10-QPeriod: Q1 FY2017

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 26, 2017For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. reported a significant turnaround in its first quarter of 2017, with net income recovering to $46.1 million, or $1.60 per diluted share, compared to a net loss of $26.4 million in the prior year period. This recovery was driven by a substantial 28.1% increase in revenue to $1.07 billion, largely fueled by a strong 17.8% comparable restaurant sales growth. The company benefited from increased transaction volumes, reduced promotional activity, and improved average check sizes, indicating a positive response to its renewed focus on customer experience and operational efficiency. While the company saw a strong top-line recovery, it also navigated ongoing challenges. A data security incident affecting payment processing networks was detected in April 2017, the investigation for which is ongoing. Despite this, management expressed confidence in future performance, projecting full-year comparable restaurant sales growth in the high single digits and continuing new restaurant development. The company also continued its share repurchase program, demonstrating a commitment to returning value to shareholders.

Financial Highlights

45 data points
Beta

Revenue

$1.07B

Net Income

$46.12M

4.3% Net Margin

EPS (Diluted)

$0.03

Total Assets

$2.06B

Cash & Equivalents

$122.41M

Free Cash Flow

$93.50M

Financial Statements
Beta
Revenue$1.07B
Operating Expenses$995.66M
Operating Income$73.17M
Net Income$46.12M
EPS (Basic)$0.03
EPS (Diluted)$0.03
Shares Outstanding (Basic)1.44B
Shares Outstanding (Diluted)1.44B

Key Highlights

  • 1Net income turned positive at $46.1 million ($1.60 EPS) in Q1 2017, a significant improvement from a net loss of $26.4 million in Q1 2016.
  • 2Revenue increased by 28.1% year-over-year to $1.07 billion, driven by strong comparable restaurant sales growth of 17.8%.
  • 3Comparable restaurant sales growth was attributed to an increase in transactions, reduced promotional activity, and a higher average check.
  • 4Restaurant operating costs as a percentage of revenue decreased by 10.9% due to sales leverage, reduced marketing expenses, and labor efficiencies.
  • 5The company opened 57 new restaurants in the quarter, with a full-year outlook of 195-210 new openings.
  • 6A data security incident affecting payment processing was detected in April 2017; investigations are ongoing, with potential insurance coverage for investigation costs.
  • 7Chipotle continued its share repurchase program, with $144.6 million remaining authorization as of March 31, 2017.

Frequently Asked Questions

The primary driver was a substantial recovery in revenue, up 28.1% to $1.07 billion, fueled by a strong 17.8% increase in comparable restaurant sales. This growth was supported by higher transaction volumes, a strategic reduction in promotional activities, and an increase in the average check size, indicating improved customer traffic and spending.

Chipotle expects full-year comparable restaurant sales increases to be in the high single digits. This guidance is based on the strong performance in Q1 2017 and the company's continued focus on enhancing the customer experience and operational efficiency.

Yes, investors should be aware of a data security incident detected in April 2017 affecting payment processing networks. The investigation is ongoing, and while insurance is expected to cover investigation costs, the company cannot yet estimate the amount of any potential card assessments, fines, or penalties. Additionally, there are ongoing legal proceedings, including a shareholder class action and derivative lawsuits, though the company intends to defend these vigorously.

Chipotle successfully reduced its restaurant operating costs as a percentage of revenue by 10.9% in Q1 2017. This was achieved through sales leverage, a reduction in marketing and promotional expenses, improved labor efficiencies, and lower food testing and waste costs.