10-QPeriod: Q1 FY2013

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q1 Ended Mar 31, 2013

Filed April 19, 2013For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. (CMG) reported its first-quarter results for the period ending March 30, 2013. The company demonstrated solid revenue growth, primarily driven by new restaurant openings and a modest increase in comparable restaurant sales. Despite some inflationary pressures on food costs, which are expected to continue, CMG managed to maintain stable labor costs as a percentage of revenue. The company also highlighted its ongoing commitment to "Food With Integrity," while acknowledging supply chain challenges that may temporarily lead to the use of conventionally raised meats, which are clearly disclosed in-store. Financially, CMG showed increased cash and investments, supporting its growth strategy and share repurchase program. However, investors should note the ongoing legal proceedings and investigations, particularly those related to employee work authorization and ADA compliance, which could pose future uncertainties.

Financial Highlights

42 data points
Beta

Net Income

$76.58M

EPS (Diluted)

$0.05

Total Assets

$1.71B

Cash & Equivalents

$346.93M

Free Cash Flow

$88.75M

Financial Statements
Beta
Operating Expenses$606.71M
Operating Income$120.04M
Net Income$76.58M
EPS (Basic)$0.05
EPS (Diluted)$0.05
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.56B

Key Highlights

  • 1Total revenue for the first quarter of 2013 increased by 13.4% to $726.8 million, up from $640.6 million in the same period of 2012.
  • 2Comparable restaurant sales increased by 1.0% in Q1 2013, driven by customer visits and menu price increases in the Pacific region, though growth was impacted by calendar shifts (leap day, Easter).
  • 3The company opened 48 new restaurants in the first quarter of 2013, contributing significantly to the revenue growth, and plans to open 165-180 new restaurants in 2013.
  • 4Food, beverage, and packaging costs rose to 33.0% of revenue (from 32.2% in Q1 2012) due to ingredient inflation, a trend the company expects to continue.
  • 5General and administrative expenses decreased by 10.4% due to lower non-cash stock-based compensation expense.
  • 6The company repurchased approximately 186,060 shares of common stock for a total cost of $51.0 million during the quarter, with $149.2 million remaining under its repurchase authorization.
  • 7Chipotle continues to face multiple legal proceedings, including ADA compliance cases, investigations into employee work authorization, shareholder derivative actions, and shareholder class actions.

Frequently Asked Questions

Chipotle's revenue growth was primarily driven by two factors: the opening of 48 new restaurants during the quarter, expanding its total unit count to 1,458, and a 1.0% increase in comparable restaurant sales. This comparable sales growth was attributed to more customer visits and the impact of menu price increases implemented in the Pacific region in March 2012.

Chipotle experienced an increase in food, beverage, and packaging costs as a percentage of revenue to 33.0% in Q1 2013, up from 32.2% in the prior year, mainly due to inflation in ingredients like produce, dairy, and chicken. The company anticipates this inflationary pressure to continue throughout 2013 and may consider menu price increases if the trend persists, depending on economic conditions and sales trends.

Chipotle is involved in several significant legal matters. These include ongoing litigation related to the Americans with Disabilities Act (ADA) compliance concerning serving line wall heights, investigations by the Department of Homeland Security and the U.S. Attorney's Office into employee work authorization verification practices, and shareholder derivative and class action lawsuits stemming from these issues and disclosures. While the company is defending itself vigorously, the ultimate outcomes and potential liabilities remain uncertain.

Chipotle has a strong liquidity position with $703.0 million in cash and investments as of March 31, 2013. This capital, combined with operating cash flow, is intended to fund new restaurant development, share repurchases, maintenance of existing restaurants, and general corporate needs. The company's business model, with customer payments primarily via cash or credit cards and minimal inventory needs, requires limited working capital.