10-QPeriod: Q2 FY2014

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 22, 2014For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. (CMG) reported strong financial performance for the second quarter and first half of 2014. Revenue saw significant year-over-year growth, driven by comparable restaurant sales increases and the opening of new locations. The company successfully implemented menu price increases, which contributed to both revenue and average check size, while also experiencing a decrease in labor and occupancy costs as a percentage of revenue due to higher sales. Investments in marketing and a rise in general and administrative expenses, particularly due to stock-based compensation, were noted. The company continued its aggressive expansion, opening 89 new restaurants in the first half of the year and planning for further growth. Despite some supply constraints for "Responsibly Raised" meats, Chipotle is committed to its "Food With Integrity" initiative. Financially, the company maintained a healthy cash position and continued its share repurchase program. Management expressed confidence in continued growth, projecting mid-teen comparable restaurant sales increases for the full year.

Financial Highlights

42 data points
Beta

Net Income

$110.27M

EPS (Diluted)

$0.07

Total Assets

$2.28B

Cash & Equivalents

$470.05M

Free Cash Flow

$125.04M

Financial Statements
Beta
Operating Expenses$870.23M
Operating Income$179.84M
Net Income$110.27M
EPS (Basic)$0.07
EPS (Diluted)$0.07
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.57B

Key Highlights

  • 1Revenue increased by 28.6% in the second quarter and 26.6% in the first half of 2014 compared to the prior year.
  • 2Comparable restaurant sales increased by 17.3% in Q2 2014 and 15.5% in the first six months of 2014, driven by customer visits and menu price increases.
  • 3Opened 89 new restaurants in the first six months of 2014, bringing the total to 1,681, with plans to open 180-195 new restaurants in 2014.
  • 4Net income grew to $110.3 million in Q2 2014 and $193.3 million in the first half of 2014, up from $87.9 million and $164.4 million, respectively, in the prior year.
  • 5Diluted EPS rose to $3.50 in Q2 2014 and $6.14 in the first half of 2014, compared to $2.82 and $5.27, respectively.
  • 6The company repurchased $50.3 million of its common stock in the first six months of 2014, with $139.9 million remaining under authorized repurchase programs.
  • 7Food costs as a percentage of revenue increased due to inflationary pressures on key ingredients, though menu price increases are expected to mitigate this in the latter half of the year.

Frequently Asked Questions

Revenue growth was primarily driven by comparable restaurant sales increases, which rose 17.3%, and the opening of new restaurants. The company also implemented menu price increases averaging 6.25% to 6.5% in its U.S. locations, which contributed to both revenue and average check size.

The primary cost pressure highlighted is food, beverage, and packaging costs, which increased as a percentage of revenue due to inflationary pressures on ingredients like beef, avocados, and dairy. However, menu price increases and lower tomatillo costs provided some offset. The company expects food costs as a percentage of revenue to slightly increase for the full year 2014 compared to 2013.

Chipotle expects to open between 180 and 195 new restaurants in 2014. For comparable restaurant sales, the company anticipates increases to be in the mid-teens for the full year 2014, benefiting from strong transaction trends and recent menu price increases.

Chipotle is involved in ongoing investigations by the U.S. Securities and Exchange Commission and the U.S. Attorney's office concerning compliance with employee work authorization verification requirements and related disclosures. There are also shareholder derivative actions related to these matters, though the company has agreed to a proposed settlement involving attorney's fees and enhanced oversight procedures, subject to court approval. Management believes its practices are in compliance with applicable law.