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Press release from Business Wire

Chipotle Mexican Grill, Inc. Announces Second Quarter 2011 Results

Tuesday, July 19, 2011

Chipotle Mexican Grill, Inc. Announces Second Quarter 2011 Results16:01 EDT Tuesday, July 19, 2011 DENVER (Business Wire) -- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its second quarter ended June 30, 2011. Highlights for the second quarter of 2011 as compared to the second quarter of 2010 include: Revenue increased 22.4% to $571.6 million Comparable restaurant sales increased 10.0% Restaurant level operating margin was 25.8%, a decrease of 110 basis points Net income was $50.7 million, an increase of 9.0% Diluted earnings per share was $1.59, an increase of 8.9% Highlights for the six months ended June 30, 2011 as compared to the prior year include: Revenue increased 23.3% to $1.08 billion Comparable restaurant sales increased 11.1% Restaurant level operating margin was 25.5%, a decrease of 100 basis points Net income was $97.0 million, an increase of 15.1% Diluted earnings per share was $3.06, an increase of 15.5% "We are continuing to focus on our efforts to serve better tasting food, made with ingredients from more sustainable sources, and on building a people culture that delights our customers and allows us to develop the future leaders we will need to support our growth. In spite of some cost challenges during the quarter, we continue to believe that our relentless focus on these things, which really drive our business, will allow us to produce great results for our shareholders over the long term," said Steve Ells, founder, chairman and co-CEO of Chipotle. Second quarter 2011 results Revenue for the quarter was $571.6 million, up 22.4% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 10.0% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic in the quarter. During the quarter Chipotle opened 39 new restaurants, bringing the total restaurant count to 1,131. Restaurant level operating margin was 25.8% in the quarter, a decrease of 110 basis points over the prior year period. The decrease was primarily driven by food cost inflation partially offset by leverage from comparable restaurant sales growth. G&A costs were 7.3% of revenue, up 80 basis points from the prior year period. The increase as a percent of revenue was driven by an increase in non-cash stock-based compensation and by higher legal costs. Results for the quarter were also impacted by the loss on Chipotle's investment in ANGR Holdings, LLC, which operated the restaurants awarded on the television program America's Next Great Restaurant prior to their closure. The loss resulted in a pre-tax charge of $2.4 million, or a diluted EPS impact of 5 cents. Net income for the second quarter of 2011 was $50.7 million, or $1.59 per diluted share, compared to $46.5 million, or $1.46 per diluted share, in the second quarter of 2010. Results for the six months ended June 30, 2011 Revenue for the first six months of 2011 was $1.08 billion, up 23.3% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and an 11.1% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic during the first six months of 2011. During the first six months of the year, Chipotle opened 51 new restaurants, bringing the total restaurant count to 1,131. Restaurant level operating margin was 25.5% for the first six months, a decrease of 100 basis points from the prior year period. The decrease was primarily driven by increased food costs partially offset by the impact of leverage from comparable restaurant sales growth. G&A costs for the first six months of 2011 were 6.9% of revenue, up 50 basis points from the prior year period. The increase as a percent of revenue was primarily driven by an increase in non-cash stock-based compensation. Net income for the first six months of 2011 was $97.0 million, or $3.06 per diluted share, compared to $84.3 million, or $2.65 per diluted share, in the first six months of 2010. "We're pleased that our comps and new restaurant sales have performed well, which is a reflection of the experience our customers enjoy when they visit Chipotle, and which our teams and our people culture are responsible for delivering. While we're working hard to tackle the challenges that arose during this quarter, we're confident that the stronger our people culture becomes, the better customer experience we will deliver, which will lead to more loyal customers, even stronger sales trends, and better financial results” commented Co-CEO Monty Moran. Outlook For 2011, management expects the following: 135-145 new restaurant openings High single to low double digit comparable restaurant sales growth for the full year An effective tax rate of approximately 38.2% 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 2011 financial results today at 4:30 PM Eastern Time. The conference call can be accessed live over the phone by dialing 1-800-946-0783 or 1-719-457-2642 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 9636291. The replay will be available until July 26, 2011. 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 over 1,100 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 2011 as well as statements elsewhere in the release regarding the impact of our people culture on future sales trends and financial results, 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: 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 uncertainty of our ability to achieve expected levels of comparable restaurant sales increases; the performance of new restaurants and their impact on existing restaurant sales; 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, including as a result of immigration enforcement activities; risks relating to our expansion into new markets; the impact of federal, state or local government regulations relating to our employees and the sale of food or alcoholic beverages; risks associated with our Food With Integrity strategy, including supply shortages; changes in consumer preferences, general economic conditions or consumer discretionary spending; the effect of competition in the restaurant industry; risks related to the ongoing development of our marketing strategy; the effects of continuing economic uncertainty on our business and on our suppliers, landlords and potential developers; risks relating to litigation; risks relating to our insurance coverage and self-insurance; our dependence on key personnel; security risks associated with the acceptance of electronic payment cards; 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; 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 our Web site at chipotle.com.   Chipotle Mexican Grill, Inc.Condensed Consolidated Statement of Income(in thousands, except per share data)(unaudited)     Three months ended June 30, 2011       2010     Revenue $571,561     100.0 % $466,841     100.0 %   Restaurant operating costs (Exclusive of depreciation and amortization shown separately below): Food, beverage and packaging 188,121 32.9 141,922 30.4 Labor 137,705 24.1 114,790 24.6 Occupancy 36,195 6.3 31,772 6.8 Other operating costs 62,221 10.9 52,968 11.3 General and administrative expenses 41,968 7.3 30,141 6.5 Depreciation and amortization 18,505 3.2 17,053 3.7 Pre-opening costs 1,606 0.3 1,724 0.4 Loss on disposal of assets 1,377   0.2   1,512   0.3   Total operating expenses 487,698   85.3   391,882   83.9   Income from operations 83,863 14.7 74,959 16.1   Interest and other income 475 0.1 427 0.1 Interest and other expense (2,481 ) (0.4 ) (85 ) 0.0   Income before income taxes 81,857 14.3 75,301 16.1 Provision for income taxes (31,200 ) (5.5 ) (28,840 ) (6.2 ) Net income $50,657   8.9 % $46,461   10.0 %   Earnings per share: Basic $1.63   $1.48   Diluted $1.59   $1.46   Weighted average common shares outstanding: Basic 31,167   31,373   Diluted 31,761   31,802       Chipotle Mexican Grill, Inc.Condensed Consolidated Statement of Income(in thousands, except per share data)(unaudited)           Six months ended June 30,   2011   2010     Revenue $1,080,945   100.0 % $ 876,527   100.0 %   Restaurant operating costs(Exclusive of depreciation and amortization shown separately below): Food, beverage and packaging 351,029 32.5 265,830 30.3 Labor 262,993 24.3 218,807 25.0 Occupancy 71,510 6.6 62,860 7.2 Other operating costs 119,606 11.1 96,646 11.0 General and administrative expenses 74,184 6.9 56,335 6.4 Depreciation and amortization 36,999 3.4 33,787 3.9 Pre-opening costs 2,902 0.3 3,226 0.4 Loss on disposal of assets 3,038   0.3   2,781   0.3   Total operating expenses 922,261   85.3   740,272   84.5   Income from operations 158,684 14.7 136,255 15.5   Interest and other income 950 0.1 702 0.1 Interest and other expense (2,669 ) (0.2 ) (164 ) 0.0   Income before income taxes 156,965 14.5 136,793 15.6 Provision for income taxes (59,926 ) (5.5 ) (52,485 ) (6.0 ) Net income $97,039   9.0 % $84,308   9.6 %   Earnings per share: Basic $3.12   $2.68   Diluted $3.06   $2.65   Weighted average common shares outstanding: Basic 31,125   31,428   Diluted 31,740   31,808           Chipotle Mexican Grill, Inc.Condensed Consolidated Balance Sheet(in thousands, except per share data)(unaudited)   June 30,2011 December 31,2010   Assets Current assets: Cash and cash equivalents $349,801 $224,838 Accounts receivable, net of allowance for doubtful accounts  of $68 and $102 as of June 30, 2011 and December 31, 2010,  respectively 6,179 5,658 Inventory 8,447 7,098 Current deferred tax asset 5,114 4,317 Prepaid expenses and other current assets 31,279 16,016 Income tax receivable 6,133 23,528 Investments 34,759   124,766   Total current assets 441,712 406,221 Leasehold improvements, property and equipment, net 695,609 676,881 Long term investments 89,712 - Other assets 14,609 16,564 Goodwill 21,939   21,939   Total assets $1,263,581   $1,121,605   Liabilities and shareholders' equity Current liabilities: Accounts payable $40,258 $33,705 Accrued payroll and benefits 45,383 50,336 Accrued liabilities 31,647 38,892 Current portion of deemed landlord financing 128   121   Total current liabilities 117,416 123,054 Deferred rent 131,592 123,667 Deemed landlord financing 3,596 3,661 Deferred income tax liability 60,023 50,525 Other liabilities 11,892   9,825   Total liabilities 324,519   310,732   Shareholders' equity: Preferred stock, $0.01 par value, 600,000 shares authorized, no  shares issued as of June 30, 2011 and December 31, 2010 — — Common stock, $0.01 par value, 230,000 shares authorized, 34,270  and 33,959 shares issued as of June 30, 2011 and December 31,  2010, respectively 343 340 Additional paid-in capital 647,237 594,331 Treasury stock, at cost, 2,975 and 2,885 shares at June 30, 2011 and  December 31, 2010, respectively (263,402 ) (240,918 ) Accumulated other comprehensive income 1,331 606 Retained earnings 553,553   456,514   Total shareholders' equity 939,062   810,873   Total liabilities and shareholders' equity $1,263,581   $1,121,605     Chipotle Mexican Grill, Inc.Condensed Consolidated Statement of Cash Flows(unaudited)(in thousands)   Six months ended June 30, 2011     2010   Operating activities Net income $97,039 $84,308 Adjustments to reconcile net income to net cash provided  by operating activities: Depreciation and amortization 36,999 33,787 Deferred income tax (benefit) provision 8,701 (7,367 ) Loss on disposal of assets 3,038 2,781 Bad debt allowance 3 (72 ) Stock-based compensation 21,978 11,689 Excess tax benefit on stock-based compensation (29,673 ) (3,340 )   Other 2,479 (109 ) Changes in operating assets and liabilities: Accounts receivable (524 ) 1,048 Inventory (1,347 ) (744 ) Prepaid expenses and other current assets (15,260 ) (4,025 ) Other assets 64 (534 ) Accounts payable 6,369 5,326 Accrued liabilities (12,203 ) (5,749 ) Income tax receivable 47,067 2,514 Deferred rent 7,919 7,724 Other long-term liabilities 2,067   1,719   Net cash provided by operating activities 174,716   128,956     Investing activities Purchases of leasehold improvements, property and  equipment (57,681 ) (41,653 ) Acquisition of interest in equity method investment (586 ) - Purchase of investments (89,702 ) (80,000 ) Maturities of investments 90,007   25,000   Net cash used in investing activities (57,962 ) (96,653 )   Financing activities Acquisition of treasury stock (22,484 ) (58,583 ) Proceeds from option exercises 457 5,459 Excess tax benefit on stock-based compensation 29,673 3,340 Payments on deemed landlord financing (58 ) (43 ) Net cash provided by (used in) financing activities 7,588   (49,827 )   Effect of exchange rate changes on cash and cash equivalents 621 - Net change in cash and cash equivalents 124,963 (17,524 ) Cash and cash equivalents at beginning of period 224,838   219,566   Cash and cash equivalents at end of period $349,801   202,042     Supplemental disclosures of cash flow information Increase/(decrease) in purchases of leasehold improvements,property,  and equipment accrued in accounts payable $180   $(345 )     Chipotle Mexican Grill, Inc.Supplemental Financial and Other Data(dollars in thousands)(unaudited)   For the three months ended June 30,     Mar. 31     Dec. 31,     Sept. 30,     Jun 30, 2011   2011201020102010 Number of restaurants opened 39 12 62 22 25 Restaurant relocations or closures (3 ) (1 ) (1 ) -- -- Number of restaurants at end of period 1,131 1,095 1,084 1,023 1,001 Average restaurant sales $1,927 $1,885 $1,840 $1,806 $1,763 Comparable restaurant sales increases 10.0 % 12.4 % 12.6 % 11.4 % 8.7 %   Chipotle Mexican Grill, Inc.Investor Relations:Alex Spong, 303-222-2552