Chipotle Mexican Grill, Inc. Announces Fourth Quarter and Full Year 2015 Results; CDC Investigation Over; Chipotle Welcomes Customers Back to Restaurants

DENVER--(BUSINESS WIRE)--Feb. 2, 2016-- Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its fourth quarter and full year ended December 31, 2015.

Highlights for the fourth quarter of 2015 as compared to the fourth quarter of 2014 include:

  • Revenue decreased 6.8% to $997.5 million
  • Comparable restaurant sales decreased 14.6%
  • Restaurant level operating margin was 19.6%, a decrease of 700 basis points
  • Net income was $67.9 million, a decrease of 44.0%
  • Diluted earnings per share was $2.17, a decrease of 43.5%
  • Opened 79 new restaurants

Highlights for the twelve months ended December 31, 2015 as compared to the prior year include:

  • Revenue increased 9.6% to $4.5 billion
  • Comparable restaurant sales increased 0.2%
  • Restaurant level operating margin was 26.1%, a decrease of 110 basis points
  • Net income was $475.6 million, an increase of 6.8%
  • Diluted earnings per share was $15.10, an increase of 6.9%
  • Opened 229 new restaurants

“The fourth quarter of 2015 was the most challenging period in Chipotle’s history, but the Centers for Disease Control and Prevention has now concluded its investigation into the recent E. coli incidents associated with Chipotle. We are pleased to have this behind us and can place our full energies to implementing our enhanced food safety plan that will establish Chipotle as an industry leader in food safety. We are extremely focused on executing this program, which designs layers of redundancy and enhanced safety measures to reduce the food safety risk to a level as near to zero as is possible. By adding these programs to an already strong and proven food culture, we strongly believe that we can establish Chipotle as a leader in food safety just as we have become a leader in our quest for the very best ingredients we can find,” said Steve Ells, founder, chairman and co-CEO of Chipotle.

Fourth quarter 2015 results

Revenue for the quarter was $997.5 million, a 6.8% decrease compared to the fourth quarter of 2014. The decrease was due primarily to a 14.6% decrease in comparable restaurant sales. The decrease in comparable restaurant sales was due to publicity during the quarter surrounding food-borne illness incidents associated with a number of Chipotle restaurants.

We opened 79 new restaurants during the quarter, bringing the total restaurant count to 2,010.

Food costs were 33.8% of revenue, a decrease of 120 basis points as compared to the fourth quarter of 2014, as a result of relief in dairy, avocado and beef prices and the benefit of our menu price increase, partially offset by costs related to food waste and testing.

Restaurant level operating margin was 19.6% in the quarter, a decrease of 700 basis points from the fourth quarter 2014. The decrease was primarily driven by the significant decrease in comparable restaurant sales and non-recurring costs related to the food-borne illness incidents, partially offset by favorable food costs.

General and administrative expenses were 4.7% of revenue, a decrease of 100 basis points due primarily to lower non-cash stock-based compensation expense and bonus costs, partially offset by higher wages as we grew.

Net income for the fourth quarter of 2015 was $67.9 million, or $2.17 per diluted share, compared to $121.2 million, or $3.84 per diluted share, in the fourth quarter of 2014. Diluted earnings per share of $2.17 was higher than prior expectations of $1.70 to $1.90 per share primarily driven by lower non-cash stock based compensation expense related to vesting of performance shares.

Full year ended December 31, 2015 results

Revenue for the full year of 2015 was $4.5 billion, up 9.6% from the prior year. The growth in revenue was driven by sales from new restaurants not yet in the comparable base.

We opened 229 new restaurants during the full year of 2015, bringing the total restaurant count to 2,010.

Food costs were 33.4% of revenue, a decrease of 120 basis points as compared to the prior year, primarily as a result of the benefit of menu price increases and relief in dairy and avocado costs. The decrease was partially offset by inflation on beef.

Restaurant level operating margin was 26.1% for the full year of 2015, a decrease of 110 basis points from the prior year. The decrease was primarily driven by higher labor and other operating costs, partially offset by lower food costs.

General and administrative expenses were 5.6% of revenue, a decrease of 110 basis points due to decreased non-cash stock-based compensation expense, lower bonus expense, and decreased expense associated with our biennial All Managers’ Conference held in the third quarter of 2014, partially offset by higher wages as we grew.

Net income for the full year 2015 was $475.6 million, or $15.10 per diluted share, compared to $445.4 million, or $14.13 per diluted share in the full year 2014.

“2016 will be a very difficult year relative to our past performance. But, by staying true to our food culture and unique people culture, and layering on our rigorous food safety program, we are confident that we are now in a position to aggressively welcome customers into our restaurants and restore customer confidence in the things that make Chipotle great. With our full commitment to becoming an industry leader in food safety, and our continued focus on delivering an exceptional customer experience, we are confident that Chipotle will emerge as an even stronger company,” said Monty Moran, co-CEO of Chipotle.

On January 28, 2016, Chipotle was served with a subpoena broadening the scope of the previously-announced criminal investigation by the U.S. Attorney’s office for the Central District of California. The new subpoena requires us to produce documents and information related to company-wide food safety matters dating back to January 1, 2013, and supersedes the subpoena served in December 2015 that was limited to a single Chipotle restaurant in Simi Valley, California. We intend to fully cooperate in the investigation.

Additionally, our Board of Directors has approved the investment of up to an additional $300 million, exclusive of commissions, to repurchase shares of our common stock. This repurchase authorization, in addition to up to approximately $178 million available as of January 31 for repurchases under previously announced repurchase authorizations, may be modified, suspended, or discontinued at any time.

Outlook

For 2016, management expects the following:

  • 220-235 new restaurant openings
  • An effective full year tax rate of approximately 39.0%

Definitions

The following definitions apply to these terms as used throughout this release:

Comparable restaurant sales represent the change in period-over-period sales for restaurants in operation for at least 13 full calendar months.

Average restaurant sales refers to the average trailing 12-month sales for restaurants in operation for at least 12 full calendar months.

Restaurant level operating margin represents total revenue less restaurant operating costs, expressed as a percent of total revenue.

Conference Call

Chipotle will host a conference call to discuss the fourth quarter and full year 2015 financial results on Tuesday, February 2, 2016 at 5:00 PM Eastern time.

The conference call can be accessed live over the phone by dialing 1-888-523-1232 or for international callers by dialing 1-719-325-4877. A replay will be available one hour after the call and can be accessed by dialing 1-877-870-5176 or 1-858-384-5517 for international callers; the password is 214044. The replay will be available until February 9, 2016. The call will be webcast live from the company's website at chipotle.com under the investor relations section. An archived webcast will be available approximately one hour after the end of the call.

About Chipotle

Steve Ells, founder, chairman and co-CEO, started Chipotle with the idea that food served fast did not have to be a typical fast food experience. Today, Chipotle continues to offer a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in a distinctive atmosphere. Through our vision of Food With Integrity, Chipotle is seeking better food from using ingredients that are not only fresh, but that—where possible—are sustainably grown and raised responsibly with respect for the animals, the land, and the farmers who produce the food. In order to achieve this vision, we focus on building a special people culture that is centered on creating teams of top performers empowered to achieve high standards. This people culture not only leads to a better dining experience for our customers, it also allows us to develop future leaders from within. Chipotle opened with a single restaurant in 1993 and operates more than 2,000 restaurants, including 23 Chipotle restaurants outside the US, 13 ShopHouse Southeast Asian Kitchen restaurants, and is an investor in a consolidated entity that owns and operates three Pizzeria Locale restaurants. For more information, visit Chipotle.com.

Forward-Looking Statements

Certain statements in this press release, including statements under the heading “Outlook” of our expected number of new restaurant openings and effective tax rates for 2016, as well as statements regarding our enhanced food safety plan and restoring customer confidence in Chipotle, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We use words such as “anticipate”, “believe”, “could”, “should”, “estimate”, “expect”, “intend”, “may”, “predict”, “project”, “target”, and similar terms and phrases, including references to assumptions, to identify forward-looking statements. The forward-looking statements in this press release are based on information available to us as of the date any such statements are made and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, the following: the uncertainty of our ability to achieve expected levels of comparable restaurant sales increases due to factors such as changes in consumers’ acceptance of and enthusiasm for our brand, including as a result of recent food-borne illness incidents, the impact of competition, or our possible inability to increase menu prices or realize the benefits of menu price increases; the risk of food-borne illnesses and other health concerns about our food or dining out generally; factors that could affect our ability to achieve and manage our planned expansion, such as the availability of a sufficient number of suitable new restaurant sites and the availability of qualified employees; the performance of new restaurants and their impact on existing restaurant sales; increases in the cost of food ingredients and other key supplies or higher food costs due to new supply chain protocols; the potential for increased labor costs or difficulty retaining qualified employees, including as a result of market pressures, enhanced food safety procedures in our restaurants, or new regulatory requirements; risks relating to our expansion into new markets; the impact of federal, state or local government regulations relating to our employees, our restaurant design, or the sale of food or alcoholic beverages; risks associated with our Food With Integrity strategy, including supply shortages and potential liabilities from advertising claims and other marketing activities related to Food With Integrity; security risks associated with the acceptance of electronic payment cards or electronic storage and processing of confidential customer or employee information; risks relating to litigation, including possible governmental actions related to food-borne illness incidents, as well as class action litigation regarding employment laws, advertising claims or other matters; risks relating to our insurance coverage and self-insurance; our dependence on key personnel; risks related to our marketing and advertising strategies and ability to protect our brand and reputation; risks associated with our ability to effectively manage our growth; and other risk factors described from time to time in our SEC reports, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, all of which are available on our website at chipotle.com.

                   

Chipotle Mexican Grill, Inc.
Condensed Consolidated Statement of Income and Comprehensive Income
(in thousands, except per share data)
(unaudited)

                   
  Three months ended December 31,
  2015   2014
Revenue $ 997,507     100.0 %   $ 1,069,811     100.0 %

Restaurant operating costs (exclusive of depreciation and
amortization shown separately below):

                 
Food, beverage and packaging   337,065     33.8       373,991     35.0  
Labor   260,585     26.1       237,310     22.2  
Occupancy   68,143     6.8       60,930     5.7  
Other operating costs   136,184     13.7       112,732     10.5  
General and administrative expenses   46,875     4.7       60,929     5.7  
Depreciation and amortization   34,140     3.4       29,750     2.8  
Pre-opening costs   5,452     0.5       4,088     0.4  
Loss on disposal of assets   5,450     0.5       2,209     0.2  
Total operating expenses   893,894     89.6       881,939     82.4  
Income from operations   103,613     10.4       187,872     17.6  
Interest and other income (expense), net   1,795     0.2       885     0.1  
Income before income taxes   105,408     10.6       188,757     17.6  
Provision for income taxes   (37,534 )   (3.8 )     (67,523 )   (6.3 )
Net income $ 67,874     6.8 %   $ 121,234     11.3 %
Other comprehensive loss, net of income taxes:                  
Foreign currency translation adjustments   (1,718 )         (1,008 )    

Unrealized loss on investments, net of income taxes of
$946 and $0

  (1,522 )         -      
Other comprehensive loss, net of income taxes   (3,240 )         (1,008 )    
Comprehensive income $ 64,634         $ 120,226      
Earnings per share:                  
Basic $ 2.19         $ 3.91      
Diluted $ 2.17         $ 3.84      
Weighted average common shares outstanding:                  
Basic   31,027           31,024      
Diluted   31,312           31,542      
                       

Chipotle Mexican Grill, Inc.
Condensed Consolidated Statement of Income and Comprehensive Income
(in thousands, except per share data)

                   
  Year ended December 31,
  2015   2014
Revenue $ 4,501,223     100.0 %   $ 4,108,269     100.0 %

Restaurant operating costs (exclusive of depreciation and
amortization shown separately below):

                 
Food, beverage and packaging   1,503,835     33.4       1,420,994     34.6  
Labor   1,045,726     23.2       904,407     22.0  
Occupancy   262,412     5.8       230,868     5.6  
Other operating costs   514,963     11.4       434,244     10.6  
General and administrative expenses   250,214     5.6       273,897     6.7  
Depreciation and amortization   130,368     2.9       110,474     2.7  
Pre-opening costs   16,922     0.4       15,609     0.4  
Loss on disposal of assets   13,194     0.3       6,976     0.2  
Total operating expenses   3,737,634     83.0       3,397,469     82.7  
Income from operations   763,589     17.0       710,800     17.3  
Interest and other income (expense), net   6,278     0.1       3,503     0.1  
Income before income taxes   769,867     17.1       714,303     17.4  
Provision for income taxes   (294,265 )   (6.5 )     (268,929 )   (6.5 )
Net income $ 475,602     10.6 %   $ 445,374     10.8 %
Other comprehensive loss, net of income taxes:                  
Foreign currency translation adjustments   (6,322 )         (2,049 )    

Unrealized loss on investments, net of income taxes of
$946 and $0

  (1,522 )         -      
Other comprehensive loss, net of income taxes   (7,844 )         (2,049 )    
Comprehensive income $ 467,758         $ 443,325      
Earnings per share:                  
Basic $ 15.30         $ 14.35      
Diluted $ 15.10         $ 14.13      
Weighted average common shares outstanding:                  
Basic   31,092           31,038      
Diluted   31,494           31,512      
                   

Chipotle Mexican Grill, Inc.
Condensed Consolidated Balance Sheet
(in thousands, except per share data)

             
    December 31,
    2015   2014
       

(as adjusted)1

Assets            
Current assets:            
Cash and cash equivalents   $ 248,005     $ 419,465  

Accounts receivable, net of allowance for doubtful accounts of $1,176 and $1,199 as of December
31, 2015 and December 31, 2014, respectively

    38,283       34,839  
Inventory     15,043       15,332  
Prepaid expenses and other current assets     39,965       34,795  
Income tax receivable     58,152       16,488  
Investments     415,199       338,592  
Total current assets     814,647       859,511  
Leasehold improvements, property and equipment, net     1,217,220       1,106,984  
Long term investments     622,939       496,106  
Other assets     48,321       42,777  
Goodwill     21,939       21,939  
Total assets   $ 2,725,066     $ 2,527,317  
Liabilities and shareholders' equity            
Current liabilities:            
Accounts payable   $ 85,709     $ 69,613  
Accrued payroll and benefits     64,958       73,894  
Accrued liabilities     129,275       102,203  
Total current liabilities     279,942       245,710  
Deferred rent     251,962       219,414  
Deferred income tax liability     32,305       21,561  
Other liabilities     32,883       28,263  
Total liabilities     597,092       514,948  
Shareholders' equity:            

Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of December 31,
2015 and December 31, 2014, respectively

    -       -  

Common stock $0.01 par value, 230,000 shares authorized, and 35,790 and 35,394 shares issued as
of December 31, 2015 and December 31, 2014, respectively

    358       354  
Additional paid-in capital     1,172,628       1,038,932  

Treasury stock, at cost, 5,206 and 4,367 common shares at December 31, 2015 and December 31,
2014, respectively

    (1,234,612 )     (748,759 )
Accumulated other comprehensive income (loss)     (8,273 )     (429 )
Retained earnings     2,197,873       1,722,271  
Total shareholders' equity     2,127,974       2,012,369  
Total liabilities and shareholders' equity   $ 2,725,066     $ 2,527,317  
                 

1 Balances were adjusted because we adopted Financial Accounting Standards Board Accounting Standards Update No.
2015-07, “Income Taxes” which requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet.

 

Chipotle Mexican Grill, Inc.
Condensed Consolidated Statement of Cash Flows
(in thousands)

             
    Year ended December 31,
    2015   2014
Operating activities            
Net income   $ 475,602     $ 445,374  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization     130,368       110,474  
Deferred income tax (benefit) provision     11,666       (20,671 )
Loss on disposal of assets     13,194       6,976  
Bad debt allowance     (23 )     9  
Stock-based compensation expense     57,911       96,440  
Excess tax benefit on stock-based compensation     (74,442 )     (21,667 )
Other     582       104  
Changes in operating assets and liabilities:            
Accounts receivable     (3,504 )     (10,966 )
Inventory     262       (2,307 )
Prepaid expenses and other current assets     (5,259 )     (658 )
Other assets     (5,619 )     1,071  
Accounts payable     19,525       2,168  
Accrued liabilities     (7,440 )     35,019  
Income tax payable/receivable     32,756       8,831  
Deferred rent     32,911       27,025  
Other long-term liabilities     4,826       4,845  
Net cash provided by operating activities     683,316       682,067  
Investing activities            
Purchases of leasehold improvements, property and equipment     (257,418 )     (252,590 )
Purchases of investments     (559,372 )     (521,004 )
Maturities of investments     352,650       254,750  
Net cash used in investing activities     (464,140 )     (518,844 )
Financing activities            
Acquisition of treasury stock     (460,675 )     (88,338 )
Excess tax benefit on stock-based compensation     74,442       21,667  
Stock plan transactions and other financing activities     (207 )     (66 )
Net cash used in financing activities     (386,440 )     (66,737 )
Effect of exchange rate changes on cash and cash equivalents     (4,196 )     (224 )
Net change in cash and cash equivalents     (171,460 )     96,262  
Cash and cash equivalents at beginning of year     419,465       323,203  
Cash and cash equivalents at end of year   $ 248,005     $ 419,465  
Supplemental disclosures of cash flow information            
Income taxes paid   $ 248,547     $ 280,687  

Increase (decrease) in purchases of leasehold improvements, property and equipment accrued in
accounts payable and accrued liabilities

  $ (2,870 )   $ 9,424  
Increase in acquisition of treasury stock accrued in accrued liabilities   $ 25,178     $ -  
                 

Chipotle Mexican Grill, Inc.
Supplemental Financial and Other Data
(dollars in thousands)

                     
    For the three months ended
    Dec. 31,   Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,
    2015   2015   2015   2015   2014
Number of restaurants opened     79       53       48       49       60  
Restaurant relocations     -       -       (1 )     (1 )     (1 )
Number of restaurants at end of period     2,010       1,931       1,878       1,831       1,783  
Average restaurant sales   $ 2,424     $ 2,532     $ 2,530     $ 2,516     $ 2,472  
Comparable restaurant sales increase (decrease)     (14.6 %)     2.6 %     4.3 %     10.4 %     16.1 %
                     

 

View source version on businesswire.com: http://www.businesswire.com/news/home/20160202006613/en/

Source: Chipotle Mexican Grill, Inc.

Chipotle Mexican Grill, Inc.
Investor Relations:
Mark Alexee, 303-605-1042