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Press release from Business Wire

Chipotle Mexican Grill, Inc. Announces Third Quarter 2010 Results

Thursday, October 21, 2010

Chipotle Mexican Grill, Inc. Announces Third Quarter 2010 Results16:01 EDT Thursday, October 21, 2010 DENVER (Business Wire) -- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its third quarter ended September 30, 2010. Highlights for the third quarter of 2010 as compared to the third quarter of 2009 include: Revenue increased 23.0% to $476.9 million Comparable restaurant sales increased 11.4% Restaurant level operating margin was 27.7%, an increase of 220 basis points Net income was $48.2 million, an increase of 39.9% Diluted earnings per share was $1.52, an increase of 40.7% Highlights for the nine months ended September 30, 2010 as compared to the prior year include: Revenue increased 19.7% to $1.35 billion Comparable restaurant sales increased 8.3% Restaurant level operating margin was 26.9%, an increase of 180 basis points Net income was $ 132.5 million, an increase of 39.1% Diluted earnings per share was $4.18, an increase of 41.2% “We're delighted that our continuing efforts to serve the very best food made from high quality ingredients raised with respect for the animals, the environment, and the farmers are resonating with our customers, allowing us to deliver double digit comps during the quarter. Our focus on strengthening our food culture, our people culture and our business model is resulting in even stronger customer loyalty and allowing us to deliver industry leading financial results,” said Founder, Chairman, and Co-CEO Steve Ells. Third quarter 2010 results Revenue for the quarter was $476.9 million, up 23.0% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 11.4% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic in the quarter. During the quarter Chipotle opened 22 new restaurants, bringing the total restaurant count to 1,023. Restaurant level operating margin was 27.7% in the quarter, an increase of 220 basis points over the prior year period. The increase was primarily driven by the impact of comparable restaurant sales growth. G&A costs were 7.0% of revenue, up 70 basis points from the prior year period. The increase as a percent of revenue was driven by the impact of holding the biennial All Managers' Conference in the third quarter and higher stock based compensation expense, partially offset by the positive impact of comparable restaurant sales growth. Net income for the third quarter of 2010 was $48.2 million, or $1.52 per diluted share, compared to $34.5 million, or $1.08 per diluted share, in the third quarter of 2009. Results for the nine months ended September 30, 2010 Revenue for the first nine months of 2010 was $1.35 billion, up 19.7% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 8.3% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic during the first nine months of 2010. Year to date, Chipotle has opened 67 restaurants, including one restaurant in London and one in Toronto, Canada. Restaurant level operating margin was 26.9% for the first nine months of 2010, an increase of 180 basis points over the prior year period. The increase was primarily driven by the impact of comparable restaurant sales growth, along with a decline in food costs. G&A costs for the first nine months of 2010 were 6.6% of revenue, up 10 basis points from the prior year period. The increase as a percent of revenue was driven by higher stock based compensation expense and the biennial All Managers' Conference, partially offset by the positive impact of comparable restaurant sales growth. Net income for the first nine months of 2010 was $132.5 million, or $4.18 per diluted share, compared to $95.2 million, or $2.96 per diluted share, in the first nine months of 2009. “Our strong people culture continues to drive our success in attracting loyal customers and delivering exceptional results. Our restaurant teams are ambitious, passionate, and dedicated to delivering the best dining experience possible, while developing talented future leaders from crew. Our Restaurateurs and restaurant managers who aspire to become Restaurateurs are committed to hiring and developing top performers to achieve high standards in our restaurants every day,” commented Monty Moran, Co-CEO. Outlook For 2010, management expects the following: 120-130 new restaurant openings High single digit comparable restaurant sales growth An effective tax rate of approximately 38.3% For 2011, management expects the following: 135-145 new restaurant openings Low 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 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. Conference Call Chipotle will host a conference call to discuss third quarter 2010 financial results today at 4:30 PM Eastern Time. The conference call can be accessed live over the phone by dialing 1-888-337-8198 or 1-719-325-2178 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 2947394. The replay will be available until October 28, 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 1,000 restaurants. For more information, visit chipotle.com. Forward-Looking StatementsCertain statements in this press release, including statements under the heading “Outlook” of our expected number of new restaurant openings, comparable restaurant sales increases and effective tax rate in 2010 and 2011, 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; increases in the cost of food ingredients and other key supplies; the risk of food-borne illnesses and other health concerns about our food; 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; risks relating to litigation; the uncertainty of our ability to protect our name, logo and other proprietary information or the reputation of our brand; 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 website at chipotle.com.   Chipotle Mexican Grill, Inc.Consolidated Statement of Income(in thousands, except per share data)(unaudited)     Three months ended September 30, 2010   2009   Revenue $ 476,874     100.0 % $ 387,581     100.0 %   Restaurant operating costs: Food, beverage and packaging 145,688 30.6 119,473 30.8 Labor 115,234 24.2 96,419 24.9 Occupancy 32,096 6.7 28,677 7.4 Other operating costs 51,977 10.9 44,118 11.4 General and administrative expenses 33,522 7.0 24,555 6.3 Depreciation and amortization 17,319 3.6 15,451 4.0 Pre-opening costs 1,943 0.4 2,535 0.7 Loss on disposal of assets   1,511   0.3     1,544   0.4   Total operating expenses   399,290   83.7     332,772   85.9   Income from operations 77,584 16.3 54,809 14.1   Interest and other income 395 0.1 132 0.0 Interest and other expense   (14 ) 0.0     (74 ) 0.0   Income before income taxes 77,965 16.3 54,867 14.2 Provision for income taxes   (29,737 ) (6.2 )   (20,403 ) (5.3 ) Net income $ 48,228   10.1 % $ 34,464   8.9 %   Earnings per share: Basic $ 1.55   $ 1.09   Diluted $ 1.52   $ 1.08   Weighted average common shares outstanding: Basic   31,031     31,625   Diluted   31,629     31,949     Chipotle Mexican Grill, Inc.Consolidated Statement of Income(in thousands, except per share data)(unaudited)     Nine months ended September 30, 2010   2009   Revenue $ 1,353,401     100.0 % $ 1,130,873     100.0 %   Restaurant operating costs: Food, beverage and packaging 411,518 30.4 349,564 30.9 Labor 334,041 24.7 285,375 25.2 Occupancy 94,956 7.0 83,801 7.4 Other operating costs 148,623 11.0 128,626 11.4 General and administrative expenses 89,857 6.6 74,071 6.5 Depreciation and amortization 51,106 3.8 45,368 4.0 Pre-opening costs 5,169 0.4 5,996 0.5 Loss on disposal of assets   4,292   0.3     4,752   0.4   Total operating expenses   1,139,562   84.2     977,553   86.4   Income from operations 213,839 15.8 153,320 13.6   Interest and other income 1,097 0.1 623 0.1 Interest and other expense   (178 ) 0.0     (333 ) 0.0   Income before income taxes 214,758 15.9 153,610 13.6 Provision for income taxes   (82,222 ) (6.1 )   (58,361 ) (5.2 ) Net income $ 132,536   9.8 % $ 95,249   8.4 %   Earnings per share: Basic $ 4.24   $ 2.99   Diluted $ 4.18   $ 2.96   Weighted average common shares outstanding: Basic   31,278     31,827   Diluted   31,731     32,168     Chipotle Mexican Grill, Inc.Consolidated Balance Sheet(in thousands, except per share data)     September30, 2010December31, 2009 (unaudited) Assets Current assets: Cash and cash equivalents $ 210,996 $ 219,566 Accounts receivable, net of allowance for doubtful accountsof $99 and $339 as of September 30, 2010 and December 31, 2009, respectively 4,446 4,763 Inventory 7,175 5,614 Current deferred tax asset 3,758 3,134 Prepaid expenses   18,933   14,377 Available-for-sale securities   90,000   50,000 Income tax receivable     10,091       --   Total current assets 345,399 297,454 Leasehold improvements, property and equipment, net 658,423 636,411 Other assets 6,610 5,701 Goodwill   21,939     21,939   Total assets $ 1,032,371   $ 961,505     Liabilities and shareholders' equity Current liabilities: Accounts payable $ 35,641 $ 25,230 Accrued payroll and benefits 39,085 41,404 Accrued liabilities 28,590 31,216 Current portion of deemed landlord financing 117 96 Income tax payable   --     4,207   Total current liabilities 103,433 102,153 Deferred rent 118,394 106,395 Deemed landlord financing 3,693 3,782 Deferred income tax liability 36,448 38,863 Other liabilities   9,374     6,851   Total liabilities   271,342     258,044     Shareholders' equity: Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of September 30, 2010 and December 31, 2009 — — Common stock, $0.01 par value, 230,000 shares authorized, 33,749 and 33,473 shares issued as of September 30, 2010 and December 31, 2009, respectively 338 335 Additional paid-in capital 575,554 539,880 Treasury stock, at cost, 2,810 and 1,990 shares at September 30, 2010 and December 31, 2009, respectively (225,796 ) (114,316 ) Accumulated other comprehensive income 864 29 Retained earnings   410,069     277,533   Total shareholders' equity   761,029     703,461   Total liabilities and shareholders' equity $ 1,032,371   $ 961,505     Chipotle Mexican Grill, Inc.Consolidated Statement of Cash Flows(unaudited)(in thousands)   Nine months endedSeptember 30,2010   2009   Operating activities Net income $ 132,536 $ 95,249 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 51,106 45,368 Deferred income tax (benefit) provision (3,039 ) 10,381 Loss on disposal of assets 4,292 4,752 Bad debt allowance (228 ) (245 ) Stock-based compensation 17,846 11,479 Other - 172 Changes in operating assets and liabilities: Accounts receivable 545 755 Inventory (1,560 ) (1,069 ) Prepaid expenses (4,553 ) (1,594 ) Other assets (903 ) (637 ) Accounts payable 4,883 3,230 Accrued liabilities (4,948 ) 1,676 Income tax receivable/payable (14,298 ) (4,691 ) Deferred rent 11,994 12,497 Other long-term liabilities   2,523     1,770   Net cash provided by operating activities   196,196     179,093     Investing activities Purchases of leasehold improvements, property and equipment, net (71,179 ) (80,282 ) Purchase of available-for-sale securities (90,000 ) - Maturity of available-for-sale securities   50,000     99,990   Net cash provided by (used in) investing activities   (111,179 )   19,708     Financing activities Proceeds from option exercises 11,295 11,406 Excess tax benefit on stock-based compensation 5,887 10,257 Payments on deemed landlord financing (68 ) (61 ) Acquisition of treasury stock   (111,480 )     (70,001 ) Net cash used in financing activities   (94,366 )   (48,399 ) Effect of exchange rate changes on cash and cash equivalents 779 - Net change in cash and cash equivalents (8,570 ) 150,402 Cash and cash equivalents at beginning of period   219,566     88,044   Cash and cash equivalents at end of period $ 210,996   $ 238,446     Supplemental disclosures of cash flow information Increase in purchases of leasehold improvements, property and equipment accrued in accounts payable $ 5,525   $ 5,435     Chipotle Mexican Grill, Inc.Supplemental Financial and Other Data(dollars in thousands)(unaudited)   For the three months endedSept.30,   June30,   Mar.31,   Dec.31,   Sept.30,20102010201020092009 Number of restaurants opened 22 25 20 45 26 Restaurant relocations or closures -- -- -- -- (1 ) Number of restaurants at end of period 1,023 1,001 976 956 911 Average restaurant sales $ 1,806 $ 1,763 $ 1,736 $ 1,728 $ 1,736 Comparable restaurant sales increases 11.4 % 8.7 % 4.3 % 2.0 % 2.7 % Chipotle Mexican Grill, Inc.Investor Relations:Kate Giha, 614-508-1303orMedia:Chris Arnold, 303-222-5912