10-QPeriod: Q2 FY2009

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q2 Ended Jun 30, 2009

Filed July 24, 2009For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. (CMG) reported solid financial results for the second quarter and first half of 2009, demonstrating resilience despite a challenging macroeconomic environment. Total assets grew to $873.3 million from $825.0 million at the end of 2008, driven by an increase in cash and cash equivalents, which significantly rose to $208.3 million from $88.0 million, indicating strong operational cash generation and effective capital management. The company also saw a healthy increase in net income, rising to $35.4 million in Q2 2009 and $60.8 million for the first half, compared to $24.5 million and $41.8 million in the prior year periods, respectively. This top-line and bottom-line growth was supported by a 14.1% increase in restaurant sales for the quarter and 15.0% for the half-year, fueled by new restaurant openings and a modest 1.9% comparable restaurant sales increase, largely attributable to menu price adjustments. Chipotle's "Food With Integrity" initiative continues to be a core part of its strategy, with ongoing efforts in sourcing organic, naturally raised, and sustainably produced ingredients. While facing some supply chain challenges for naturally raised chicken, the company is committed to its sourcing standards. Management expects comparable restaurant sales to remain in the low single digits for the full year, primarily driven by price increases. The company maintains a strong liquidity position with ample cash to fund its growth plans, including opening 120-130 new restaurants in 2009, and has a revolving credit facility available for working capital needs. Overall, CMG presented a picture of continued expansion and profitability, adeptly navigating economic headwinds.

Financial Highlights

23 data points
Beta

Net Income

$35.39M

EPS (Diluted)

$0.02

Cash & Equivalents

$208.30M

Free Cash Flow

$62.85M

Financial Statements
Beta
Operating Expenses$331.51M
Operating Income$57.32M
Net Income$35.39M
EPS (Basic)$0.02
EPS (Diluted)$0.02
Shares Outstanding (Basic)1.59B
Shares Outstanding (Diluted)1.61B

Key Highlights

  • 1Chipotle reported a significant increase in cash and cash equivalents, growing from $88.0 million at the end of 2008 to $208.3 million as of June 30, 2009.
  • 2Net income for the second quarter of 2009 was $35.4 million, a substantial increase from $24.5 million in the same period of 2008. For the six months ended June 30, 2009, net income was $60.8 million, up from $41.8 million in the prior year.
  • 3Restaurant sales grew by 14.1% in Q2 2009 and 15.0% for the first half of 2009, driven by both new restaurant openings and a 1.9% comparable restaurant sales increase.
  • 4The company opened 24 new restaurants in Q2 2009 and 50 in the first half, with plans to open 120-130 new restaurants in total for 2009.
  • 5Food, beverage, and packaging costs as a percentage of revenue decreased from 32.2% to 30.9% in Q2 2009 and from 32.3% to 31.0% for the first half, indicating improved cost management relative to sales.
  • 6Labor costs as a percentage of revenue also decreased, from 25.9% to 24.5% in Q2 2009 and from 26.3% to 25.4% for the first half, attributed to menu price increases and labor efficiencies.
  • 7Chipotle repurchased approximately $57.5 million of its Class B common stock during the first half of 2009 as part of its $100 million repurchase program, reflecting a commitment to returning value to shareholders.

Frequently Asked Questions

Chipotle experienced strong revenue growth, with restaurant sales increasing by 14.1% to $388.8 million in the second quarter of 2009 and by 15.0% to $743.3 million for the first six months of 2009. This growth was primarily driven by the opening of new restaurants (24 in Q2, 50 in H1) and a comparable restaurant sales increase of 1.9% for the first half of 2009. The comparable sales increase was largely attributed to menu price increases implemented in late 2008, which helped offset a decrease in customer visits and a slight decline in average check size.

Chipotle demonstrated effective cost management. Food, beverage, and packaging costs as a percentage of revenue decreased year-over-year, benefiting from menu price increases that outpaced ingredient cost inflation for rice and chicken. Similarly, labor costs as a percentage of revenue also decreased, thanks to menu price adjustments and improved labor efficiencies, despite lower transaction volumes. This focus on cost control has helped expand operating margins.

The company maintains a strong liquidity position, with cash and cash equivalents nearly tripling to $208.3 million as of June 30, 2009, from $88.0 million at the end of 2008. This substantial cash balance, combined with anticipated cash flow from operations, is expected to fund capital expenditures for new restaurant development (120-130 expected in 2009), maintenance of existing restaurants, and general corporate needs. Chipotle also has a $25 million revolving credit facility for working capital, though no borrowings were outstanding as of the reporting date.

Chipotle disclosed an ongoing lawsuit in California alleging violations of state labor laws concerning employee record-keeping, breaks, and overtime. While the class certification was denied, an appeal is pending. The company cannot estimate potential liability but management does not believe the ultimate resolution of this or other routine legal matters will be material to its consolidated financial statements. A key risk factor highlighted is the volatility of food and supply costs, which could impact profitability if prices rise significantly and the company cannot fully pass these costs on through menu prices without affecting customer traffic.