Authorization

Chipotle Announces Second Quarter 2019 Results

NEWPORT BEACH, Calf., July 23, 2019 /PRNewswire/ --A Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its second quarter ended June 30, 2019.Second quarter highlights, year over year:

Revenue increased 13.2% to $1.4 billion



Comparable restaurant sales increased 10.0%, net of 40 bps from loyalty deferral, and included nearly 7% of comparable restaurant transaction growth



Digital sales grew 99.1% and accounted for 18.2% of sales for the quarter



Restaurant level operating margin was 20.9%, an increase from 19.7%



Diluted earnings per share was $3.22, net of a $0.77 after-tax impact from expenses related to restaurant asset impairment, corporate restructuring, and certain other costs, a 91.7% increase from $1.68. Adjusted diluted earnings per share excluding these charges was $3.99, a 39.0% increase from $2.87.1



Opened 20 new restaurants and closed 1

1A Adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures. Reconciliations to GAAP measures and further information are set forth in the table at the end of this press release."We're pleased with our financial performance, which marks the sixth consecutive quarter of accelerating comps and reflects continued progress on our key strategic initiatives," said Brian Niccol, Chief Executive Officer. "These strong results were delivered despite a tougher year over year comparison and benefited from better restaurant operations, more effective marketing, and leveraging our digital make line to grow sales and expand access." Results for the three months ended June 30, 2019: Revenue in the second quarter increased to $1.4 billion, an increase of 13.2% compared with the same quarter a year ago. The increase in revenue was driven by a 10.0% increase in comparable restaurant sales.A  Comparable restaurant sales improved primarily due to a nearly 7% increase in comparable restaurant transactions and an approximate 3.5% increase in the average check, which includes a benefit from menu price increases that were implemented during 2018, partially offset by approximately 40 basis points as a result of deferred revenue from our Chipotle Rewards loyalty program.We opened 20 new restaurants during the quarter and closed 1, bringing the total restaurant count to 2,523.Food, beverage and packaging costs were 33.7% of revenue, an increase of 110 basis points compared to the second quarter of 2018. The increase was primarily due to the increased cost of avocados and, to a lesser extent, increased dairy costs, partially offset by the benefit of menu price increases nationwide at the end of 2018.Restaurant level operating margin was 20.9%, an increase from 19.7% in the second quarter of 2018.A  The improvement was driven primarily by leverage from the comparable restaurant sales increase, partially offset by wage inflation at the crew level, higher food costs, and increased delivery, marketing and promotional expenses.General and administrative expenses for the quarter was $121 million on a GAAP basis, or $97 million on a non-GAAP basis, excluding $4 million related to transformation expenses, and $20 million for legal reserves. GAAP and non-GAAP general and administrative expenses includes $21 million related to non-cash stock compensation, and $4 million related to higher bonus accruals from our strong operating performance and payroll taxes on stock option exercises. Without these items, underlying general and administrative expenses totaled $72 million for the second quarter of 2019, similar to the first quarter of 2019 and in-line with expectations. The $20 million for legal reserves related to legal proceedings, much of which relate to older cases, includes an estimate for the previously disclosed government investigation that has been on-going for nearly four years.A Impairment, closure costs, and asset disposals decreased $40.8 million for the three months ended June 30, 2019, compared to the second quarter 2018, primarily due to elevated impairment in the comparable period 2018.The effective tax rate decreased to 26.6% for the three months ended June 30, 2019, from 33.3% in the second quarter of 2018.A  The decrease was primarily due to current quarter excess tax benefits from stock compensation, and a favorable reduction in non-deductible employee meals, partially offset by a portion of the loss contingencies related to legal proceedings recorded this quarter that are non-deductible.Net income was $91.0 million, or $3.22 per diluted share, an increase from $46.9 million, or $1.68 per diluted share, in the second quarter of 2018. Excluding the impact of restaurant closure costs, corporate restructuring, legal reserves, and certain other costs, adjusted net income was $112.9 million and adjusted diluted earnings per share was $3.99.During the quarter, our Board of Directors approved the investment of up to an additional $100 million, exclusive of commissions, to repurchase shares of our common stock. This repurchase authorization, in addition to approximately $46.6 million available as of June 30, 2019, for repurchases under previously announced repurchase authorizations, may be modified, suspended, or discontinued at any time.OutlookFor 2019, management is anticipating the following:

High single digit comparable restaurant sales growth, up from the prior mid to high single digit range expectation



140 to 155 new restaurant openings



An estimated underlying effective full year tax rate in the range of 26% and 29%

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

Comparable restaurant sales, or sales comps, and comparable restaurant transactions, represent the change in period-over-period sales or transactions 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 direct restaurant operating costs, expressed as a percent of total revenue.

Conference Call DetailsChipotleA will host a conference call to discuss second quarter 2019 financial results on Tuesday, July 23, 2019 at 4:30 PM Eastern time.A  TheA conference call can be accessed live over the phone by dialing 1-888-317-6003 or for international callers by dialing 1-412-317-6061 and use code: 4273517. The call will be webcast live from the company's website on the investor relations page at ir.chipotle.com/events. An archived webcast will be available approximately one hour after the end of the call.About ChipotleChipotle Mexican Grill, Inc. (NYSE: CMG) is cultivating a better world by serving responsibly sourced, classically-cooked, real food with wholesome ingredients without artificial colors, flavors or preservatives. Chipotle had approximately 2,500 restaurants as of June 30, 2019, in the United States, Canada, the United Kingdom, France and Germany and is the only restaurant company of its size that owns and operates all its restaurants. With more than 80,000 employees passionate about providing a great guest experience, Chipotle is a longtime leader and innovator in the food industry. Chipotle is committed to making its food more accessible to everyone while continuing to be a brand with a demonstrated purpose as it leads the way in digital, technology and sustainable business practices. Steve Ells, founder and executive chairman, first opened Chipotle with a single restaurant in Denver, Colorado in 1993. For more information or to place an order online, visit WWW.CHIPOTLE.COM.Forward-Looking Statements Certain statements in this press release, including statements under the heading "Outlook" about our expected comparable restaurant sales, effective tax rate and estimated number of new restaurant openings in 2019, 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", "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, including but not limited to the following: the uncertainty of our ability to achieve expected levels of comparable restaurant sales due to factors such as changes in consumers' perceptions of our brand, including as a result of actual or rumored food-borne illness incidents or other negative publicity, the impact of competition, including from sources outside the restaurant industry, decreased overall consumer spending, or the 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; risks associated with our increased focus on our digital business, delivery orders and catering, including our inability to continue to grow these business lines and risks arising from our reliance on third parties to fulfill delivery orders; factors that could affect our ability to achieve our planned expansion, such as the availability of suitable new restaurant sites and our ability to attract and retain qualified employees; the performance of new restaurants and their impact on existing restaurant sales; the potential for increased labor costs or difficulty training and retaining qualified employees, including as a result of market pressures, enhanced food safety procedures in our restaurants, or new regulatory requirements; increases in the cost of food ingredients and other key supplies or higher food costs due to changes in supply chain protocols or new or increased export duties, tariffs or trade restrictions; risks related to our marketing and advertising strategies, which may not be successful and may expose us to liabilities;A  risks relating to our expansion into new markets, including outside the U.S., or non-traditional restaurant sites; 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 philosophy, including supply shortages and potential liabilities from advertising claims and other marketing activities related to this philosophy; privacy and cyber security risks associated with our acceptance of electronic payments 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 the impact of social media, including the rapid proliferation of information about our restaurants or brand that may be unfavorable; risks regarding our ability to protect our brand and reputation; risks associated with our reliance on certain information technology systems; risks associated with our dependence on key personnel; 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 the investor relations page of our website at ir.Chipotle.com.

Chipotle Mexican Grill, Inc.



Condensed Consolidated Statement of Income



(unaudited)



(in thousands, except per share data)













Three months ended June 30,








2019








2018



Revenue



$



1,434,231








100.0



%








$



1,266,520








100.0



%



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


























































Food, beverage and packaging








483,284








33.7


















413,096








32.6








Labor








368,053








25.7


















341,842








27.0








Occupancy








89,923








6.3


















86,772








6.9








Other operating costs








193,309








13.5


















175,171








13.8








General and administrative expenses








121,395








8.5


















85,153








6.7








Depreciation and amortization








51,642








3.6


















49,193








3.9








Pre-opening costs








2,118








0.1


















2,014








0.2








Impairment, closure costs, and asset disposals








4,487








0.3


















45,322








3.6








Total operating expenses








1,314,211








91.6


















1,198,563








94.6








Income from operations








120,020








8.4


















67,957








5.4








Interest and other income, net








3,947








0.3


















2,323








0.2








Income before income taxes








123,967








8.6


















70,280








5.5








Provision for income taxes








(32,939)








(2.3)


















(23,396)








(1.8)








Net income



$



91,028








6.3



%








$



46,884








3.7



%



Earnings per share:


























































Basic



$



3.28























$



1.69


















Diluted



$



3.22























$



1.68


















Weighted-average common shares outstanding:


























































Basic








27,720




























27,819


















Diluted








28,300




























27,935


















Chipotle Mexican Grill, Inc.



Condensed Consolidated Statement of Income



(unaudited)



(in thousands, except per share data)













Six months ended June 30,








2019








2018



Revenue



$



2,742,448








100.0



%








$



2,414,917








100.0



%



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


























































Food, beverage and packaging








904,651








33.0


















785,011








32.5








Labor








716,895








26.1


















660,705








27.4








Occupancy








178,693








6.5


















172,028








7.1








Other operating costs








368,052








13.4


















323,240








13.4








General and administrative expenses








224,066








8.2


















162,216








6.7








Depreciation and amortization








105,423








3.8


















96,108








4.0








Pre-opening costs








3,058








0.1


















4,663








0.2








Impairment, closure costs, and asset disposals








11,429








0.4


















50,181








2.1








Total operating expenses








2,512,267








91.6


















2,254,152








93.3








Income from operations








230,181








8.4


















160,765








6.7








Interest and other income, net








7,076








0.3


















3,717








0.2








Income before income taxes








237,257








8.7


















164,482








6.8








Provision for income taxes








(58,097)








(2.1)


















(58,152)








(2.4)








Net income



$



179,160








6.5



%








$



106,330








4.4



%



Earnings per share:


























































Basic



$



6.47























$



3.82


















Diluted



$



6.35























$



3.81


















Weighted-average common shares outstanding:


























































Basic








27,708




























27,865


















Diluted








28,209




























27,942


















Chipotle Mexican Grill,A Inc.



Condensed Consolidated Balance Sheet



(in thousands, except per share data)






































June 30,








December 31,








2019








2018








(unaudited)













Assets




























Current assets:




























Cash and cash equivalents



$



299,913








$



249,953



Accounts receivable, net of allowance for doubtful accounts of $81 and $0 as of June 30, 2019 and December 31, 2018, respectively








49,362













62,312



Inventory








21,144













21,555



Prepaid expenses and other current assets








44,116













54,129



Investments








417,867













426,845



Total current assets








832,402













814,794



Leasehold improvements, property and equipment, net








1,387,896













1,379,254



Restricted cash








28,543













30,199



Right of use assets








2,370,710













-



Other assets








17,817













19,332



Goodwill








21,939













21,939



Total assets



$



4,659,307








$



2,265,518



Liabilities and shareholders' equity




























Current liabilities:




























Accounts payable



$



99,007








$



113,071



Accrued payroll and benefits








98,800













113,467



Accrued liabilities








126,879













147,849



Unearned revenue








61,794













70,474



Current operating lease liabilities








161,253













-



Income tax payable








535













5,129



Total current liabilities








548,268













449,990



Deferred rent








-













330,985



Long-term operating lease liabilities








2,534,769













-



Deferred income tax liabilities








4,407













11,566



Other liabilities








33,814













31,638



Total liabilities








3,121,258













824,179



Shareholders' equity:




























Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of June 30, 2019 and December 31, 2018, respectively








-













-



Common stock, $0.01 par value, 230,000 shares authorized, 36,193 and 35,973 shares issued as of June 30, 2019 and December 31, 2018, respectively








362













360



Additional paid-in capital








1,414,420













1,374,154



Treasury stock, at cost, 8,469 and 8,276 common shares at June 30, 2019 and December 31, 2018, respectively








(2,621,922)













(2,500,556)



Accumulated other comprehensive loss








(5,261)













(6,236)



Retained earnings








2,750,450













2,573,617



Total shareholders' equity








1,538,049













1,441,339



Total liabilities and shareholders' equity



$



4,659,307








$



2,265,518



Chipotle Mexican Grill,A Inc.



Condensed Consolidated Statement of Cash Flows



(in thousands)






































Six months ended








June 30,








2019








2018



Operating activities




























Net income



$



179,160








$



106,330



Adjustments to reconcile net income to net cash provided by operating activities:




























Depreciation and amortization








105,423













96,108



Amortization of operating lease assets








77,438













-



Deferred income tax (benefit) provision








(6,349)













16,948



Impairment, closure costs, and asset disposals








4,944













50,181



Bad debt allowance








85













106



Stock-based compensation expense








40,321













23,645



Other








(2,588)













(1,228)



Changes in operating assets and liabilities:




























Accounts receivable








18,275













16,621



Inventory








421













(1,007)



Prepaid expenses and other current assets








(13,617)













(19,490)



Other assets








2,907













3,776



Accounts payable








(10,319)













14,451



Accrued payroll and benefits








(16,526)













15,400



Accrued liabilities








7,659













7,100



Unearned revenue








(8,681)













(18,516)



Income tax payable/receivable








(4,593)













(23,003)



Deferred rent








-













11,455



Operating lease liabilities








(74,346)













-



Other long-term liabilities








901













(3,459)



Net cash provided by operating activities








300,515













295,418



Investing activities




























Purchases of leasehold improvements, property and equipment








(142,002)













(128,505)



Purchases of investments








(208,253)













(208,294)



Maturities of investments








220,000













185,000



Net cash used in investing activities








(130,255)













(151,799)



Financing activities




























Acquisition of treasury stock








(111,542)













(97,528)



Tax withholding on share-based compensation awards








(10,398)













(4,273)



Stock plan transactions and other financing activities








(510)













(55)



Net cash used in financing activities








(122,450)













(101,856)



Effect of exchange rate changes on cash, cash equivalents and restricted cash








494













(715)



Net change in cash, cash equivalents, and restricted cash








48,304













41,048



Cash, cash equivalents, and restricted cash at beginning of period








280,152













214,170



Cash, cash equivalents, and restricted cash at end of period



$



328,456








$



255,218



Supplemental disclosures of cash flow information




























Income taxes paid



$



69,075








$



64,184



Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities



$



27,119








$



26,154



Acquisition of treasury stock accrued in accounts payable and accrued liabilities



$



1,900








$



635



Chipotle Mexican Grill,A Inc.



Supplemental Financial and Other Data



(dollars in thousands)













For the three months ended








Jun. 30,








Mar. 31,








Dec. 31,








Sep. 30,








Jun. 30,








2019








2019








2018








2018








2018



Number of restaurants opened








20













15













40













28













34



Restaurant closures








(1)













(2)













(8)













(32)













(7)



Restaurant relocations








-













-













(4)













-













(1)



Number of restaurants at end of period








2,523













2,504













2,491













2,463













2,467



Average restaurant sales



$



2,099








$



2,048








$



2,004








$



1,980








$



1,950



Comparable restaurant sales increase








10.0%













9.9%













6.1%













4.4%













3.3%

Chipotle Mexican Grill,A Inc.
Reconciliation of Non-GAAP Financial Measures
(in thousands, except per share amounts)
(unaudited)The following provides a reconciliation of non-GAAP financial measures presented in the text above to the most directly comparable financial measures calculated and presented in accordance with GAAP. Adjusted net income is net income excluding restaurant asset impairment, corporate restructuring, and certain other costs. Adjusted diluted earnings per share is adjusted net income divided by diluted weighted-average common shares outstanding. We believe that these measures enhance investors' ability to compare the past financial performance of our underlying business with our current business performance and reflect the performance of our underlying restaurants separate from asset impairment, corporate restructuring and certain other costs at the corporate level. Management uses these non-GAAP measures for similar purposes. Our adjusted net income and adjusted diluted earnings per share measure may not be comparable to other companies' adjusted income measures.

Adjusted Net Income and Adjusted Diluted Earnings Per Share




































































Three months ended








Six months ended








June 30,








June 30,








2019








2018








2019








2018



Net income



$



91,028








$



46,884








$



179,160








$



106,330



Non-GAAP adjustments:


























































Restaurant closure costs:


























































Operating lease asset impairment and other restaurant closure costs(1)








480













25,166













580













25,166



Accelerated depreciation(2)








-













-













82













-



Duplicate rent expense(3)








305













-













826













-



Corporate Restructuring:


























































Operating lease asset impairment and other office closure costs(4)








325













16,299













1,720













16,299



Accelerated depreciation(2)








27













-













109













-



Duplicate rent expense(3)








961













-













2,159













-



Employee related restructuring costs(5)








2,638













(2,526)













5,861













(2,526)



Legal Proceedings(6)








19,600













3,000













19,600













3,000



Other Adjustments(7)








-













-













930













-



Total non-GAAP adjustments



$



24,336








$



41,939








$



31,867








$



41,939



Tax effect of non-GAAP adjustments(8)








(2,514)













(8,587)













(2,687)













(8,587)



After tax impact of non-GAAP adjustments



$



21,822








$



33,352








$



29,180








$



33,352



Adjusted net income



$



112,850








$



80,236








$



208,340








$



139,682































































Diluted weighted-average number of common shares outstanding








28,300













27,935













28,209













27,942



Diluted earnings per share



$



3.22








$



1.68








$



6.35








$



3.81



Adjusted diluted earnings per share



$



3.99








$



2.87








$



7.39








$



5.00








(1) Operating lease asset impairment charges, and other closure expenses for restaurant closures announced in June 2018 due to underperformance.



(2) Accelerated depreciation for restaurant and office closures announced in June 2018 due to underperformance and the corporate restructuring.



(3) Duplicate rent expense for the corporate headquarter relocation and office consolidation announced in May 2018 and for closed restaurants.



(4) Operating lease asset impairment charges and other closure expenses for the corporate headquarter relocation and office consolidation announced in May 2018.



(5) Costs for employee severance, stock modifications, transition expenses, recruitment, relocation costs, third party and other employee-related costs.



(6) For 2019, estimated costs relating to several existing legal proceedings and, for 2018, the uninsured portion of a judgment in a single legal proceeding.A  These amounts are expected to exceed typical costs for these types of legal proceedings.



(7) For the six months ended June 30, 2019, consists of an asset impairment charge related to a reconfiguration of our human resource capital management system to support the restructured organization.



(8) For the three months ended June 30, 2019, includes a $3,843 adjustment for non-tax deductible costs related to litigation matters. For the six months ended June 30, 2019, includes a $3,843 adjustment for non-taxable costs related to litigation and includes a write-off of deferred tax assets related to expired stock awards of $1,583.

Chipotle Announces Second Quarter 2019 Results
Chipotle Announces Second Quarter 2019 Results
View original content to download multimedia:https://www.prnewswire.com/news-releases/chipotle-announces-second-quarter-2019-results-300889672.htmlSOURCE Chipotle Mexican Grill, Inc.
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