points over the prior year period. The increase was primarily driven by the impact of comparable restaurant sales growth and a decline in food costs. G&A costs for the first six months of 2010 were 6.4% of revenue, down 30 basis points from the prior year period. The improvement as a percent of revenue was attributed to the impact of comparable restaurant sales growth which was partially offset by higher stock based compensation expense. Net income for the first six months of 2010 was $84.3 million, or $2.65 per diluted share, compared to $60.8 million, or $1.88 per diluted share, in the first six months of 2009. “Our unique people culture-one that appeals to and rewards high performers-is the driving force behind all of our accomplishments. Our high performing managers are creating a culture of empowerment in their restaurants, enabling our energetic and ambitious crew to treat each customer to the best dining experience possible. And our strong comps are a clear indication that our restaurant teams' efforts are paying off. As we look beyond our 1,000th restaurant, we have a deeper bench of future leaders than ever before which keeps us well positioned for future growth,” commented Co-CEO Monty Moran. Outlook For 2010, management expects the following: 120-130 new restaurant openings Mid to high 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. Conference Call Chipotle will host a conference call to discuss second quarter 2010 financial results today at 4:30 PM Eastern Time. The conference call can be accessed live over the phone by dialing 1-800-401-3551 or 1-913-643-4197 for international callers. A replay will be available one hour after the call and can be accessed by dialing 1-877-870-5176 or 1-858-384-5517 for international callers. The password is 2574255. The replay will be available until July 29, 2010. The call will be webcast live from the Company's website at chipotle.com under the Investor Relations section. An archived webcast will be available approximately one hour after the end of the call. 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 more than 1000 restaurants. For more information, visit chipotle.com. Forward-Looking StatementsCertain statements in this press release, including statements under the heading “Outlook” of our expected comparable restaurant sales increases and effective tax rate in 2010, and statements there and elsewhere in the release regarding the number of restaurants we intend to open in 2010 and beyond, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We use words such as “anticipate”, “believe”, “could”, “should”, “estimate”, “expect”, “intend”, “may”, “predict”, “project”, “target”, and similar terms and phrases, including references to assumptions, to identify forward-looking statements. The forward-looking statements in this press release are based on information available to us as of the date any such statements are made and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, the following: the uncertainty of our ability to achieve expected levels of comparable restaurant sales increases; factors that could affect our ability to achieve and manage our planned expansion, such as the availability of a sufficient number of suitable new restaurant sites and the availability of qualified employees; the performance of new restaurants and their impact on existing restaurant sales; changes in consumer preferences, general economic conditions or consumer discretionary spending; changes in the availability and costs of food; the risk of food-borne illnesses and other health concerns about our food products; the potential for increased labor costs or difficulty retaining qualified employees; the impact of federal, state or local government regulations relating to our employees and the sale of food or alcoholic beverages; risks relating to our expansion into new markets; risks related to our development and implementation of a new marketing strategy; the effects of continuing economic uncertainty on our business and on our suppliers, landlords and potential developers; our ability to protect our name and logo and other proprietary information; the potential effects of inclement weather; the effect of competition in the restaurant industry; risks related to the tax treatment of our separation from McDonald's; and other risk factors described from time to time in our SEC reports, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, all of which are available on the Investor Relations page of our Web site at chipotle.com.   Chipotle Mexican Grill, Inc.Consolidated Statement of Income(in thousands, except per share data)(unaudited)     Three months ended June 30, 2010   2009   Revenue $ 466,841     100.0 % $ 388,836     100.0 %   Restaurant operating costs: Food, beverage and packaging 141,922 30.4 120,207 30.9 Labor 114,790 24.6 95,389 24.5 Occupancy 31,772 6.8 28,167 7.2 Other operating costs 52,968 11.3 43,845 11.3 General and administrative expenses 30,141 6.5 25,797 6.6 Depreciation and amortization 17,053 3.7 15,197 3.9 Pre-opening costs 1,724 0.4 1,568 0.4 Loss on disposal of assets   1,512   0.3     1,344   0.3   Total operating expenses   391,882   83.9     331,514   85.3   Income from operations 74,959 16.1 57,322 14.7   Interest and other income 427 0.1 293 0.1 Interest and other expense   (85 ) 0.0     (186 ) 0.0   Income before income taxes 75,301 16.1 57,429 14.8 Provision for income taxes   (28,840 ) (6.2 )   (22,036 ) (5.7 ) Net income $ 46,461   10.0 % $ 35,393   9.1 %   Earnings per share: Basic $ 1.48   $ 1.11   Diluted $ 1.46   $ 1.10   Weighted average common shares outstanding: Basic   31,373     31,856   Diluted   31,802     32,195     Chipotle Mexican Grill, Inc.Consolidated Statement of Income(in thousands, except per share data)(unaudited)     Six months ended June 30, 2010   2009     Revenue $ 876,527   100.0 % $ 743,292   100.0 %   Restaurant operating costs: Food, beverage and packaging 265,830 30.3 230,091 31.0 Labor 218,807 25.0 188,956 25.4 Occupancy 62,860 7.2 55,124 7.4 Other operating costs 96,646 11.0 84,508 11.4 General and administrative expenses 56,335 6.4 49,516 6.7 Depreciation and amortization 33,787 3.9 29,917 4.0 Pre-opening costs 3,226 0.4 3,461 0.5 Loss on disposal of assets   2,781   0.3     3,208   0.4   Total operating expenses   740,272   84.5     644,781   86.7   Income from operations 136,255 15.5 98,511 13.3   Interest and other income 702 0.1 491 0.1 Interest and other expense   (164 ) 0.0     (259 ) 0.0   Income before income taxes 136,793 15.6 98,743 13.3 Provision for income taxes   (52,485 ) (6.0 )   (37,958 ) (5.1 ) Net income $ 84,308   9.6 % $ 60,785   8.2 %   Earnings per share: Basic $ 2.68   $ 1.90   Diluted $ 2.65   $ 1.88   Weighted average common shares outstanding: Basic   31,428     31,929   Diluted   31,808     32,278     Chipotle Mexican Grill, Inc.Consolidated Balance Sheet(in thousands, except per share data)     June 30,2010December 31,2009 (unaudited) Assets Current assets: Cash and cash equivalents $ 202,042 $ 219,566 Accounts receivable, net of allowance for doubtful accountsof $263 and $339 as of June 30, 2010 and December 31, 2009, respectively 3,787 4,763 Inventory 6,358 5,614 Current deferred tax asset 3,759 3,134 Prepaid expenses 18,402 14,377 Available-for-sale securities   105,000       50,000   Total current assets 339,348 297,454 Leasehold improvements, property and equipment, net 641,600 636,411 Other assets 6,235 5,701 Goodwill   21,939     21,939   Total assets $ 1,009,122   $ 961,505     Liabilities and shareholders' equity Current liabilities: Accounts payable $ 30,211 $ 25,230 Accrued payroll and benefits 37,667 41,404 Accrued liabilities 29,204 31,216 Current portion of deemed landlord financing 111 96 Income tax payable   3,381     4,207   Total current liabilities 100,574 102,153 Deferred rent 114,119 106,395 Deemed landlord financing 3,724 3,782 Deferred income tax liability 32,121 38,863 Other liabilities   8,570     6,851   Total liabilities   259,108     258,044     Shareholders' equity: Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of June 30, 2010 and December 31, 2009 — — Common stock, $0.01 par value, 230,000 shares authorized, 33,655 and 33,473 shares issued as of June 30, 2010 and December 31, 2009, respectively 337 335 Additional paid-in capital 560,815 539,880 Treasury stock, at cost, 2,450 and 1,990 shares at June 30, 2010 and December 31, 2009, respectively (172,899 ) (114,316 ) Accumulated other comprehensive income (loss) (80 ) 29 Retained earnings   361,841     277,533   Total shareholders' equity   750,014     703,461   Total liabilities and shareholders' equity $ 1,009,122   $ 961,505     Chipotle Mexican Grill, Inc.Consolidated Statement of Cash Flows(unaudited)(in thousands)   Six months ended June 30,2010   2009   Operating activities Net income $ 84,308 $ 60,785 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 33,787 29,917 Deferred income tax (benefit) provision (7,367 ) 8,312 Loss on disposal of assets 2,781 3,208 Bad debt allowance (72 ) (245 ) Stock-based compensation 11,689 7,711 Other (109 ) 168 Changes in operating assets and liabilities: Accounts receivable 1,048 671 Inventory (744 ) (926 ) Prepaid expenses (4,025 ) (1,269 ) Other assets (534 ) (397 ) Accounts payable 5,326 82 Accrued liabilities (5,749 ) 3,375 Income tax receivable/payable (826 ) (5,534 ) Deferred rent 7,724 7,670 Other long-term liabilities   1,719     1,134   Net cash provided by operating activities   128,956     114,662     Investing activities Purchases of leasehold improvements, property and equipment, net (41,653 ) (51,809 ) Purchase of available-for-sale securities (80,000 ) - Maturity of available-for-sale securities   25,000     99,990   Net cash provided by (used in) investing activities   (96,653 )   48,181     Financing activities Proceeds from option exercises 5,459 8,173 Excess tax benefit on stock-based compensation 3,340 6,796 Payments on deemed landlord financing (43 ) (40 ) Acquisition of treasury stock   (58,583 )   (57,517 ) Net cash used in financing activities   (49,827 )   (42,588 )   Net change in cash and cash equivalents (17,524 ) 120,255 Cash and cash equivalents at beginning of period   219,566     88,044   Cash and cash equivalents at end of period $ 202,042   $ 208,299     Supplemental disclosures of cash flow information Increase/(decrease) in purchases of leasehold improvements, property and equipment accrued in accounts payable $ (345 ) $ 694     Chipotle Mexican Grill, Inc.Supplemental Financial and Other Data(dollars in thousands)(unaudited)   For the three months endedJune 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,20102010200920092009 Number of restaurants opened 25 20 45 26 24 Restaurant relocations or closures -- -- -- (1 ) -- Number of restaurants at end of period 1,001 976 956 911 886 Average restaurant sales $ 1,763 $ 1,736 $ 1,728 $ 1,736 $ 1,734 Comparable restaurant sales increases 8.7 % 4.3 % 2.0 % 2.7 % 1.7 %