Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported
financial results for its second quarter ended June 30, 2016.
Overview for the three months ended June 30, 2016 as compared
to the three months ended June 30, 2015:
- Revenue decreased 16.6% to $998.4
million
- Comparable restaurant sales decreased
23.6%
- Comparable restaurant transactions
decreased 19.3%
- Restaurant level operating margin was
15.5%, a decrease from 28.0%
- Net income was $25.6 million, a
decrease from $140.2 million
- Diluted earnings per share was $0.87, a
decrease from $4.45
- Opened 58 new restaurants
Overview for the six months ended June 30, 2016 as compared
to the six months ended June 30, 2015:
- Revenue decreased 19.9% to $1.83
billion
- Comparable restaurant sales decreased
26.5%
- Comparable restaurant transactions
decreased 20.2%
- Restaurant level operating margin was
11.6%, a decrease from 27.7%
- Net loss was $0.8 million, a decrease
from net income of $262.8 million
- Diluted loss per share was $0.03, a
decrease from diluted earnings per share of $8.34
- Opened 114 new restaurants, net of two
relocations
“We returned to profitability, and saw a modest improvement in
comp sales trends in the second quarter. Our most recent marketing
efforts, led by our Chiptopia frequency program, are off to a nice
start in the third quarter, as customers are embracing the program
and nearly 30% of all transactions are engaged in Chiptopia. Our
entire company is focused on restoring customer trust and
re-establishing customer frequency, and rewarding our most loyal
customers for visiting more often through Chiptopia is one way to
do just that. While it has only been a few weeks since Chiptopia
launched, we are pleased to see that July sales comp trends have
already improved by 200 to 300 basis points, and transaction comp
trends have improved by an even greater amount,” said Steve Ells,
founder, chairman and co-CEO of Chipotle.
Second quarter 2016 results
Revenue for the quarter was $998.4 million, down 16.6% from the
second quarter of 2015. The decrease in revenue was driven by a
23.6% decrease in comparable restaurant sales, partially offset by
sales from new restaurant openings. Comparable restaurant sales
declined primarily as a result of a decrease in the number of
transactions in our restaurants, and to a lesser extent from a
decline in average check.
We opened 58 new restaurants during the quarter, bringing the
total restaurant count to 2,124.
Food costs were 34.2% of revenue, an increase of 110 basis
points as compared to the second quarter of 2015. The increase was
driven by increased costs at our suppliers related to new food
safety procedures and food waste costs. Increases in food costs
were partially offset by the benefit of menu price increases
implemented in select restaurants in the second half of 2015.
Restaurant level operating margin was 15.5% in the quarter, a
decrease from 28.0% in the second quarter of 2015. The decrease was
primarily driven by unfavorable sales leverage, and to a lesser
extent by higher marketing and promotional costs.
General and administrative expenses were 7.1% of revenue for the
second quarter of 2016, an increase of 120 basis points over the
second quarter of 2015 as a result of sales deleverage. In dollar
terms, general and administrative expenses were flat compared to
the second quarter of 2015, as increased wages as we grew and
higher legal expenses, were offset by lower non-cash stock based
compensation expense and related employee taxes.
Net income for the second quarter of 2016 was $25.6 million, or
$0.87 per diluted share, compared to net income of $140.2 million,
or $4.45 per diluted share, in the second quarter of 2015.
Results for the six months ended June 30, 2016
Revenue for the first six months of 2016 was $1.83 billion, down
19.9% from the first six months of 2015. The decrease in revenue
was driven by a 26.5% decrease in comparable restaurant sales,
partially offset by sales from new restaurant openings. Comparable
restaurant sales declined primarily as a result of a decrease in
the number of transactions in our restaurants, and to a lesser
extent from a decline in average check.
We opened 114 new restaurants during the first six months of
2016, net of two relocations, bringing the total restaurant count
to 2,124.
Food costs were 34.7% of revenue, an increase of 120 basis
points as compared to the first six months of 2015. The increase
was driven by increased costs at our suppliers related to new food
safety procedures and food waste costs. Increases in food costs
were partially offset by the benefit of small and targeted menu
price increases implemented in the second half of 2015, and relief
in beef prices.
Restaurant level operating margin was 11.6% in the first half of
2016, a decrease from 27.7% in the first six months of 2015. The
decrease was primarily driven by unfavorable sales leverage, and to
a lesser extent by higher marketing and promotional costs.
General and administrative expenses were 7.2% of revenue for the
first six months of 2016, an increase of 140 basis points over the
first six months of 2015 as a result of sales deleverage. In dollar
terms, general and administrative costs were lower than last year,
due to lower non-cash stock based compensation expense and related
employee taxes, offset by increased wages as we grew and higher
legal expense.
Net loss for the first six months of 2016 was $0.8 million, or
$0.03 loss per diluted share, compared to net income of $262.8
million, or $8.34 per diluted share, for the six months ended June
30, 2015.
“The best thing that we can do for our business is to earn
customers’ trust and loyalty by consistently providing a terrific
restaurant experience with safe, delicious food and excellent
service. We will do that by continuing to develop great leaders who
can build restaurant teams of empowered top performers that can
successfully deliver on this goal,” said Monty Moran, co-CEO.
Outlook
For 2016, management expects the following:
- 220 - 235 new restaurant openings
- An effective full year tax rate of
approximately 38.6%
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.
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 2016 financial results on Thursday, July 21, 2016 at 4:30
PM Eastern time.
The conference call can be accessed live over the phone by
dialing 1-800-316-8317 or for international callers by dialing
1-719-325-2126. A replay will be available two hours after the call
and can be accessed by dialing 1-877-870-5176 or 1-858-384-5517 for
international callers; the password is 6974351. The replay will be
available until July 28, 2016. 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-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 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 and raised
responsibly with respect for the animals, the land, and the farmers
who produce the food. In order to achieve this vision, we
focus on building a special people culture that is centered on
creating teams of top performers empowered to achieve high
standards. This people culture not only leads to a better dining
experience for our customers, it also allows us to develop future
leaders from within. Chipotle opened with a single restaurant in
1993 and operates more than 2,100 restaurants, including 27
Chipotle restaurants outside the US and 15 ShopHouse Southeast
Asian Kitchen restaurants, and is an investor in an entity that
owns and operates four Pizzeria Locale restaurants. For more
information, visit Chipotle.com.
Forward-Looking Statements
Certain statements in this press release, including statements
regarding customer trust and frequency and our Chiptopia rewards
program, as well as statements under the heading “Outlook” of our
expected number of new restaurant openings and effective tax rates
in 2016, 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 due to factors such as
changes in consumers’ acceptance of and enthusiasm for our brand,
including as a result of recent food-borne illness incidents, the
impact of competition, 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 new
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 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 from advertising claims and
other marketing activities related to Food With Integrity; security
risks associated with the acceptance of electronic payment cards or
electronic storage and processing of confidential customer or
employee information; 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; risks related to our marketing and advertising
strategies, including risks related to our Chiptopia rewards
program and other promotional activities; 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 (Loss)
(in thousands, except per share
data)
(unaudited)
Three months ended June 30, 2016 2015
Revenue $ 998,383 100.0 % $ 1,197,783 100.0
%
Restaurant operating costs (exclusive of
depreciation andamortization shown separately below):
Food, beverage and packaging 341,902 34.2 396,693 33.1 Labor
276,926 27.7 270,914 22.6 Occupancy 72,354 7.2 64,693 5.4 Other
operating costs 152,156 15.2 130,359 10.9 General and
administrative expenses 70,756 7.1 70,212 5.9 Depreciation and
amortization 36,074 3.6 32,440 2.7 Pre-opening costs 4,133 0.4
3,668 0.3 Loss on disposal of assets 3,187 0.3
1,388 0.1 Total operating
expenses 957,488 95.9 970,367
81.0 Income (loss) from operations 40,895 4.1
227,416 19.0 Interest and other income (expense), net 786
0.1 1,742 0.1
Income (loss) before income taxes 41,681 4.2 229,158 19.1 Benefit
(provision) for income taxes (16,085 ) (1.6 )
(88,954 ) (7.4 ) Net income (loss) $ 25,596 2.6
% $ 140,204 11.7 % Other comprehensive income
(loss), net of income taxes: Foreign currency translation
adjustments (765 ) 1,731 Unrealized gain (loss) on investments, net
of income taxes of $348 and $0 509 -
Other comprehensive income (loss), net of income taxes (256
) 1,731 Comprehensive income (loss) $ 25,340 $
141,935 Earnings (loss) per share: Basic $ 0.88 $
4.51 Diluted $ 0.87 $ 4.45 Weighted average
common shares outstanding: Basic 29,207 31,120
Diluted 29,340 31,526
Chipotle Mexican Grill, Inc.
Condensed Consolidated Statement of
Operations and Comprehensive Income (Loss)
(in thousands, except per share
data)
(unaudited)
Six months ended June 30, 2016 2015
Revenue $ 1,832,842 100.0 % $ 2,286,826 100.0
%
Restaurant operating costs (exclusive of
depreciation andamortization shown separately below):
Food, beverage and packaging 636,068 34.7 765,719 33.5 Labor
534,607 29.2 515,065 22.5 Occupancy 142,946 7.8 127,878 5.6 Other
operating costs 307,345 16.8 243,900 10.7 General and
administrative expenses 132,766 7.2 133,273 5.8 Depreciation and
amortization 70,862 3.9 63,083 2.8 Pre-opening costs 8,554 0.5
7,103 0.3 Loss on disposal of assets 5,403 0.3
5,588 0.2 Total operating
expenses 1,838,551 100.3
1,861,609 81.4 Income (loss) from operations
(5,709 ) (0.3 ) 425,217 18.6 Interest and other income (expense),
net 2,912 0.2 2,965 0.1
Income (loss) before income taxes (2,797 ) (0.2 )
428,182 18.7 Benefit (provision) for income taxes 1,961
0.1 (165,337 ) (7.2 ) Net income
(loss) $ (836 ) (0.0 ) % $ 262,845 11.5 % Other
comprehensive income (loss), net of income taxes: Foreign currency
translation adjustments 1,164 (2,981 ) Unrealized gain (loss) on
investments, net of income taxes of $1,531 and $0 2,402
- Other comprehensive income (loss), net of
income taxes 3,566 (2,981 ) Comprehensive
income (loss) $ 2,730 $ 259,864 Earnings (loss) per
share: Basic $ (0.03 ) $ 8.47 Diluted $ (0.03 ) $ 8.34
Weighted average common shares outstanding: Basic
29,550 31,044 Diluted 29,550
31,525
Chipotle Mexican
Grill, Inc.
Condensed Consolidated Balance
Sheet
(in thousands, except per share
data)
June 30, December 31,
2016 2015 (unaudited) Assets Current
assets: Cash and cash equivalents $ 189,960 $ 248,005
Accounts receivable, net of allowance for
doubtful accounts of $1,056 and $1,176 as of June30, 2016 and
December 31, 2015, respectively
23,208 38,283 Inventory 16,966 15,043 Prepaid expenses and other
current assets 52,178 39,965 Income tax receivable 25,211 58,152
Investments 80,184 415,199 Total
current assets 387,707 814,647 Leasehold improvements, property and
equipment, net 1,269,335 1,217,220 Long term investments 376,364
622,939 Other assets 46,455 48,321 Goodwill 21,939
21,939 Total assets $ 2,101,800 $ 2,725,066
Liabilities and shareholders' equity Current
liabilities: Accounts payable $ 75,255 $ 85,709 Accrued payroll and
benefits 109,613 64,958 Accrued liabilities 91,660
129,275 Total current liabilities 276,528 279,942
Deferred rent 268,985 251,962 Deferred income tax liability 37,614
32,305 Other liabilities 32,630 32,883
Total liabilities 615,757 597,092
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000
shares authorized, no shares issued as of June 30,2016 and December
31, 2015, respectively
- -
Common stock $0.01 par value, 230,000
shares authorized, and 35,826 and 35,790 sharesissued as of June
30, 2016 and December 31, 2015, respectively
358 358 Additional paid-in capital 1,205,225 1,172,628
Treasury stock, at cost, 6,676 and 5,206
common shares at June 30, 2016 and December 31,2015,
respectively
(1,911,870 ) (1,234,612 ) Accumulated other comprehensive income
(loss) (4,707 ) (8,273 ) Retained earnings 2,197,037
2,197,873 Total shareholders' equity 1,486,043
2,127,974 Total liabilities and shareholders'
equity $ 2,101,800 $ 2,725,066
Chipotle Mexican
Grill, Inc.
Condensed Consolidated Statement of
Cash Flows
(unaudited)
(in thousands)
Six months ended June 30, 2016 2015
Operating activities Net income (loss) $ (836 ) $ 262,845
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: Depreciation and amortization 70,862 63,083
Deferred income tax (benefit) provision 3,789 (13,032 ) Loss on
disposal of assets 5,403 5,588 Bad debt allowance (120 ) (27 )
Stock-based compensation expense 30,038 38,729 Excess tax benefit
on stock-based compensation (1,982 ) (58,058 ) Other (352 ) 229
Changes in operating assets and liabilities: Accounts receivable
15,201 9,093 Inventory (1,921 ) (1,205 ) Prepaid expenses and other
current assets (12,267 ) (4,915 ) Other assets 1,832 (4,483 )
Accounts payable (13,675 ) 14,111 Accrued liabilities 31,973 5,083
Income tax payable/receivable 34,919 66,694 Deferred rent 16,944
13,512 Other long-term liabilities (143 ) 3,883
Net cash provided by operating activities 179,665
401,130
Investing activities Purchases
of leasehold improvements, property and equipment (126,712 )
(114,395 ) Purchases of investments - (273,907 ) Maturities of
investments 45,000 216,000 Proceeds from sale of investments
540,648 - Net cash provided by (used in)
investing activities 458,936 (172,302 )
Financing activities Acquisition of treasury stock (700,036
) (116,322 ) Excess tax benefit on stock-based compensation 1,982
58,058 Stock plan transactions and other financing activities
12 (175 ) Net cash used in financing
activities (698,042 ) (58,439 ) Effect of exchange
rate changes on cash and cash equivalents 1,396 (2,169 ) Net change
in cash and cash equivalents (58,045 ) 168,220 Cash and cash
equivalents at beginning of period 248,005
419,465 Cash and cash equivalents at end of period $ 189,960
$ 587,685
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, 2016
2016 2015 2015 2015 Number of
restaurants opened 58 58 79 53 48 Restaurant relocations - (2 ) - -
(1 ) Number of restaurants at end of period 2,124 2,066 2,010 1,931
1,878 Average restaurant sales $ 2,067 $ 2,230 $ 2,424 $ 2,532 $
2,530 Comparable restaurant sales increase (decrease) (23.6 %)
(29.7 %) (14.6 %) 2.6 % 4.3 %
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