10-QPeriod: Q2 FY2020

CHIPOTLE MEXICAN GRILL INC Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 29, 2020For Securities:CMG

Summary

Chipotle Mexican Grill Inc. (CMG) reported its second-quarter 2020 financial results on July 29, 2020, for the period ending June 29, 2020. The company faced significant headwinds due to the COVID-19 pandemic, which led to a 4.8% decrease in revenue to $1.36 billion and a 9.8% decline in comparable restaurant sales. Despite the challenging environment, digital sales surged by 216.3% to $829.3 million, representing 60.7% of total sales, highlighting a strong shift towards online ordering and delivery. Net income for the quarter was $8.2 million, or $0.29 per diluted share, a substantial decrease from the prior year, partly due to after-tax impacts of $0.11 per share related to restaurant asset impairment, closure costs, and corporate restructuring. The company has implemented various measures to manage costs and preserve liquidity, including temporarily suspending share repurchases and focusing on essential capital expenditures. Management expressed confidence in long-term growth opportunities, particularly with the expansion of the "Chipotlane" drive-through format, and expects to accelerate new unit development in 2021.

Financial Highlights

46 data points
Beta

Revenue

$1.36B

Net Income

$8.18M

0.6% Net Margin

EPS (Diluted)

$0.01

Total Assets

$5.37B

Cash & Equivalents

$605.62M

Free Cash Flow

$35.06M

Financial Statements
Beta
Revenue$1.36B
Operating Expenses$1.37B
Operating Income-$4.94M
Net Income$8.18M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)1.40B
Shares Outstanding (Diluted)1.42B

Key Highlights

  • 1Revenue decreased by 4.8% to $1.36 billion for Q2 2020 compared to Q2 2019, largely due to COVID-19 impacts.
  • 2Comparable restaurant sales declined by 9.8%, though sales trends improved sequentially throughout the quarter.
  • 3Digital sales experienced explosive growth, increasing by 216.3% to $829.3 million, constituting 60.7% of total revenue.
  • 4Diluted Earnings Per Share (EPS) was $0.29, which included $0.11 per share impact from asset impairment, closure costs, and restructuring charges.
  • 5The company opened 37 new restaurants, including 21 with the "Chipotlane" format, reinforcing its confidence in new unit development.
  • 6Chipotle has taken steps to preserve liquidity, including suspending share repurchases and focusing on essential capital spending.
  • 7Cash and cash equivalents and short-term investments totaled $906.6 million, providing a strong liquidity position.

Frequently Asked Questions

The COVID-19 pandemic significantly impacted Chipotle's Q2 2020 results, leading to a 4.8% decrease in revenue and a 9.8% decline in comparable restaurant sales. This was primarily due to temporary restaurant closures, dining room restrictions, and shifts in consumer behavior. However, the pandemic also accelerated the adoption of digital ordering and delivery, which saw substantial growth.

Chipotlane is Chipotle's drive-through format, designed to enhance guest access and convenience, particularly for digital orders. In Q2 2020, 21 of the 37 new restaurants opened featured a Chipotlane. The company reported that the Chipotlane format continues to perform very well, contributing to increased new restaurant sales, margins, and returns. Chipotle is confident in its ability to double the number of restaurants in the U.S. and plans to accelerate new unit development, with an emphasis on Chipotlanes.

Chipotle maintained a strong liquidity position as of June 30, 2020, with $906.6 million in cash and short-term investments, plus $600 million in undrawn credit facility capacity. To preserve cash, the company temporarily suspended its stock buyback program, halted non-essential travel and expenses, and deferred non-essential reinvestments, focusing capital expenditures on essential remodels and technology. The company also benefited from liquidity enhancements under the CARES Act, such as deferring social security tax payments.

Restaurant operating costs as a percentage of revenue increased by 870 basis points to 87.8% in Q2 2020. Key drivers for this increase included higher delivery expenses due to increased delivery sales and promotions, sales deleverage, temporary investments in employee assistance pay due to COVID-19, and increased delivery promotions. These were partially offset by lower avocado prices and menu price increases.