10-QPeriod: Q1 FY2018

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 26, 2018For Securities:CMG

Summary

Chipotle Mexican Grill Inc. (CMG) reported solid revenue growth of 7.4% to $1.15 billion for the first quarter of 2018, driven by comparable restaurant sales increases of 2.2% and the addition of new units. Despite a slight decrease in transactions, an increase in average check, attributed partly to menu price increases, helped boost sales. The company also saw a favorable shift in restaurant operating costs as a percentage of revenue to 80.5% from 82.3% in the prior year, primarily due to reduced marketing spend. While net income rose to $59.4 million from $46.1 million in the prior year, and diluted EPS increased to $2.13 from $1.60, investors should note the ongoing legal proceedings and investigations, particularly those related to the 2017 data security incident. The company also announced a new $100 million share repurchase authorization, indicating a commitment to returning capital to shareholders. Management expects full-year comparable restaurant sales to be in the low single digits.

Financial Highlights

46 data points
Beta

Revenue

$1.15B

Net Income

$59.45M

5.2% Net Margin

EPS (Diluted)

$0.04

Total Assets

$2.10B

Cash & Equivalents

$231.84M

Free Cash Flow

$143.59M

Financial Statements
Beta
Revenue$1.15B
Operating Expenses$1.06B
Operating Income$92.81M
Net Income$59.45M
EPS (Basic)$0.04
EPS (Diluted)$0.04
Shares Outstanding (Basic)1.40B
Shares Outstanding (Diluted)1.40B

Key Highlights

  • 1Revenue increased by 7.4% to $1.15 billion for the first quarter of 2018.
  • 2Comparable restaurant sales increased by 2.2%, driven by higher average checks (4.9% from menu price increases) partially offset by fewer transactions.
  • 3Restaurant operating costs as a percentage of revenue improved to 80.5% from 82.3% in the prior year, aided by lower marketing and promotional spending.
  • 4Net income grew to $59.4 million, or $2.13 per diluted share, from $46.1 million, or $1.60 per diluted share, in the first quarter of 2017.
  • 5The company opened 35 new restaurants and expects to open between 130-150 new locations in 2018.
  • 6Chipotle announced an additional $100 million share repurchase authorization, bringing the total available for repurchase to $50.2 million as of March 31, 2018.
  • 7The company is facing ongoing litigation related to the 2017 data security incident, with an estimated accrual of $30 million as of March 31, 2018.

Frequently Asked Questions

Revenue growth was driven by comparable restaurant sales increases of 2.2% and the addition of new restaurants. The increase in comparable sales was primarily due to a higher average check size, which was positively impacted by menu price increases implemented over the past year, though this was partially offset by a decrease in the number of transactions.

Restaurant operating costs as a percentage of revenue decreased to 80.5% from 82.3% in the prior year's first quarter. This improvement was mainly due to lower marketing and promotional spending, and to a lesser extent, the increase in comparable restaurant sales. However, wage inflation at the crew and manager level partially offset these savings.

Chipotle expects full-year 2018 comparable restaurant sales increases to be in the low single digits. This forecast includes the impact of ongoing menu price increases.

As of March 31, 2018, Chipotle has accrued $30 million for estimated potential liabilities related to anticipated claims and assessments from payment card networks concerning the 2017 data security incident. The company is also defending against class-action lawsuits stemming from this incident. While insurance is expected to cover most investigation costs, potential legal expenses could exceed insurance coverage limits.