CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q2 Ended Jun 30, 2011

Summary

Chipotle Mexican Grill, Inc. (CMG) reported solid financial results for the second quarter and first half of 2011, demonstrating continued growth in revenue and profitability. Total revenue increased by 22.4% for the quarter and 23.3% for the first six months compared to the prior year, driven by both new restaurant openings and a 10.0% comparable restaurant sales increase in Q2 and 11.1% for the first half. This comparable sales growth was primarily fueled by an increase in customer visits, with menu price increases contributing a smaller portion. The company saw improvements in its cost structure, with labor and occupancy costs as a percentage of revenue decreasing due to higher average restaurant sales. However, food, beverage, and packaging costs as a percentage of revenue increased due to inflation in key ingredients like beef, dairy, and chicken, though management anticipates this will be offset by menu price increases. Net income grew to $50.7 million for the quarter and $97.0 million for the first half, leading to diluted earnings per share of $1.59 and $3.06, respectively. The company also highlighted its ongoing commitment to "Food With Integrity" and provided an update on its aggressive restaurant development plans, expecting to open 135-145 new restaurants in 2011. Chipotle continues to maintain a strong liquidity position with $349.8 million in cash and cash equivalents and $89.7 million in long-term investments as of June 30, 2011. The company expects its current cash and cash flow from operations to fund its growth initiatives, including new restaurant openings and its share repurchase program, for at least the next 24 months. Management noted a significant increase in general and administrative expenses, largely due to non-cash stock-based compensation and legal costs associated with a government investigation into work authorization compliance.

Key Highlights

• 1Revenue increased by 22.4% year-over-year to $571.6 million for Q2 2011 and by 23.3% for the first six months to $1,080.9 million.
• 2Comparable restaurant sales grew by 10.0% for Q2 2011 and 11.1% for the first six months, primarily driven by increased customer visits.
• 3Net income rose to $50.7 million ($1.59 diluted EPS) for Q2 2011 and $97.0 million ($3.06 diluted EPS) for the first six months of 2011.
• 4The company opened 39 new restaurants in Q2 and 51 in the first half of 2011, with plans to open 135-145 restaurants in total for the year.
• 5Food, beverage, and packaging costs as a percentage of revenue increased to 32.9% in Q2 2011 due to inflation, though expected to decrease with menu price adjustments.
• 6Cash and cash equivalents increased significantly to $349.8 million as of June 30, 2011, indicating strong liquidity.
• 7General and administrative expenses saw a notable increase (39.2% for Q2) driven by stock-based compensation and investigation costs.
• 8Chipotle is actively repurchasing its common stock, with $47.6 million available under its repurchase program as of June 30, 2011.

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