10-QPeriod: Q3 FY2017

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 25, 2017For Securities:CMG

Summary

Chipotle Mexican Grill, Inc. (CMG) reported its third-quarter 2017 results, showing a revenue increase of 8.8% year-over-year to $1.128 billion, driven by a 1.0% increase in comparable restaurant sales and revenue from new restaurant openings. For the first nine months of 2017, revenue grew 17.3% to $3.366 billion, with comparable sales up 8.3%. Net income for the quarter rose significantly to $19.6 million ($0.69 per diluted share) from $7.8 million ($0.27 per diluted share) in the prior year. Despite operational improvements and cost management, the company incurred a significant charge of $30 million related to a data security incident impacting payment card systems. This incident and ongoing litigation represent a key risk factor and potential future liability. The company continues to focus on operational excellence and sales growth, planning a menu price increase and queso rollout in Q4 2017, while moderating new restaurant development for 2018.

Financial Highlights

45 data points
Beta

Revenue

$1.13B

Net Income

$19.61M

1.7% Net Margin

EPS (Diluted)

$0.01

Total Assets

$2.06B

Cash & Equivalents

$113.48M

Free Cash Flow

$83.89M

Financial Statements
Beta
Revenue$1.13B
Operating Expenses$1.10B
Operating Income$30.87M
Net Income$19.61M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)1.42B
Shares Outstanding (Diluted)1.42B

Key Highlights

  • 1Revenue increased by 8.8% to $1.128 billion in Q3 2017, with comparable restaurant sales up 1.0%.
  • 2Net income for Q3 2017 was $19.6 million, or $0.69 per diluted share, a substantial increase from $7.8 million, or $0.27 per diluted share, in Q3 2016.
  • 3The company recorded a $30 million charge related to a data security incident impacting payment card processing systems, affecting Q3 2017 results.
  • 4Food, beverage, and packaging costs as a percentage of revenue remained stable at 35.0% in Q3 2017, showing improved efficiency over the prior year.
  • 5Labor costs as a percentage of revenue decreased to 27.2% in Q3 2017, reflecting improved labor efficiencies.
  • 6Chipotle opened 145 restaurants in the first nine months of 2017 and plans to open fewer new restaurants in 2018 (130-150) to focus on operational improvements.
  • 7The company authorized an additional $100 million for share repurchases, demonstrating a commitment to returning capital to shareholders.

Frequently Asked Questions

Revenue growth in Q3 2017 was driven by an 8.8% increase to $1.128 billion. This was a result of a 1.0% increase in comparable restaurant sales and revenue generated from newly opened restaurants. The nine-month period saw a more significant 17.3% revenue increase.

Chipotle recorded a $30 million charge (approximately $0.64 per diluted share) in the third quarter of 2017 as an estimate for potential liabilities related to the data security incident that affected payment card processing systems. This significantly impacted the quarter's net income, although the company is pursuing insurance coverage and may incur costs beyond current estimates.

The company demonstrated improved cost management, with food, beverage, and packaging costs remaining stable as a percentage of revenue. Labor costs also decreased as a percentage of revenue due to efficiencies in crew deployment and fewer managers. Other operating costs also saw a reduction as a percentage of revenue, largely due to decreased marketing spend, though this is expected to increase in Q4.

Chipotle is moderating its new restaurant expansion plans, expecting to open 130-150 new restaurants in 2018, down from previous levels, to focus on improving existing operations. The company also announced an additional $100 million authorization for share repurchases, indicating a continued focus on returning capital to shareholders alongside operational investments.