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Press release from Business Wire

Chipotle Mexican Grill, Inc. Announces Second Quarter 2013 Results

Thursday, July 18, 2013

Chipotle Mexican Grill, Inc. Announces Second Quarter 2013 Results

16:04 EDT Thursday, July 18, 2013

DENVER (Business Wire) -- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its second quarter ended June 30, 2013.

Highlights for the second quarter of 2013 as compared to the second quarter of 2012 include:

  • Revenue increased 18.2% to $816.8 million
  • Comparable restaurant sales increased 5.5%
  • Restaurant level operating margin was 27.6%, a decrease of 160 basis points
  • Net income was $87.9 million, an increase of 7.6%
  • Diluted earnings per share was $2.82, an increase of 10.2%
  • Opened 44 new restaurants

Highlights for the six months ended June 30, 2013 as compared to the prior year include:

  • Revenue increased 15.9% to $1.54 billion
  • Comparable restaurant sales increased 3.4%
  • Restaurant level operating margin was 27.0%, a decrease of 130 basis points
  • Net income was $164.4 million, an increase of 13.9%
  • Diluted earnings per share was $5.27, an increase of 16.3%
  • Opened 92 new restaurants

“This month marks Chipotle's 20th anniversary. What started out as one restaurant serving burritos and tacos, has evolved into a national brand which is changing the way people think about and eat fast food. Our vision has connected with our loyal customers, who visit Chipotle to enjoy great tasting food made from premium ingredients. It's rewarding to look back and see what we've accomplished, but it's even more inspiring to think about what lies ahead over the next twenty years.” said Steve Ells, Founder, Chairman and co-CEO of Chipotle.

Second quarter 2013 results

Revenue for the quarter was $816.8 million, up 18.2% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 5.5% increase in comparable restaurant sales. Comparable restaurant sales growth was driven by increased traffic and from the benefit of one additional trading day in the quarter as compared to the second quarter of 2012.

During the quarter we opened 44 new restaurants, bringing the total restaurant count to 1,502.

Food costs were 33.1% of revenue, an increase of 100 basis points driven by higher commodity costs. Higher commodity costs were driven by increased prices for all of our salsa ingredients, as well as for dairy items and chicken. These increases were partially offset by lower avocado prices.

Restaurant level operating margin was 27.6% in the quarter, a decrease of 160 basis points from the prior year period. The decrease was primarily driven by higher food and marketing costs.

General and administrative expenses were 6.2% of revenue, an increase of 10 basis points due to higher legal and payroll costs partially offset by favorable sales leverage.

Net income for the first quarter of 2013 was $87.9 million, or $2.82 per diluted share, compared to $81.7 million, or $2.56 per diluted share, in the second quarter of 2012. Income taxes were negatively impacted by non-recurring tax adjustments that reduced earnings by $0.03 per share.

Results for the six months ended June 30, 2013

Revenue for the first six months of 2013 was $1.54 billion, up 15.9% from the prior year period. The growth in revenue was the result of new restaurants not in the comparable base and a 3.4% increase in comparable restaurant sales. Comparable restaurant sales growth was primarily driven by increased traffic.

During the first six months of the year, we opened 92 new restaurants, bringing the total restaurant count to 1,502.

Restaurant level operating margin was 27.0% for the first six months, a decrease of 130 basis points from the prior year period. The decrease was primarily from higher food costs and higher marketing costs.

General and administrative expense for the first six months of 2013 was 6.2% of revenue, or a decrease of 70 basis points from the prior year period. The decrease was from lower stock based compensation expense and lower employee related payroll taxes.

Net income for the first six months of 2013 was $164.4 million, or $5.27 per diluted share, compared to $144.3 million, or $4.53 per diluted share, in the first six months of 2012.

“We are delighted with our strong financial performance during the second quarter. We know that empowered cultures create excellent teams, who deliver a special dining experience for each customer who visits Chipotle. They attract great employees and develop them to be the very best leaders from within the organization, which not only supports our great operations, but also makes our strong performance sustainable as we add more restaurants,” said Monty Moran, co-CEO

Outlook

For 2013, management expects the following:

  • 165 – 180 new restaurant openings
  • Low to mid single digit comparable restaurant sales
  • An effective full year tax rate of approximately 38.9% (39.4% for the remainder of 2013).

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 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 the second quarter 2013 financial results on Thursday, July 18, 2013 at 4:30 PM Eastern time.

The conference call can be accessed live over the phone by dialing 1-888-337-8192 or for international callers by dialing 1-719-325-2284. 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 6035922. The replay will be available until July 25, 2013. 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-CEO, 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 from using ingredients that are not only fresh, but that—where possible—are sustainably grown responsibly 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 with a single restaurant in 1993 and currently operates more than 1,500 restaurants. For more information, visit Chipotle.com.

Forward-Looking Statements

Certain statements in this press release, including statements under the heading “Outlook” of our expected number of new restaurant openings, comparable restaurant sales trends, potential menu price increases, and effective tax rates in 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: the uncertainty of our ability to achieve expected levels of comparable restaurant sales increases due to factors such as decreased consumer spending and economic uncertainty, our possible inability to increase menu prices or realize the benefits of menu price increases, or the impact of competition; 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; increases in the cost of food ingredients and other key supplies; the potential for increased labor costs or difficulty retaining qualified employees, including as a result of immigration enforcement activities; the risk of food-borne illnesses and other health concerns about our food; risks relating to our expansion into new markets; the impact of federal, state or local government regulations relating to our employees, our restaurant design, or the sale of food or alcoholic beverages; risks associated with our Food With Integrity strategy, including supply shortages and potential liabilities related to advertising claims and other marketing activities related to Food With Integrity; 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; risks relating to litigation; risks relating to our insurance coverage and self-insurance; our dependence on key personnel; risks related to our marketing and advertising strategies; security risks associated with the acceptance of electronic payment cards or electronic storage of confidential customer or employee information; 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 and Comprehensive Income

(in thousands, except per share data)

(unaudited)

 
Three months ended June 30
2013 2012
Revenue $ 816,786   100.0   % $ 690,932   100.0   %
Restaurant operating costs
(Exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging 270,510 33.1 221,517 32.1
Labor 185,804 22.7 159,895 23.1
Occupancy 48,564 5.9 41,758 6.0
Other operating costs 86,296 10.6 66,353 9.6
General and administrative expenses 50,952 6.2 42,295 6.1
Depreciation and amortization 23,597 2.9 20,543 3.0
Pre-opening costs 3,246 0.4 3,306 0.5
Loss on disposal of assets 1,399   0.2   1,475   0.2  
Total operating expenses 670,368   82.1   557,142   80.6  
Income from operations 146,418 17.9 133,790 19.4
Interest and other income, net 330   0.0   377   0.1  
Income before income taxes 146,748 18.0 134,167 19.4
Provision for income taxes (58,895 ) (7.2 )   (52,484 ) (7.6 )  
Net income $ 87,853   10.8   % $ 81,683   11.8   %
 
Earnings per share:
Basic $ 2.84   $ 2.58  
Diluted $ 2.82   $ 2.56  
Weighted average common shares outstanding:
Basic 30,901   31,696  
Diluted 31,176   31,951  
Comprehensive income $ 87,820   $ 80,625  
 
               

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Income and Comprehensive Income

(in thousands, except per share data)

(unaudited)

 
Six months ended June 30
2013 2012
Revenue $ 1,543,537   100.0   % $ 1,331,535   100.0   %
Restaurant operating costs
(Exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging 510,099 33.0 428,107 32.2
Labor 357,273 23.1 311,880 23.4
Occupancy 96,184 6.2 82,267 6.2
Other operating costs 162,952 10.6 132,532 10.0
General and administrative expenses 95,163 6.2 91,629 6.9
Depreciation and amortization 46,533 3.0 40,627 3.1
Pre-opening costs 6,132 0.4 5,754 0.4
Loss on disposal of assets 2,739   0.2   2,725   0.2  
Total operating expenses 1,277,075   82.7   1,095,521   82.3  
Income from operations 266,462 17.3 236,014 17.7
Interest and other income, net 596   0.0   811   0.1  
Income before income taxes 267,058 17.3 236,825 17.8
Provision for income taxes (102,621 ) (6.6 )   (92,478 ) (6.9 )  
Net income $ 164,437   10.7   % $ 144,347   10.8   %
 
Earnings per share:
Basic $ 5.31   $ 4.57  
Diluted $ 5.27   $ 4.53  
Weighted average common shares outstanding:
Basic 30,956   31,553  
Diluted 31,202   31,899  
Comprehensive income $ 163,300   $ 143,972  
 
       

Chipotle Mexican Grill, Inc.

Condensed Consolidated Balance Sheet

(in thousands, except per share data)

 
June 30 December 31
2013 2012
(unaudited)
 
Assets
Current assets:
Cash and cash equivalents $ 281,632 $ 322,553
Accounts receivable, net of allowance for doubtful accounts of $1,215 and $1,187 as of 14,961 16,800
June 30, 2013 and December 31, 2012, respectively
Inventory 11,270 11,096
Current deferred tax asset 10,045 8,862
Prepaid expenses and other current assets 34,938 27,378
Income tax receivable - 9,612
Investments 202,164   150,306  
Total current assets 555,010 546,607
Leasehold improvements, property and equipment, net 895,819 866,703
Long term investments 290,284 190,868
Other assets 45,879 42,550
Goodwill 21,939   21,939  
Total assets $ 1,808,931   $ 1,668,667  
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 63,305 $ 58,700
Accrued payroll and benefits 69,564 71,731
Accrued liabilities 46,013 56,421
Income tax payable 3,825   -  
Total current liabilities 182,707 186,852
Deferred rent 178,809 167,057
Deferred income tax liability 57,464 48,947
Other liabilities 22,508   19,885  
Total liabilities 441,488   422,741  
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of
June 30, 2013 and December 31, 2012, respectively - -
Common stock $0.01 par value, 230,000 shares authorized, and 34,966 and 34,912
shares issued as of June 30, 2013 and December 31, 2012, respectively 350 349
Additional paid-in capital 855,893 816,612
Treasury stock, at cost, 4,090 and 3,819 common shares at June 30, 2013 and
December 31, 2012, respectively (602,583 ) (521,518 )
Accumulated other comprehensive income (loss) (113 ) 1,024
Retained earnings 1,113,896   949,459  
Total shareholders' equity 1,367,443   1,245,926  
Total liabilities and shareholders' equity $ 1,808,931   $ 1,668,667  
 
       

Chipotle Mexican Grill, Inc.

Condensed Consolidated Statement of Cash Flows

(in thousands)

 
Six months ended June 30
2013 2012
Operating activities
Net income $ 164,437 $ 144,347
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 46,533 40,627
Deferred income tax provision (benefit) 7,301 (1,659 )
Loss on disposal of assets 2,739 2,725
Bad debt allowance 39 185
Stock-based compensation expense 34,333 37,677
Excess tax benefit on stock-based compensation (4,251 ) (73,652 )
Other 262 207
Changes in operating assets and liabilities:
Accounts receivable 1,795 (2,147 )
Inventory (181 ) (1,593 )
Prepaid expenses and other current assets (7,596 ) (6,893 )
Other assets (3,365 ) (10,213 )
Accounts payable 6,078 4,899
Accrued liabilities (12,551 ) (12,705 )
Income tax payable/receivable 17,688 34,964
Deferred rent 11,794 11,446
Other long-term liabilities 2,698   2,660  
Net cash provided by operating activities 267,753   170,875  
Investing activities
Purchases of leasehold improvements, property and equipment (80,130 ) (90,332 )
Purchases of investments (230,397 ) (110,870 )
Maturities of investments 78,750   -  
Net cash used in investing activities (231,777 ) (201,202 )
Financing activities
Acquisition of treasury stock (81,065 ) (39,597 )
Proceeds from employee stock plan transactions 261 167
Excess tax benefit on stock-based compensation 4,251 73,652
Other financing payments (70 ) (65 )
Net cash provided by (used in) financing activities (76,623 ) 34,157  
Effect of exchange rate changes on cash and cash equivalents (274 ) (276 )
Net change in cash and cash equivalents (40,921 ) 3,554
Cash and cash equivalents at beginning of period 322,553   401,243  
Cash and cash equivalents at end of period $ 281,632   $ 404,797  
Supplemental disclosures of cash flow information
Increase (decrease) in purchases of leasehold improvements, property and equipment accrued
in accounts payable $ (1,432 ) $ 4,687  
 
                   

Chipotle Mexican Grill, Inc.

Supplemental Financial and Other Data

(dollars in thousands)

 
For the three months ended
Jun. 30, Mar. 31,

Dec. 31,

Sep. 30, Jun. 30,
2013 2013 2012 2012 2012
Number of restaurants opened 44 48 60 36 55
Restaurant relocations - - - (2 ) (1 )
Number of restaurants at end of period 1,502 1,458 1,410 1,350 1,316
Average restaurant sales $ 2,119 $ 2,105 $ 2,113 $ 2,119 $ 2,106
Comparable restaurant sales increases 5.5 % 1.0 % 3.8 % 4.8 % 8.0 %

Chipotle Mexican Grill, Inc.
Investor Relations:
Alex Spong, 303-222-2552

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