10-QPeriod: Q3 FY2006

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 1, 2006For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. (CMG) reported its third-quarter and year-to-date results for the period ending September 29, 2006. The company demonstrated robust revenue growth, with total revenue increasing by 32.8% for the first nine months of the year, driven by both comparable restaurant sales growth and the opening of new locations. This period marked a significant transition for Chipotle, as it completed its initial public offering in January 2006 and subsequently separated from McDonald's Corporation in October 2006, becoming a fully independent entity. Financially, the company saw a substantial increase in net cash provided by operating activities, supported by higher sales and improved restaurant margins. Despite increased investments in new restaurant openings, Chipotle maintained a strong liquidity position with over $157 million in cash and cash equivalents at the end of the quarter. The separation from McDonald's brings new responsibilities and potential incremental costs, but the company is positioning itself for continued growth as a standalone public company.

Key Highlights

  • 1Total revenue for the first nine months of 2006 increased by 32.8% to $603.2 million compared to the same period in 2005.
  • 2Comparable restaurant sales grew by 15.0% for the nine months ended September 30, 2006, indicating strong brand recognition and operational execution.
  • 3Chipotle successfully completed its initial public offering (IPO) in January 2006, raising approximately $120.9 million in net proceeds to fund future growth.
  • 4The company completed its separation from McDonald's Corporation on October 12, 2006, with McDonald's distributing its shares and no longer owning any interest in Chipotle.
  • 5Net cash provided by operating activities increased significantly to $73.5 million for the nine months ended September 30, 2006, up from $52.6 million in the prior year period.
  • 6Capital expenditures increased to $62.5 million for the nine months ended September 30, 2006, primarily to support the opening of 59 new restaurants.
  • 7The company ended the period with a strong cash position of $157.6 million, providing ample liquidity for ongoing operations and expansion.

Frequently Asked Questions

Chipotle completed its separation from McDonald's on October 12, 2006. This means Chipotle is now a fully independent, publicly traded company. While it benefited from McDonald's support historically, the separation requires Chipotle to independently manage its own services (like accounting, IT, and benefits) and potentially incur incremental costs for these services. The company has made arrangements to transition these services and expects these incremental costs to be between $1.0 million and $2.0 million in the first year.

Chipotle is experiencing strong revenue growth. Total revenue for the first nine months of 2006 was $603.2 million, a 32.8% increase year-over-year. This growth is driven by both increases in comparable restaurant sales (up 15.0% for the nine months) and the opening of new restaurants. Management expects comparable restaurant sales growth in the low double-digits for the full year 2006, moderating to low to mid-single digits in 2007.

Chipotle ended the quarter with a substantial $157.6 million in cash and cash equivalents. The company also recently raised approximately $120.9 million in net proceeds from its IPO in January 2006, which is earmarked for business growth, primarily opening new restaurants. Investing activities show continued investment in new store openings, with $62.5 million used for capital expenditures in the first nine months of 2006. The company also entered into a $10 million revolving line of credit in October 2006.

Key risks include the transition of services previously provided by McDonald's, potential difficulties in securing favorable terms with new suppliers, and challenges in establishing suitable internal controls as an independent company. There's also a risk related to insurance coverage and self-insurance reserves potentially not covering future claims. Additionally, significant restrictions and indemnities related to the tax-free status of McDonald's exchange offer could expose Chipotle to substantial financial obligations if certain conditions are not met, with an estimated potential indemnification obligation to McDonald's exceeding $450 million in the event of a significant change in stock ownership.