10-QPeriod: Q1 FY2015

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q1 Ended Mar 31, 2015

Filed April 22, 2015For Securities:CMG

Summary

Chipotle Mexican Grill Inc. reported strong financial performance for the first quarter ended March 31, 2015. Revenue surged by 20.4% to $1.089 billion, driven by a robust 10.4% increase in comparable restaurant sales and the opening of 49 new locations. Net income rose significantly to $122.6 million, translating to diluted earnings per share of $3.88, up from $2.64 in the prior year's quarter. The company's "Food With Integrity" initiative continues to be a core focus, though challenges with pork supply impacted sales slightly. Management expects continued growth, projecting 190-205 new restaurant openings for the full year and modest single-digit comparable sales growth, acknowledging a potential lingering negative impact from pork supply constraints. Key financial strengths include a substantial increase in operating income and a healthy cash position, with $543 million in cash and cash equivalents and significant investments. The company also continued its share repurchase program, buying back $23.2 million in stock during the quarter. While facing some supply chain challenges, particularly with pork, and ongoing investigations related to employee work authorization, Chipotle demonstrated a strong operational and financial trajectory, with improving margins in labor and occupancy costs as a percentage of revenue.

Financial Highlights

42 data points
Beta

Net Income

$122.64M

EPS (Diluted)

$0.08

Total Assets

$2.70B

Cash & Equivalents

$542.96M

Free Cash Flow

$183.36M

Financial Statements
Beta
Operating Expenses$891.24M
Operating Income$197.80M
Net Income$122.64M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.58B

Key Highlights

  • 1Revenue increased by 20.4% year-over-year to $1.089 billion for the first quarter of 2015.
  • 2Comparable restaurant sales grew by 10.4%, driven by increased average check and customer visits.
  • 3Net income more than doubled to $122.6 million, with diluted EPS reaching $3.88, up from $2.64.
  • 4The company opened 49 new restaurants in the quarter, contributing to overall growth, and plans to open 190-205 new locations in 2015.
  • 5Food, beverage, and packaging costs as a percentage of revenue decreased to 33.9% from 34.5% due to menu price increases and lower dairy prices.
  • 6Labor and occupancy costs as a percentage of revenue also improved, reflecting operational efficiencies and higher average sales.
  • 7Chipotle repurchased approximately $23.2 million of its common stock during the quarter under its authorized repurchase programs.

Frequently Asked Questions

Chipotle's revenue growth is driven by two primary factors: the opening of new restaurants and comparable restaurant sales increases. In the first quarter of 2015, new restaurant openings contributed $93.9 million to sales, while comparable restaurant sales, which increased by 10.4%, contributed an additional $90.9 million. This comparable sales growth was primarily fueled by an increase in the average check size, partly due to a menu price increase implemented in the second quarter of 2014, and to a lesser extent, an increase in customer visits.

Chipotle is facing a significant challenge with its pork supply chain. Due to identifying a pork supplier not meeting their 'Food With Integrity' standards, they have suspended purchases, leading to a shortfall that prevents them from serving carnitas in many U.S. restaurants. This situation is expected to negatively impact comparable restaurant sales by 1-2% until adequate supply from compliant sources is secured. Additionally, the company is involved in ongoing investigations by the U.S. Department of Homeland Security and the U.S. Securities and Exchange Commission regarding employee work authorization verification compliance, with the potential for unspecified fines or liabilities.

Chipotle demonstrated effective cost management in the first quarter of 2015. Food, beverage, and packaging costs decreased as a percentage of revenue to 33.9% (from 34.5% in the prior year) due to menu price increases and lower dairy costs, partially offset by higher beef and tortilla costs. Labor costs as a percentage of revenue also decreased to 22.4% (from 23.0%), attributed to higher average restaurant sales and menu price impacts, despite wage inflation. Occupancy costs as a percentage of revenue fell to 5.8% (from 6.1%) mainly due to higher average sales leveraging fixed costs. General and administrative expenses decreased in dollar terms, largely due to reduced stock-based compensation expense resulting from executive compensation program changes.

Chipotle anticipates that comparable restaurant sales increases for the full year 2015 will be in the low to mid-single digits. This forecast includes a continued negative impact of up to 2% until the company can secure sufficient pork supplies that meet its standards for all of its restaurants. The company experienced a 1-2% reduction in comparable sales growth in the first quarter of 2015 due to weather and the pork supply shortage.