10-QPeriod: Q3 FY2016

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 26, 2016For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. (CMG) reported its third-quarter 2016 results, reflecting a challenging period marked by ongoing impacts from food safety incidents in late 2015 and early 2016. Revenue declined by 14.8% year-over-year to $1.037 billion, driven by a significant 21.9% decrease in comparable restaurant sales, largely due to a 15.2% drop in transaction volume. Net income saw a substantial decrease to $7.8 million from $144.9 million in the prior year's quarter, resulting in diluted earnings per share of $0.27, down from $4.59. Despite the revenue downturn, the company is implementing recovery strategies, including increased marketing spend and the "Chiptopia Summer Rewards" program, which showed some improvement in comparable sales trends during the quarter. The company also continued its restaurant development, opening 55 new locations in the quarter. Management provided an outlook for 2017 targeting high single-digit comparable restaurant sales increases and a focus on cost efficiencies. Significant share repurchases continued, underscoring a commitment to returning capital to shareholders.

Financial Highlights

44 data points
Beta

Net Income

$7.80M

EPS (Diluted)

$0.01

Total Assets

$2.07B

Cash & Equivalents

$154.13M

Free Cash Flow

$35.87M

Financial Statements
Beta
Operating Expenses$1.03B
Operating Income$9.73M
Net Income$7.80M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)1.45B
Shares Outstanding (Diluted)1.46B

Key Highlights

  • 1Revenue declined 14.8% to $1.037 billion in Q3 2016 compared to Q3 2015.
  • 2Comparable restaurant sales decreased by 21.9% in Q3 2016.
  • 3Net income fell sharply to $7.8 million from $144.9 million in Q3 2015.
  • 4Diluted EPS dropped to $0.27 from $4.59 in the prior year's quarter.
  • 5The company incurred a $14.5 million impairment charge related to its ShopHouse restaurants.
  • 6Chipotle opened 55 new restaurants in Q3 2016, with 171 opened year-to-date.
  • 7The company repurchased approximately $171.8 million worth of its common stock in Q3 2016.

Frequently Asked Questions

The primary reason for the decline is the ongoing impact of food safety incidents that occurred in late 2015 and early 2016. These incidents led to a significant decrease in customer traffic and comparable restaurant sales, which directly impacted revenue and profitability.

Chipotle is employing a multi-pronged recovery strategy. This includes increased marketing and promotional spending to regain customer trust and traffic, as well as loyalty programs like the 'Chiptopia Summer Rewards' program offered in Q3 2016. The company is also focusing on digital ordering improvements and a positive outlook for new restaurant openings.

The $14.5 million impairment charge reflects that the company has decided not to invest further in the ShopHouse brand. This decision was based on underperformance and negative future cash flow projections for those restaurants, indicating a strategic shift away from this particular concept.

Chipotle is targeting comparable restaurant sales increases in the high single-digits for the full year 2017. This optimism is based on easier year-over-year comparisons and planned marketing initiatives, alongside improvements in digital ordering platforms.