10-QPeriod: Q3 FY2019

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q3 Ended Sep 30, 2019

Filed October 23, 2019For Securities:CMG

Summary

Chipotle Mexican Grill (CMG) reported strong financial performance for the third quarter and first nine months of 2019, driven by robust comparable restaurant sales growth and improved operational efficiencies. Revenue increased by 14.6% and 13.9% for the three and nine months ended September 30, 2019, respectively, reflecting solid demand for its offerings. The company has successfully integrated its new loyalty program, Chipotle Rewards, and continues to expand its digital ordering capabilities, with out-of-restaurant sales now representing a significant portion of total revenue. Profitability saw a substantial improvement, with net income more than doubling year-over-year for both the quarter and the year-to-date period. This was supported by effective cost management, particularly in labor and occupancy costs as a percentage of revenue, and strategic menu price increases. The company is also progressing with its corporate restructuring and planned restaurant closures, which are expected to drive future efficiencies. Chipotle maintains a strong liquidity position and is actively returning capital to shareholders through its share repurchase program.

Financial Highlights

46 data points
Beta

Revenue

$1.40B

Net Income

$98.58M

7.0% Net Margin

EPS (Diluted)

$0.07

Total Assets

$4.94B

Cash & Equivalents

$386.56M

Free Cash Flow

$138.56M

Financial Statements
Beta
Revenue$1.40B
Operating Expenses$1.29B
Operating Income$115.62M
Net Income$98.58M
EPS (Basic)$0.07
EPS (Diluted)$0.07
Shares Outstanding (Basic)1.39B
Shares Outstanding (Diluted)1.42B

Key Highlights

  • 1Revenue for the nine months ended September 30, 2019, increased by 13.9% to $4.15 billion, compared to $3.64 billion in the prior year.
  • 2Comparable restaurant sales increased by 11.0% for the three months and 10.3% for the nine months ended September 30, 2019.
  • 3Net income surged significantly, reaching $98.6 million ($3.47 diluted EPS) for the quarter and $277.7 million ($9.83 diluted EPS) for the nine months, a substantial increase from the prior year periods.
  • 4Out-of-restaurant orders grew significantly, comprising 17.5% of total revenue for the nine months ended September 30, 2019.
  • 5Restaurant operating costs as a percentage of revenue decreased to 79.1% for the nine months ended September 30, 2019, down from 80.7% in the prior year, indicating improved efficiency.
  • 6The company repurchased approximately $49.7 million of its common stock during the third quarter of 2019.
  • 7Adoption of new lease accounting standards (Topic 842) resulted in the recognition of significant operating lease assets and liabilities on the balance sheet as of January 1, 2019.

Frequently Asked Questions

Revenue growth was primarily driven by comparable restaurant sales increases of 11.0%, which benefited from a 7.4% increase in comparable restaurant transactions and a 3.5% increase in the average check. This was further supported by revenue from new restaurants not yet included in the comparable base.

Chipotle demonstrated improved cost management. Restaurant operating costs (food, beverage, packaging, labor, occupancy, and other) decreased as a percentage of revenue to 79.1% for the nine months ended September 30, 2019, down from 80.7% in the prior year. This was largely due to sales leverage from comparable restaurant sales increases, although partially offset by wage inflation and increased ingredient costs.

The national loyalty program, Chipotle Rewards, launched in the first quarter of 2019, has led to revenue deferral associated with earned points and rewards. For the nine months ended September 30, 2019, this deferral had an adverse impact of 0.2% on comparable restaurant sales. Revenue is recognized as rewards are redeemed by customers.

Chipotle is continuing with its corporate restructuring, which involved opening a new headquarters and consolidating offices, expecting total costs of approximately $55-60 million. The company also announced planned closures of underperforming restaurants, having closed 48 Chipotle and 5 Pizzeria Locale restaurants as of September 30, 2019, with associated costs incurred to date.