Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported
financial results for its third quarter ended September 30,
2016.
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View the full release here:
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Monthly comparable restaurant sales
declines for Chipotle improved 16.3% from a low of 36.4% in January
2016 to 20.1% (net of 0.7% due to the revenue deferral from
Chiptopia) in September 2016. Monthly comparable restaurant
transaction declines improved 20.3% from a low of 33.7% in January
2016 to 13.4% in September 2016. (Photo: Business Wire)
Overview for the three months ended September 30, 2016 as
compared to the three months ended September 30, 2015:
- Revenue decreased 14.8% to $1.0
billion
- Comparable restaurant transactions
decreased 15.2%
- Comparable restaurant sales decreased
21.9%, which includes a 0.8% decrease from a revenue deferral
related to unredeemed Chiptopia awards
- Restaurant level operating margin was
14.1%, a decrease from 28.3%. The Chiptopia revenue deferral
negatively impacted restaurant level operating margins by 0.9%
- Net income was $7.8 million, a decrease
from $144.9 million. Net income includes a $14.5 million non-cash,
pretax impairment charge related to ShopHouse and was reduced by an
$11.5 million pretax revenue deferral related to Chiptopia
- Diluted earnings per share was $0.27, a
decrease from $4.59, including $0.29 related to the ShopHouse
impairment charge and $0.23 due to the deferral of revenue from
Chiptopia
- Opened 54 new restaurants, net of one
closure
Overview for the nine months ended September 30, 2016 as
compared to the nine months ended September 30, 2015:
- Revenue decreased 18.1% to $2.9
billion
- Comparable restaurant transactions
decreased 17.9%
- Comparable restaurant sales decreased
24.9% which includes a 0.3% decrease from the revenue deferral
related to unredeemed Chiptopia awards
- Restaurant level operating margin was
12.5%, a decrease from 27.9%
- Net income was $7.0 million, a decrease
from net income of $407.7 million
- Diluted earnings per share was $0.23, a
decrease from $12.92
- Opened 168 new restaurants, net of 3
relocations or closures
“We continued to make steady progress in our sales recovery
during the third quarter. We are earning back our customers’ trust,
and our research demonstrates that people are feeling better about
our brand, and the quality of our food. While this year has been a
year of reinvestment, we are now focused on continuing to further
recover sales and improve our economic model to create long-term
shareholder value. Today we will share our financial and
operational goals for 2017, and our plan to achieve them,” said
Steve Ells, founder, chairman and co-CEO of Chipotle.
Comparable Restaurant Sales and Transaction Trends
Monthly comparable restaurant sales declines improved 16.3% from
a low of 36.4% in January 2016 to 20.1% (net of 0.7% due to the
revenue deferral from Chiptopia) in September 2016. Monthly
comparable restaurant transaction declines improved 20.3% from a
low of 33.7% in January 2016 to 13.4% in September 2016.
“Our restaurant teams are very excited to see more customers
return to their restaurants, and are working hard to reward them
with an excellent guest experience. After successfully implementing
an industry leading food safety program, and as our marketing
efforts are driving more people to our restaurants, it is critical
that we are prepared to delight customers on every visit. We are
confident that we have the leadership and teams in place to do just
that,” said Monty Moran, co-CEO.
Third quarter 2016 results
Revenue for the quarter was $1.0 billion, down 14.8% from the
third quarter of 2015. The decrease in revenue was driven by a
21.9% decrease in comparable restaurant sales, including a
reduction of 0.8% on comparable restaurant sales resulting from
deferring $11.5 million of revenue related to unredeemed awards
from the Chiptopia Summer Rewards program that ran during the third
quarter of 2016, 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 54 new restaurants during the quarter, net of one
closure, bringing the total restaurant count to 2,178.
Food costs were 35.1% of revenue, an increase of 210 basis
points as compared to the third quarter of 2015. The increase was
driven by increased waste costs and higher avocado prices,
partially offset by relief in beef prices.
Restaurant level operating margin was 14.1% in the quarter, a
decrease from 28.3% in the third quarter of 2015. The decrease was
driven primarily by sales deleveraging (including 0.9% from the
Chipotle revenue deferral) and an increase in marketing and
promotional spend which totaled 4.8% of revenue for the third
quarter of 2016 compared to 2.4% of revenue in the third quarter of
2015.
General and administrative expenses were 7.6% of revenue for the
third quarter of 2016, an increase of 180 basis points over the
third quarter of 2015 primarily as a result of sales deleverage. In
dollar terms, general and administrative expenses increased
compared to the third quarter of 2015 due to expenses associated
with our biennial All Managers’ Conference in September 2016 and
higher legal expense, partially offset by lower non-cash stock
based compensation expense.
We recorded a non-cash asset impairment charge of $14.5 million
related to our ShopHouse Southeast Asian Kitchen restaurants.
Net income for the third quarter of 2016 was $7.8 million, or
$0.27 per diluted share, compared to net income of $144.9 million,
or $4.59 per diluted share, in the third quarter of 2015.
Our Board of Directors has also approved the investment of up to
an additional $100 million, exclusive of commissions, to repurchase
shares of our common stock. This repurchase authorization, in
addition to up to approximately $69.2 million available as of
September 30, 2016 for repurchases under a previously
announced repurchase authorization, may be modified, suspended, or
discontinued at any time
Results for the nine months ended September 30, 2016
Revenue for the first nine months of 2016 was $2.9 billion, down
18.1% from the first nine months of 2015. The decrease in revenue
was driven by a 24.9% decrease in comparable restaurant sales,
including a reduction of 0.3% resulting from deferring $11.5
million of revenue related to accounting for Chiptopia, 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 168 new restaurants during the first nine months of
2016, net of 3 relocations or closures, bringing the total
restaurant count to 2,178.
Food costs were 34.8% of revenue, an increase of 150 basis
points as compared to the first nine months of 2015. The increase
was driven by increased waste costs and costs related to new food
safety procedures, partially offset by the benefit of menu price
increases implemented in select restaurants in the second half of
2015.
Restaurant level operating margin was 12.5% for the nine months
ended September 30, 2016, a decrease from 27.9% in the first nine
months of 2015. The decrease was driven by sales deleveraging and
an increase in marketing and promotional spend which totaled 5.2%
of revenue in the nine months ended September 30, 2016, compared
with 2.1% of revenue for the nine months ended September 30,
2015.
General and administrative expenses were 7.4% of revenue for the
first nine months of 2016, an increase of 160 basis points over the
first nine months of 2015 primarily as a result of sales
deleverage. In dollar terms, general and administrative costs
increased compared to the first nine months of 2015 due to expenses
associated with our biennial All Managers’ Conference in September
2016 and higher legal expense, partially offset by lower non-cash
stock based compensation expense.
Net income for the first nine months of 2016 was $7.0 million,
or $0.23 per diluted share, compared to net income of $407.7
million, or $12.92 per diluted share, for the nine months ended
September 30, 2015.
Outlook
For 2016, management expects the following:
- New restaurant openings for the full
year at or above the high end of the previously-disclosed range of
220 to 235
- Comparable restaurant sales declines in
the low single-digits for the fourth quarter
- An effective full year tax rate of
approximately 38.2%, which benefited from the recognition of tax
credits earned in prior years
For 2017, management is targeting the following:
- 195 - 210 new restaurant openings
- Comparable restaurant sales increases
in the high single-digits
- Restaurant level operating margins of
20%
- An estimated effective full year tax
rate of approximately 39.5%, which will be impacted by volatility
due to a recently issued accounting standard that changes how the
company accounts for taxes associated with stock-based compensation
awards.
- $10.00 earnings per diluted share
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 the third
quarter 2016 financial results on Tuesday, October 25, 2016 at 4:30
PM Eastern time.
The conference call can be accessed live over the phone by
dialing 1-877-857-6149 or for international callers by dialing
1-719-325-4751. 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 to access the replay is
1052659. The replay will be available until November 1, 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 U.S. and 15 ShopHouse Southeast
Asian Kitchen restaurants, and is an investor in an entity that
owns and operates seven Pizzeria Locale 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, levels of comparable restaurant sales,
effective tax rates, earnings per share, and restaurant level
operating margins 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, including 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 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 Income and
Comprehensive Income(in thousands, except per share
data)(unaudited)
Three months ended September 30, 2016
2015 Revenue $ 1,036,982 100.0 % $ 1,216,890
100.0 % Restaurant operating costs (exclusive of depreciation and
amortization shown separately below): Food, beverage and packaging
363,900 35.1 401,051 33.0 Labor 286,144 27.6 270,076 22.2 Occupancy
74,201 7.2 66,391 5.5 Other operating costs 166,045 16.0 134,879
11.1 General and administrative expenses 78,405 7.6 70,066 5.8
Depreciation and amortization 37,434 3.6 33,145 2.7 Pre-opening
costs 4,490 0.4 4,367 0.4 Loss on disposal and impairment of assets
16,637 1.6 2,156 0.2
Total operating expenses 1,027,256 99.1
982,131 80.7 Income from operations 9,726 0.9 234,759
19.3 Interest and other income, net 672 0.1
1,518 0.1 Income before income taxes 10,398
1.0 236,277 19.4 Provision for income taxes (2,599 ) (0.3 )
(91,394 ) (7.5 ) Net income $ 7,799 0.8 % $ 144,883
11.9 % Other comprehensive income, net of income taxes:
Foreign currency translation adjustments (203 ) (1,718 ) Unrealized
gain (loss) on investments, net of income taxes of $(346) and $0
(536 ) - Other comprehensive income (loss),
net of income taxes (739 ) (1,718 ) Comprehensive
income $ 7,060 $ 143,165 Earnings per share: Basic $
0.27 $ 4.65 Diluted $ 0.27 $ 4.59
Weighted average common shares outstanding: Basic 29,063
31,187 Diluted 29,171
31,548
Chipotle Mexican Grill,
Inc.Condensed Consolidated Statement of Income and
Comprehensive Income(in thousands, except per share
data)(unaudited)
Nine months ended September 30,
2016 2015 Revenue $ 2,869,824 100.0 % $
3,503,716 100.0 % Restaurant operating costs (exclusive of
depreciation and amortization shown separately below): Food,
beverage and packaging 999,968 34.8 1,166,770 33.3 Labor 820,751
28.6 785,141 22.4 Occupancy 217,147 7.6 194,269 5.5 Other operating
costs 473,390 16.5 378,779 10.8 General and administrative expenses
211,171 7.4 203,339 5.8 Depreciation and amortization 108,296 3.8
96,228 2.7 Pre-opening costs 13,044 0.5 11,470 0.3 Loss on disposal
and impairment of assets 22,040 0.8
7,744 0.2 Total operating expenses 2,865,807
99.9 2,843,740 81.2 Income from
operations 4,017 0.1 659,976 18.8 Interest and other income, net
3,584 0.1 4,483 0.1
Income before income taxes 7,601 0.3 664,459 19.0 Provision for
income taxes (638 ) (0.0 ) (256,731 ) (7.3 ) Net
income $ 6,963 0.2 % $ 407,728 11.6 % Other
comprehensive income, net of income taxes: Foreign currency
translation adjustments 961 (4,699 ) Unrealized gain (loss) on
investments, net of income taxes of $1,185 and $0 1,866
- Other comprehensive income (loss), net of
income taxes 2,827 (4,699 ) Comprehensive
income $ 9,790 $ 403,029 Earnings per share: Basic $
0.24 $ 13.10 Diluted $ 0.23 $ 12.92
Weighted average common shares outstanding: Basic 29,387
31,115 Diluted 29,792
31,556
Chipotle Mexican
Grill, Inc.Condensed Consolidated Balance
Sheet(in thousands, except per share data)
September 30, December 31,
2016 2015 (unaudited) Assets Current
assets: Cash and cash equivalents $ 154,128 $ 248,005 Accounts
receivable, net of allowance for doubtful accounts of $1,275 and
$1,176 as of September 30, 2016 and December 31, 2015, respectively
22,103 38,283 Inventory 18,382 15,043 Prepaid expenses and other
current assets 45,250 39,965 Income tax receivable 24,013 58,152
Investments 205,021 415,199 Total current assets
468,897 814,647 Leasehold improvements, property and equipment, net
1,278,672 1,217,220 Long term investments 250,659 622,939 Other
assets 46,866 48,321 Goodwill 21,939 21,939 Total
assets $ 2,067,033 $ 2,725,066
Liabilities and shareholders'
equity Current liabilities: Accounts payable $ 74,682 $ 85,709
Accrued payroll and benefits 97,009 64,958 Accrued liabilities
107,808 129,275 Total current liabilities 279,499
279,942 Deferred rent 279,359 251,962 Deferred income tax liability
33,862 32,305 Other liabilities 33,293 32,883 Total
liabilities 626,013 597,092 Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no
shares issued as of September 30, 2016 and December 31, 2015,
respectively - - Common stock $0.01 par value, 230,000 shares
authorized, and 35,830 and 35,790 shares issued as of September 30,
2016 and December 31, 2015, respectively 358 358 Additional paid-in
capital 1,223,760 1,172,628 Treasury stock, at cost, 6,848 and
5,206 common shares at September 30, 2016 and December 31, 2015,
respectively (1,982,488) (1,234,612) Accumulated other
comprehensive income (loss) (5,446) (8,273) Retained earnings
2,204,836 2,197,873 Total shareholders' equity
1,441,020 2,127,974 Total liabilities and shareholders'
equity $ 2,067,033 $ 2,725,066
Chipotle Mexican
Grill, Inc.Condensed Consolidated Statement of Cash
Flows(unaudited)(in thousands)
Nine months ended
September30,
2016 2015 Operating activities Net income $
6,963 $ 407,728 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
108,296 96,228 Deferred income tax (benefit) provision 380 (12,542
) Loss on disposal and impairment of assets 22,040 7,744 Bad debt
allowance 99 (27 ) Stock-based compensation expense 48,389 59,725
Excess tax benefit on stock-based compensation (1,888 ) (74,861 )
Other (224 ) 273 Changes in operating assets and liabilities:
Accounts receivable 16,084 10,637 Inventory (3,442 ) (2,212 )
Prepaid expenses and other current assets (5,362 ) (3,028 ) Other
assets 1,509 (3,967 ) Accounts payable (11,938 ) 7,101 Accrued
liabilities 36,245 (7,434 ) Income tax payable/receivable 36,026
77,858 Deferred rent 27,319 21,532 Other long-term liabilities
576 3,808 Net cash provided by
operating activities 281,072 588,563
Investing activities Purchases of leasehold improvements,
property and equipment (192,252 ) (181,840 ) Purchases of
investments - (433,829 ) Maturities of investments 45,000 287,450
Proceeds from sale of investments 540,648 -
Net cash provided by (used in) investing activities
393,396 (328,219 )
Financing activities
Acquisition of treasury stock (771,354 ) (147,122 ) Excess tax
benefit on stock-based compensation 1,888 74,862 Stock plan
transactions and other financing activities 23
(225 ) Net cash used in financing activities (769,443 )
(72,485 ) Effect of exchange rate changes on cash and cash
equivalents 1,098 (3,162 ) Net change in cash and cash equivalents
(93,877 ) 184,697 Cash and cash equivalents at beginning of period
248,005 419,465 Cash and cash
equivalents at end of period $ 154,128 $ 604,162
Chipotle Mexican
Grill, Inc.Supplemental Financial and Other
Data(dollars in thousands)
For the three months ended Sep. 30,
Jun. 30, Mar. 31, Dec. 31,
Sep. 30, 2016 2016 2016
2015 2015 Number of restaurants opened 55 58 58 79 53
Restaurant relocations/closures (1 ) - (2 ) - - Number of
restaurants at end of period 2,178 2,124 2,066 2,010 1,931 Average
restaurant sales $ 1,914 $ 2,067 $ 2,230 $ 2,424 $ 2,532 Comparable
restaurant sales increase (decrease) (21.9 %) (23.6 %) (29.7 %)
(14.6 %) 2.6 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161025006602/en/
Chipotle Mexican Grill, Inc.Investor
Relations:Mark Alexee, 303-605-1042
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