10-QPeriod: Q2 FY2010

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 27, 2010For Securities:CMG

Summary

Chipotle Mexican Grill Inc. (CMG) reported strong performance for the second quarter and first half of 2010, demonstrating consistent revenue growth driven by new restaurant openings and comparable sales increases. The company's commitment to 'Food With Integrity' continues, with advancements in sourcing naturally raised meats and organic produce, though some supply challenges for naturally raised chicken were noted. Financially, CMG exhibits healthy revenue growth and improved operational efficiencies, leading to solid net income gains and earnings per share. The company also reiterated its commitment to shareholder returns through an expanded share repurchase program. Key financial metrics show a robust increase in revenue for both the three-month and six-month periods ending June 30, 2010, compared to the prior year. Profitability remained strong, with income from operations and net income showing significant year-over-year improvements. Management expressed confidence in the company's liquidity and capital resources, anticipating sufficient funds to support planned restaurant expansion and other corporate needs over the next 24 months. The company's strategic focus on 'A Model' restaurants, designed for lower investment costs, aims to further fuel expansion in established markets.

Financial Highlights

43 data points
Beta

Net Income

$46.46M

EPS (Diluted)

$0.03

Total Assets

$1.01B

Cash & Equivalents

$202.04M

Free Cash Flow

$47.14M

Financial Statements
Beta
Operating Expenses$391.88M
Operating Income$74.96M
Net Income$46.46M
EPS (Basic)$0.03
EPS (Diluted)$0.03
Shares Outstanding (Basic)1.57B
Shares Outstanding (Diluted)1.59B

Key Highlights

  • 1Revenue increased by 20.1% to $466.8 million for the three months ended June 30, 2010, and by 17.9% to $876.5 million for the six months ended June 30, 2010.
  • 2Comparable restaurant sales increased by 8.7% for the three months and 6.6% for the six months ended June 30, 2010, primarily driven by an increase in customer visits.
  • 3Net income rose to $46.5 million for the three months ($1.46 diluted EPS) and $84.3 million for the six months ($2.65 diluted EPS) ended June 30, 2010, compared to $35.4 million and $60.8 million, respectively, in the prior year.
  • 4The company opened 25 new restaurants in the second quarter and 45 in the first half of 2010, bringing the total to 1,001 restaurants, and expects to open 120-130 in full year 2010.
  • 5Food, beverage, and packaging costs as a percentage of revenue decreased slightly to 30.4% for the quarter and 30.3% for the six months, benefiting from favorable food costs despite increased costs for certain ingredients like tomatoes and barbacoa.
  • 6The Board of Directors authorized an additional $100 million for share repurchases, bringing the total authorized to $200 million.
  • 7Chipotle continues to advance its 'Food With Integrity' initiative, reaching its goal of serving naturally raised beef in all restaurants and increasing its local produce sourcing targets.

Frequently Asked Questions

Chipotle's revenue growth strategy for 2010 is driven by two primary factors: the opening of new restaurants and comparable restaurant sales increases. The company plans to open between 120 and 130 new restaurants in 2010, including a portion of 'A Model' restaurants designed for lower investment costs in established markets. Comparable restaurant sales are expected to grow in the mid to high single digits, driven by an increase in customer visits.

Chipotle is actively managing food costs while adhering to its 'Food With Integrity' principles. For the second quarter of 2010, food, beverage, and packaging costs as a percentage of revenue decreased due to favorable costs for rice, cheese, avocados, and chicken, the latter partly due to a temporary reduction in naturally raised chicken supply. The company is working to increase this supply. However, costs for items like tomatoes and naturally raised barbacoa beef have increased as they expanded their 'Food With Integrity' sourcing. Chipotle also increased its goals for sourcing local produce and organically grown beans and cilantro.

Chipotle is actively returning capital to shareholders through a significant share repurchase program. In addition to an ongoing $100 million repurchase program announced in November 2009, the Board of Directors authorized an additional $100 million for share repurchases on July 22, 2010. During the first six months of 2010, the company repurchased $56.4 million worth of its common stock under the existing program.

Chipotle is involved in a lawsuit in California alleging violations of state laws regarding employee record-keeping, breaks, and overtime. While the court denied class certification, the plaintiff has appealed this decision. Although the company has defenses, the ultimate outcome and potential liability are not yet estimable. Management does not believe the resolution of this or other routine legal claims will be material to the company's financial statements, but notes that a significant increase in claims or greater-than-anticipated liabilities could adversely affect the business.