Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported
financial results for its second quarter ended June 30, 2017.
Overview for the three months ended June 30, 2017 as compared
to the three months ended June 30, 2016:
- Revenue increased 17.1% to $1.17
billion
- Comparable restaurant sales increased
8.1%
- Restaurant level operating margin
increased to 18.8% from 15.5%
- Net income was $66.7 million, an
increase from $25.6 million
- Diluted earnings per share was $2.32,
an increase from $0.87
- Opened 50 new restaurants, and closed
two restaurants
Overview for the six months ended June 30, 2017 as compared
to the six months ended June 30, 2016:
- Revenue increased 22.1% to $2.24
billion
- Comparable restaurant sales increased
12.5%
- Restaurant level operating margin was
18.3%, an increase from 11.6%
- Net income was $112.9 million, an
increase from a net loss of $0.8 million
- Diluted earnings per share was $3.92,
an increase from diluted loss per share of $0.03
- Opened 107 new restaurants and closed
or relocated 18 restaurants, including the closure of 15 ShopHouse
locations
“We saw encouraging signs in our improved financial results
during the first half of the year. Recent events, however, have
shown that we still have a lot of opportunity to improve our
operations and deliver the outstanding experience that our
customers expect,” said Steve Ells, Founder, Chairman and CEO of
Chipotle. “We will continue to strengthen our teams, enhance our
technology, and expand our menu offerings in order to delight every
customer who visits us.”
Second quarter 2017 results
Revenue for the quarter was $1.17 billion, up 17.1% from the
second quarter of 2016. The increase in revenue was driven by new
restaurant openings and an 8.1% increase in comparable restaurant
sales. Comparable restaurant sales improved primarily due to an
increase in customer visits, along with an increase in average
check as a result of a reduction in promotional activity. We opened
50 new restaurants during the quarter, and closed two restaurants,
bringing the total restaurant count to 2,339.
Food costs were 34.1% of revenue, a decrease of 10 basis points
as compared to the second quarter of 2016. Higher avocado costs
were offset by lower costs from bringing the preparation of lettuce
and bell peppers back into our restaurants, as well as the benefit
of menu price increases in select restaurants in the second quarter
of 2017, and a decrease in paper usage and costs.
Restaurant level operating margin was 18.8% in the quarter, an
improvement from 15.5% in the second quarter of 2016. The increase
was driven primarily by sales leverage along with more efficient
scheduling and deployment of our managers and crew. Marketing and
promotional expenses were 3.7% of sales, or 70 basis points lower
than the second quarter of 2016, due primarily to lower promotional
costs and sales leverage.
General and administrative expenses were 6.0% of revenue for the
second quarter of 2017, a decrease of 110 basis points over the
second quarter of 2016 primarily due to sales leverage. In dollar
terms, general and administrative expenses decreased $0.7 million
compared to the second quarter of 2016 due to lower legal expenses,
partially offset by increased bonus expenses and non-cash stock
based compensation expense.
Net income for the second quarter of 2017 increased 161% to
$66.7 million, or $2.32 per diluted share, compared to net income
of $25.6 million, or $0.87 per diluted share, in the second quarter
of 2016.
Results for the six months ended June 30, 2017
Revenue for the first six months of 2017 was $2.24 billion, up
22.1% from the first six months of 2016. The increase in revenue
was driven by a 12.5% increase in comparable restaurant sales and
to a lesser extent by new restaurant openings. Comparable
restaurant sales improved primarily due to an increase in customer
visits, along with an increase in average check as a result of a
reduction in promotional activity.
We opened 107 new restaurants during the first six months of
2017, and closed or relocated 18 restaurants, including the closure
of 15 ShopHouse restaurants, bringing the total restaurant count to
2,339.
Food costs were 34.0% of revenue, a decrease of 70 basis points
as compared to the first six months of 2016. The decrease was
driven by cost savings from bringing the preparation of lettuce and
bell peppers back to our restaurants, and lower food waste and
testing costs. These combined cost savings were partially offset by
higher avocado prices.
Restaurant level operating margin was 18.3% for the six months
ended June 30, 2017, an improvement from 11.6% in the first six
months of 2016. The increase was driven by sales leverage, labor
efficiencies, and a decrease in promotional expenses. Marketing and
promotional expenses were 3.5% of revenue during the first six
months of 2017 compared to 5.4% of revenue during the first six
months of 2016.
General and administrative expenses were 6.2% of revenue for the
first six months of 2017, a decrease of 100 basis points compared
to the first six months of 2016, primarily due to sales leverage.
In dollar terms, general and administrative costs increased $6.8
million compared to the first six months of 2016 due to increased
non-cash stock based compensation expense and bonus expense,
partially offset by lower legal costs, and lower meeting costs due
to an all-team employee meeting held in February 2016. Stock
compensation expense was higher during the first six months of 2017
because the first six months of 2016 included a reduction in
expense for performance share awards that were no longer expected
to vest against performance criteria.
Net income for the first six months of 2017 was $112.9 million,
or $3.92 per diluted share, compared to net loss of $0.8 million,
or $0.03 per diluted share, for the six months ended June 30,
2016.
Update on Data Security Investigation
Chipotle also reported today the completion of a forensic
investigation into the previously-disclosed payment card security
incident involving Chipotle restaurants. Based on the findings of
the investigation as of May 26, 2017, Chipotle posted a list of
restaurants apparently affected and specific time frames, along
with steps guests can take, at www.chipotle.com/security and
www.chipotle.ca/security. The time frames that were initially
listed varied by restaurant but began no earlier than March 24,
2017, and ended no later than April 18, 2017. Updated findings from
the completed investigation have confirmed the original time frames
listed for almost 99% of the restaurants, or found that some were
even shorter than what was originally reported. For 1.2% of the
affected restaurants, the time frames were slightly broadened from
what was initially listed, although still within the March 24,
2017, to April 18, 2017, time frame. Additionally, for one
restaurant, the time frame may include March 17, 2017, and two
additional restaurants have been added to the list of affected
restaurants in Canada.
To view the updated time frames by restaurant, guests can visit
www.Chipotle.com/security (U.S. locations) or
www.chipotle.ca/security (Canada locations).
Outlook
For 2017, management targets:
- Comparable restaurant sales increases
in the high single digits
- 195 – 210 new restaurant openings
- An estimated effective full year tax
rate of approximately 38.4%
Definitions
The following definitions apply to these terms as used
throughout this release:
Comparable restaurant sales, or sales comps, represent
the change in period-over-period sales for restaurants in operation
for at least 13 full calendar months.
Comparable restaurant transactions represent the change
in period-over-period transactions, including transactions with no
sales dollars due to promotional discounts, for restaurants in
operation for at least 13 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 its second
quarter 2017 financial results on Tuesday, July 25, 2017, at 4:30
PM Eastern time.
The conference call can be accessed live over the phone by
dialing 1-877-451-6152 or for international callers by dialing
1-201-389-0879. 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 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, and salads made from fresh,
high-quality raw ingredients, prepared using classic cooking
methods and served in an interactive style allowing people to get
exactly what they want. Chipotle seeks out extraordinary
ingredients that are not only fresh, but that are raised
responsibly, with respect for the animals, land, and people who
produce them. Chipotle prepares its food using real, whole
ingredients, and is the only national restaurant brand that
prepares its food using no added colors, flavors or other
industrial additives typically found in fast food. Chipotle opened
with a single restaurant in Denver in 1993 and now operates more
than 2,300 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 comparable restaurant
sales increases, number of new restaurant openings, and effective
tax rate for 2017, are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. We use words such
as “anticipate,” “believe,” “could,” “continue,” “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
due to factors such as changes in consumers’ perceptions of our
brand, including as a result of food-borne illness incidents,
the impact of competition, including from sources outside the
restaurant industry, decreased overall consumer spending, or our
possible inability to increase menu prices or realize the benefits
of menu price increases; the risk of food-borne illnesses and other
health concerns about our food or dining out generally; 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 or higher food costs due to
changes in supply chain protocols; the potential for increased
labor costs or difficulty retaining qualified employees, including
as a result of market pressures, enhanced food safety procedures in
our restaurants, or new regulatory requirements; risks related to
our marketing and advertising strategies, which may not be
successful and may expose us to liabilities; security risks
associated with the acceptance of electronic payment cards or
electronic storage and processing of confidential customer or
employee information; 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 philosophy, including supply shortages and
potential liabilities from advertising claims and other marketing
activities related to Food With Integrity; risks relating to
litigation, including possible governmental actions related to
food-borne illness incidents, as well as class action litigation
regarding employment laws, advertising claims or other matters;
risks relating to our insurance coverage and self-insurance; our
dependence on key personnel and uncertainties arising from recent
changes in our leadership; risks regarding our ability to protect
our brand and reputation; risks associated with our ability to
effectively manage our growth; 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 ir.chipotle.com.
Chipotle Mexican Grill, Inc. Condensed Consolidated
Statement of Operations and Comprehensive Income (in
thousands, except per share data) (unaudited)
Three months ended June 30, 2017
2016 Revenue $ 1,169,409
100.0
%
$ 998,383
100.0
%
Restaurant operating costs (exclusive of depreciation and
amortization shown separately below): Food, beverage and packaging
399,152 34.1 341,902 34.2 Labor 305,851 26.2 276,926 27.7 Occupancy
80,321 6.9 72,354 7.2 Other operating costs 163,685 14.0 152,156
15.2 General and administrative expenses 70,075 6.0 70,756 7.1
Depreciation and amortization 41,081 3.5 36,074 3.6 Pre-opening
costs 2,903 0.2 4,133 0.4 (Gain) loss on disposal and impairment of
assets (384 ) - 3,187 0.3 Total
operating expenses 1,062,684 90.9
957,488 95.9 Income from operations 106,725 9.1
40,895 4.1 Interest and other income, net 1,049 0.1
786 0.1 Income before income taxes
107,774 9.2 41,681 4.2 Provision for income taxes (41,044 )
(3.5 ) (16,085 ) (1.6 ) Net income $ 66,730
5.7
%
$ 25,596
2.6
%
Other comprehensive income (loss), net of income taxes Foreign
currency translation adjustments 2,136 (765 ) Unrealized gain
(loss) on investments, net of tax benefit (expense) of $37 and
($348) (58 ) 509 Other comprehensive income
(loss), net of income taxes 2,078 (256 )
Comprehensive income $ 68,808 $ 25,340 Earnings per
share: Basic $ 2.33 $ 0.88 Diluted $ 2.32 $
0.87 Weighted average common shares outstanding: Basic
28,649 29,207 Diluted 28,800
29,340
Chipotle Mexican
Grill, Inc. Condensed Consolidated Statement of Operations
and Comprehensive Income (in thousands, except per share
data) (unaudited) Six months
ended June 30, 2017 2016 Revenue $
2,238,238
100.0
%
$ 1,832,842
100.0
%
Restaurant operating costs (exclusive of depreciation and
amortization shown separately below): Food, beverage and packaging
760,947 34.0 636,068 34.7 Labor 593,702 26.5 534,607 29.2 Occupancy
159,283 7.1 142,946 7.8 Other operating costs 314,294 14.0 307,345
16.8 General and administrative expenses 139,516 6.2 132,766 7.2
Depreciation and amortization 80,360 3.6 70,862 3.9 Pre-opening
costs 6,972 0.3 8,554 0.5 Loss on disposal and impairment of assets
3,266 0.1 5,403 0.3 Total
operating expenses 2,058,340 92.0
1,838,551 100.3 Income (loss) from operations 179,898
8.0 (5,709 ) (0.3 ) Interest and other income, net 2,237
0.1 2,912 0.2 Income (loss)
before income taxes 182,135 8.1 (2,797 ) (0.2 ) Benefit (provision)
for income taxes (69,285 ) (3.1 ) 1,961 0.1
Net income (loss) $ 112,850
5.0
%
$ (836 )
(0.0
)%
Other comprehensive income, net of income taxes Foreign currency
translation adjustments 2,811 1,164 Unrealized gain (loss) on
investments, net of income taxes of $131 and ($1,531) (240 )
2,402 Other comprehensive income, net of income taxes
2,571 3,566 Comprehensive income $
115,421 $ 2,730 Earnings per share: Basic $ 3.93
$ (0.03 ) Diluted $ 3.92 $ (0.03 ) Weighted average
common shares outstanding: Basic 28,699 29,550
Diluted 28,825 29,550
Chipotle Mexican Grill, Inc. Condensed
Consolidated Balance Sheet (in thousands, except per share
data) June 30,
December 31, 2017 2016 (unaudited)
Assets Current assets: Cash and cash equivalents $ 175,137 $
87,880 Accounts receivable, net of allowance for doubtful accounts
of $39 and $259 as of June 30, 2017 and December 31, 2016,
respectively 24,940 40,451 Inventory 19,126 15,019 Prepaid expenses
and other current assets 50,296 44,080 Income tax receivable -
5,108 Investments 394,466 329,836 Total
current assets 663,965 522,374 Leasehold improvements, property and
equipment, net 1,328,280 1,303,558 Long term investments - 125,055
Other assets 54,367 53,177 Goodwill 21,939
21,939 Total assets $ 2,068,551 $ 2,026,103
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 80,976 $ 78,363 Accrued payroll and benefits
85,169 76,301 Accrued liabilities 98,311 127,129 Income tax payable
3,329 - Total current liabilities
267,785 281,793 Deferred rent 301,825 288,927 Deferred income tax
liability 12,866 18,944 Other liabilities 35,879
33,946 Total liabilities 618,355
623,610 Shareholders' equity: Preferred stock, $0.01 par
value, 600,000 shares authorized, no shares issued as of June 30,
2017 and December 31, 2016, respectively - - Common stock $0.01 par
value, 230,000 shares authorized, and 35,849 and 35,833 shares
issued as of June 30, 2017 and December 31, 2016, respectively 358
358 Additional paid-in capital 1,276,285 1,238,875 Treasury stock,
at cost, 7,264 and 7,019 common shares at June 30, 2017 and
December 31, 2016, respectively (2,154,517 ) (2,049,389 )
Accumulated other comprehensive income (loss) (5,591 ) (8,162 )
Retained earnings 2,333,661 2,220,811
Total shareholders' equity 1,450,196 1,402,493
Total liabilities and shareholders' equity $ 2,068,551
$ 2,026,103
Chipotle Mexican Grill,
Inc. Condensed Consolidated Statement of Cash Flows
(unaudited) (in thousands)
Six months ended June 30, 2017
2016 Operating activities Net income (loss) $ 112,850
$ (836 ) Adjustments to reconcile net income (loss) to net cash
provided by operating activities: Depreciation and amortization
80,360 70,862 Deferred income tax (benefit) provision (5,939 )
3,789 Loss on disposal and impairment of assets 3,266 5,403 Bad
debt allowance 181 (120 ) Stock-based compensation expense 36,846
30,038 Excess tax benefit on stock-based compensation - (1,982 )
Other (107 ) (352 ) Changes in operating assets and liabilities:
Accounts receivable 15,372 15,201 Inventory (4,530 ) (1,921 )
Prepaid expenses and other current assets (6,143 ) (12,267 ) Other
assets (984 ) 1,832 Accounts payable 8,271 (13,675 ) Accrued
liabilities (21,856 ) 31,973 Income tax payable/receivable 8,480
34,919 Deferred rent 15,463 16,944 Other long-term liabilities
2,052 (143 ) Net cash provided by operating
activities 243,582 179,665
Investing
activities Purchases of leasehold improvements, property and
equipment (113,715 ) (126,712 ) Purchases of investments (19,922 )
- Maturities of investments 80,000 45,000 Proceeds from sale of
investments - 540,648 Net cash provided
by (used in) investing activities (53,637 ) 458,936
Financing activities Acquisition of treasury stock
(103,827 ) (700,036 ) Excess tax benefit on stock-based
compensation - 1,982 Stock plan transactions and other financing
activities 9 12 Net cash used in
financing activities (103,818 ) (698,042 ) Effect of
exchange rate changes on cash and cash equivalents 1,130 1,396 Net
change in cash and cash equivalents 87,257 (58,045 ) Cash and cash
equivalents at beginning of period 87,880
248,005 Cash and cash equivalents at end of period $ 175,137
$ 189,960
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, 2017 2017 2016 2016
2016 Number of restaurants opened 50 57 72 55 58 Restaurant
relocations/closures (2 ) (16 ) - (1 ) - Number of restaurants at
end of period 2,339 2,291 2,250 2,178 2,124 Average restaurant
sales $ 1,957 $ 1,931 $ 1,868 $ 1,914 $ 2,067 Comparable restaurant
sales increase (decrease) 8.1 % 17.8 % (4.8 %) (21.9 %) (23.6 %)
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170725006381/en/
Chipotle Mexican Grill, Inc.Mark Alexee,
303-605-1042malexee@chipotle.com
Chipotle Mexican Grill (NYSE:CMG)
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