Chipotle Second Quarter Diluted EPS

DENVER–(hospitalitybusinessnews.com)–Chipotle Mexican Grill, Inc. 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.

 

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 %)
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