10-QPeriod: Q2 FY2015

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q2 Ended Jun 30, 2015

Filed July 22, 2015For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. (CMG) reported strong financial performance for the second quarter and first half of 2015, demonstrating robust revenue growth driven by new restaurant openings and increasing comparable restaurant sales. The company's "Food With Integrity" ethos continues to be a key differentiator, though it faced challenges with pork supply impacting carnitas availability. Despite these supply chain issues, Chipotle managed to grow its revenue by 14.1% in the quarter and 17.0% year-to-date, with diluted EPS rising to $4.45 and $8.34 respectively. Financially, the company maintained healthy margins, with food costs as a percentage of revenue decreasing due to favorable pricing on some ingredients and a menu price increase from the prior year, though labor costs saw a slight increase as a percentage of revenue due to scheduling inefficiencies and wage inflation. Chipotle also announced a significant increase in its share repurchase program, underscoring management's confidence in the company's financial health and future prospects. The company continues to expand its store base and maintain a strong balance sheet, providing ample liquidity for growth and shareholder returns.

Financial Highlights

42 data points
Beta

Net Income

$140.20M

EPS (Diluted)

$0.09

Total Assets

$2.81B

Cash & Equivalents

$587.68M

Free Cash Flow

$103.38M

Financial Statements
Beta
Operating Expenses$970.37M
Operating Income$227.42M
Net Income$140.20M
EPS (Basic)$0.09
EPS (Diluted)$0.09
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.58B

Key Highlights

  • 1Revenue increased by 14.1% to $1.2 billion for Q2 2015 and by 17.0% to $2.3 billion for the first six months of 2015.
  • 2Comparable restaurant sales increased by 4.3% in Q2 2015 and 7.1% for the first six months of 2015, driven by higher average checks.
  • 3Diluted earnings per share (EPS) reached $4.45 for Q2 2015 and $8.34 for the first six months of 2015, up from $3.50 and $6.14 respectively in the prior year.
  • 4The company opened 97 new restaurants in the first six months of 2015, and expects to open at or above the high end of its 190-205 range for the full year.
  • 5Food, beverage, and packaging costs as a percentage of revenue decreased to 33.1% in Q2 2015 and 33.5% year-to-date, aided by menu price increases and favorable commodity prices.
  • 6General and administrative expenses decreased by 6.2% in Q2 2015 due to lower stock-based compensation and bonus expenses.
  • 7Chipotle announced an additional $100 million share repurchase authorization, following $116.3 million in repurchases during the first six months of 2015.

Frequently Asked Questions

Revenue growth was primarily driven by two factors: new restaurant openings and increases in comparable restaurant sales. New restaurants opened during the period contributed significantly, and comparable restaurant sales saw an increase driven by a higher average check, partly due to a menu price increase implemented in the second quarter of 2014.

The company identified a pork supplier that was not meeting its standards for pig housing conditions, leading to a suspension of purchases. This resulted in a shortage of carnitas, which could not be served in many U.S. restaurants during the first half of the year. This supply constraint is expected to negatively impact comparable restaurant sales by approximately 1-2% until pork supply is fully restored.

Labor costs as a percentage of revenue increased slightly due to higher numbers of crew and managers, scheduling inefficiencies, and wage inflation. However, the company expects improvement in the second half of 2015 due to the resolution of scheduling system issues and anticipates labor costs as a percentage of revenue to remain comparable to the first six months of the year.

Chipotle has a strong commitment to returning capital to shareholders. In addition to repurchasing $116.3 million worth of stock in the first six months of 2015, the company's Board of Directors authorized an additional $100 million for share repurchases announced on July 21, 2015. These repurchases are conducted in open market transactions, subject to market conditions.