10-QPeriod: Q3 FY2014

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q3 Ended Sep 30, 2014

Filed October 21, 2014For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. (CMG) reported strong financial results for the third quarter and the first nine months of 2014. Revenue showed significant year-over-year growth, driven by a healthy increase in comparable restaurant sales and the opening of new locations. The company's commitment to "Food With Integrity" continues to resonate with customers, as evidenced by the strong traffic and average check growth. Despite some inflationary pressures on food costs, Chipotle demonstrated effective cost management, leading to improved operating margins compared to the prior year. From an operational standpoint, Chipotle continued its aggressive expansion, opening a considerable number of new restaurants. The company also continued its share repurchase program, returning value to shareholders. While facing ongoing legal and regulatory investigations related to employee work authorization, the company has settled shareholder derivative actions and appears to be cooperating with authorities. Management expressed confidence in the company's liquidity and ability to fund future growth through operating cash flow and existing cash reserves.

Financial Highlights

42 data points
Beta

Net Income

$130.80M

EPS (Diluted)

$0.08

Total Assets

$2.44B

Cash & Equivalents

$442.62M

Free Cash Flow

$131.76M

Financial Statements
Beta
Operating Expenses$876.79M
Operating Income$207.44M
Net Income$130.80M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.58B

Key Highlights

  • 1Revenue increased by 31.1% in Q3 2014 and 28.2% for the first nine months of 2014 compared to the prior year periods.
  • 2Comparable restaurant sales increased by a robust 19.8% in Q3 2014 and 17.0% for the first nine months of 2014, driven by customer visits and higher average checks.
  • 3The company opened 132 new restaurants in the first nine months of 2014, contributing to revenue growth, with plans to open 180-195 in full year 2014.
  • 4Food, beverage, and packaging costs as a percentage of revenue slightly increased to 34.3% in Q3 2014 (from 33.6% in Q3 2013), attributed to inflation in key ingredients.
  • 5Labor costs as a percentage of revenue decreased to 21.2% in Q3 2014 (from 22.8% in Q3 2013) due to higher sales volume and menu price increases.
  • 6Net income grew significantly, with diluted EPS reported at $4.15 for Q3 2014, up from $2.66 in Q3 2013.
  • 7Chipotle repurchased $63.4 million of its common stock during the first nine months of 2014 and had $126.8 million available under its repurchase authorization as of September 30, 2014.

Frequently Asked Questions

Chipotle's revenue growth was primarily driven by a combination of strong comparable restaurant sales increases (19.8% in Q3 2014) and the opening of new restaurants. The comparable sales growth was fueled by an increase in customer visits and a higher average check, partly due to menu price increases.

Food, beverage, and packaging costs increased as a percentage of revenue in Q3 2014 (34.3% vs. 33.6% in Q3 2013) due to inflationary pressures on ingredients like beef, avocados, and dairy. However, this impact was partially offset by menu price increases. Management expects food cost inflation to continue.

Chipotle opened 132 new restaurants in the first nine months of 2014 and expected to open between 180-195 for the full year. For comparable restaurant sales, the company anticipated mid-teen growth for the full year 2014 and low to mid-single digit growth for 2015, reflecting tougher comparisons.

Chipotle was involved in a shareholder derivative action related to employee work authorization compliance, which was settled in August 2014. The company was also undergoing civil and potential criminal investigations by the SEC and U.S. Attorney's office regarding employee work authorization verification and disclosures. While the company expressed full cooperation and believed its practices were compliant, the ultimate outcome of these investigations regarding potential fines or liabilities was not determinable at the time of the filing.