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Press release from Business Wire

Chipotle Mexican Grill, Inc. Announces Third Quarter 2012 Results

Thursday, October 18, 2012

Chipotle Mexican Grill, Inc. Announces Third Quarter 2012 Results16:01 EDT Thursday, October 18, 2012 DENVER (Business Wire) -- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its third quarter ended September 30, 2012. Highlights for the third quarter of 2012 as compared to the third quarter of 2011 include: Revenue increased 18.4% to $700.5 million Comparable restaurant sales increased 4.8% Opened 36 new restaurants Restaurant level operating margin was 27.4%, an increase of 70 basis points Net income was $72.3 million, an increase of 19.6% Diluted earnings per share was $2.27, an increase of 19.5% Highlights for the nine months ended September 30, 2012 as compared to the prior year include: Revenue increased 21.5% to $2.03 billion Comparable restaurant sales increased 8.3% Opened 123 new restaurants Restaurant level operating margin was 28.0%, an increase of 210 basis points Net income was $216.6 million, an increase of 37.6% Diluted earnings per share was $6.80, an increase of 37.1% ”We have always believed that good food should be affordable and accessible to everyone. 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 farmers and that is freshly prepared using classical cooking techniques is resonating with our customers. This is helping us realize our vision of changing the way people think about and eat fast food,” said Steve Ells, Founder, Chairman and Co-CEO of Chipotle. Third quarter 2012 results Underlying sales transaction trends have remained stable over the past two quarters despite an uncertain economy and competitive environment. Revenue for the quarter was $700.5 million, up 18.4% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 4.8% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by the impact of increased traffic and to a lesser extent by menu price increases taken in the Pacific Region in 2012. Transaction trends were about the same as the second quarter, but comparable restaurant sales increases were impacted by the loss of 330 basis points from price increases that rolled off during the quarter. During the quarter we opened 36 new restaurants, including two restaurants in London, England, bringing the total restaurant count to 1,350. Restaurant level operating margin was 27.4% in the quarter, an increase of 70 basis points from the prior year period. The increase was primarily driven by leverage from higher average restaurant sales. G&A costs were 6.9% of revenue, up 60 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, higher stock based compensation expense, and about $1 million in bad debt expense related to general contractor insolvencies, partially offset by the positive impact of comparable restaurant sales growth. The prior year quarter also benefited from a gain recognized from our deferred compensation plan. Net income for the third quarter of 2012 was $72.3 million, or $2.27 per diluted share, compared to $60.4 million, or $1.90 per diluted share, in the third quarter of 2011. Results for the nine months ended September 30, 2012 Revenue for the first nine months of 2012 was $2.03 billion, up 21.5% 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 as well as the impact from menu price increases, most of which were taken in 2011. During the first nine months of the year, we opened 123 new Chipotle restaurants, bringing the total restaurant count to 1,350. Restaurant level operating margin was 28.0% for the first nine months, an increase of 210 basis points from the prior year period. The increase was primarily driven by the impact of leverage from higher restaurant sales. G&A costs for the first nine months of 2012 were 6.9% of revenue, or 20 basis points higher than 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 2012 was $216.6 million, or $6.80 per diluted share, compared to $157.5 million, or $4.96 per diluted share, in the first nine months of 2011. Our Board of Directors has also approved the investment of up to an additional $100 million to repurchase shares of our common stock exclusive of commissions. This repurchase authorization, in addition to $34.7 million available as of September 30, 2012 for repurchases under previously-announced repurchase authorizations, may be modified, suspended, or discontinued at any time. "Our strong people culture continues to drive our success in both attracting loyal customers and in delivering exceptional results. Our restaurant teams are ambitious and passionate about developing teams of top performers who have high standards and are dedicated to delivering the best dining experience possible to our guests,” commented Co-CEO Monty Moran. Outlook For 2012, management expects the following: New restaurant openings at, or above, the previously announced range of 155-165 Mid-single digit comparable restaurant sales growth for the full year An effective tax rate of approximately 39.0% For 2013, management expects the following: 165-180 new restaurant openings Flat to low-single digit comparable restaurant sales Approximately the same effective tax rate as 2012 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 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 the third quarter 2012 financial results today at 4:30 PM Eastern Time. The conference call can be accessed live over the phone by dialing 1-877-741-4241 or for international callers by dialing 1-719-325-4933. 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 8693134. The replay will be available until October 25, 2012. 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 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. A similarly focused people culture, with an emphasis on identifying and empowering top performing employees, enables us to develop future leaders from within. Chipotle opened its first restaurant in 1993 and currently operates over 1,350 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 rates in 2012 and 2013, 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; the effects of continuing economic uncertainty on our business and on our suppliers, landlords and potential developers; the impact of increasing general and administrative expenses due to higher non-cash stock-based compensation expense and other increased expenses; 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 the Investor Relations page of our Web site at chipotle.com.   Chipotle Mexican Grill, Inc.Condensed Consolidated Statement of Income and Comprehensive Income(in thousands, except per share data)(unaudited)       Three months ended September 30, 2012       2011     Revenue $ 700,528       100.0 % $ 591,854       100.0 %   Restaurant operating costs(Exclusive of depreciation and amortization shown separately below): Food, beverage and packaging 228,566 32.6 195,793 33.1 Labor 162,655 23.2 138,046 23.3 Occupancy 43,777 6.2 37,117 6.3 Other operating costs 73,728 10.5 63,167 10.7 General and administrative expenses 48,606 6.9 37,254 6.3 Depreciation and amortization 21,362 3.0 18,741 3.2 Pre-opening costs 2,772 0.4 2,448 0.4 Loss on disposal of assets   1,399   0.2     1,278   0.2   Total operating expenses   582,865   83.2     493,844   83.4   Income from operations 117,663 16.8 98,010 16.6   Interest and other income, net   547   0.1     448   0.1   Income before income taxes 118,210 16.9 98,458 16.6 Provision for income taxes   (45,910 ) (6.6 )   (38,025 ) (6.4 ) Net income $ 72,300   10.3 % $ 60,433   10.2 %   Earnings per share: Basic $ 2.28   $ 1.93   Diluted $ 2.27   $ 1.90   Weighted average common shares outstanding: Basic   31,643     31,331   Diluted   31,846     31,832     Comprehensive income $ 73,260   $ 59,792         Chipotle Mexican Grill, Inc.Condensed Consolidated Statement of Income and Comprehensive Income (in thousands, except per share data)(unaudited)     Nine months ended September 30, 2012       2011     Revenue $ 2,032,063     100.0 % $ 1,672,799     100.0 %   Restaurant operating costs(Exclusive of depreciation and amortization shown separately below): Food, beverage and packaging 656,673 32.3 546,822 32.7 Labor 474,535 23.4 401,039 24.0 Occupancy 126,044 6.2 108,627 6.5 Other operating costs 206,260 10.2 182,773 10.9 General and administrative expenses 140,235 6.9 111,438 6.7 Depreciation and amortization 61,989 3.1 55,740 3.3 Pre-opening costs 8,526 0.4 5,350 0.3 Loss on disposal of assets   4,124 0.2     4,316 0.3   Total operating expenses   1,678,386 82.6     1,416,105 84.7   Income from operations 353,677 17.4 256,694 15.3   Interest and other income (expense), net   1,358 0.1     (1,271 ) (0.1 ) Income before income taxes 355,035 17.5 255,423 15.3 Provision for income taxes   (138,388 ) (6.8 )   (97,951 ) (5.9 ) Net income $ 216,647 10.7 % $ 157,472 9.4 %   Earnings per share: Basic $ 6.86 $ 5.05 Diluted $ 6.80 $ 4.96 Weighted average common shares outstanding: Basic   31,583   31,195 Diluted   31,881   31,772   Comprehensive income $ 217,232 $ 157,556           Chipotle Mexican Grill, Inc.Condensed Consolidated Balance Sheet(in thousands, except per share data)   September 30,2012 December 31,2011   Assets (unaudited) Current assets: Cash and cash equivalents $ 421,149 $ 401,243 Accounts receivable, net of allowance for doubtful accounts of $1,062 and $208 as of September 30, 2012 and December 31, 2011, respectively 14,566 8,389 Inventory 9,964 8,913 Current deferred tax asset 7,394 6,238 Prepaid expenses and other current assets 24,666 21,404 Income tax receivable 26,198 -- Investments   152,742     55,005   Total current assets 656,679 501,192 Leasehold improvements, property and equipment, net 835,654 751,951 Long term investments 159,011 128,241 Other assets 32,922 21,985 Goodwill   21,939     21,939   Total assets $ 1,706,205   $ 1,425,308   Liabilities and shareholders' equity Current liabilities: Accounts payable $ 65,094 $ 46,382 Accrued payroll and benefits 50,068 60,241 Accrued liabilities 44,031 46,456 Current portion of deemed landlord financing 140 133 Income tax payable   --     4,241   Total current liabilities 159,333 157,453 Deferred rent 160,132 143,284 Deemed landlord financing 3,423 3,529 Deferred income tax liability 59,742 64,381 Other liabilities   15,959     12,435   Total liabilities   398,589     381,082   Shareholders' equity: Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of September 30, 2012 and December 31, 2011 — — Common stock, $0.01 par value, 230,000 shares authorized, 34,905 and 34,357 shares issued as of September 30, 2012 and December 31, 2011, respectively 349 344 Additional paid-in capital 805,366 676,652 Treasury stock, at cost, 3,345 and 3,105 common shares at September 30, 2012 and December 31, 2011, respectively (386,987 ) (304,426 ) Accumulated other comprehensive income 782 197 Retained earnings   888,106     671,459   Total shareholders' equity   1,307,616     1,044,226   Total liabilities and shareholders' equity $ 1,706,205   $ 1,425,308         Chipotle Mexican Grill, Inc.Condensed Consolidated Statement of Cash Flows(unaudited)(in thousands)   Nine months ended September 30, 2012     2011   Operating activities Net income $ 216,647 $ 157,472 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 61,989 55,740 Deferred income tax provision (benefit) (5,792 ) 11,470 Loss on disposal of assets 4,124 4,316 Bad debt allowance 906 29 Stock-based compensation expense 52,252 32,621 Excess tax benefit on stock-based compensation (74,576 ) (38,483 )   Other 367 2,476 Changes in operating assets and liabilities: Accounts receivable (7,059 ) (136 ) Inventory (1,047 ) (1,670 ) Prepaid expenses and other current assets (3,243 ) (6,669 ) Other assets (10,867 ) 9 Accounts payable 8,368 6,738 Accrued liabilities (12,626 ) (12,893 ) Income tax payable/receivable 44,137 64,966 Deferred rent 16,834 12,940 Other long-term liabilities   3,523     1,943   Net cash provided by operating activities   293,937     290,869     Investing activities Purchases of leasehold improvements, property and equipment (137,505 ) (92,867 ) Acquisition of interests in equity method investment - (586 ) Purchases of investments (128,870 ) (99,702 ) Maturities of investments   -     90,007   Net cash used in investing activities   (266,375 )   (103,148 )   Financing activities Acquisition of treasury stock (82,561 ) (41,810 ) Proceeds from employee stock plans 249 535 Excess tax benefit on stock-based compensation 74,576 38,483 Payments on deemed landlord financing   (99 )   (89 ) Net cash used in financing activities   (7,835 )   (2,881 )   Effect of exchange rate changes on cash andcash equivalents   179 197 Net change in cash and cash equivalents 19,906 185,037 Cash and cash equivalents at beginning of period   401,243     224,838   Cash and cash equivalents at end of period $ 421,149     409,875     Supplemental disclosures of cash flow information Increase in purchases of leasehold improvements, property, and equipment accrued in accounts payable $ 10,331   $ 8,569         Chipotle Mexican Grill, Inc.Supplemental Financial and Other Data(dollars in thousands)(unaudited)     For the three months ended Sep. 30,     Jun. 30,     Mar. 31,     Dec. 31,     Sep. 30, 20122012201220112011 Number of restaurants opened 36 55 32 67 32 Restaurant relocations or closures (2) (1) -- -- -- Number of restaurants at end of period 1,350 1,316 1,262 1,230 1,163 Average restaurant sales $2,119 $2,106 $2,072 $2,013 $1,973 Comparable restaurant sales increases 4.8% 8.0% 12.7% 11.1% 11.3% Chipotle Mexican Grill, Inc.Investor Relations:Alex Spong, 303-222-2552