Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported
financial results for its fourth quarter and year ended December
31, 2016.
Overview for the fourth quarter of 2016 as compared to the
fourth quarter of 2015:
- Revenue increased 3.7% to $1.0
billion
- Comparable restaurant sales for the
month of December increased 14.7% and declined 4.8% for the full
quarter
- Restaurant level operating margin was
13.5%, a decrease from 19.6%
- Net income was $16.0 million, a
decrease from $67.9 million
- Diluted earnings per share was $0.55, a
decrease from $2.17
- Opened 72 new restaurants
Overview for the year ended December 31, 2016 as compared to
the prior year:
- Revenue decreased 13.3% to $3.9
billion
- Comparable restaurant sales decreased
20.4%
- Restaurant level operating margin was
12.8%, a decrease from 26.1%
- Net income was $22.9 million, a
decrease from net income of $475.6 million
- Diluted earnings per share was $0.77, a
decrease from $15.10
- Opened 240 new restaurants, net of 3
relocations or closures
“We are energized and focused to achieve our goals in 2017, and
to return to a path of long-term value creation for our
shareholders,” said Steve Ells, Founder, Chairman and CEO of
Chipotle. “Returning to our roots of what originally made Chipotle
great has helped refocus all of our strategies toward the guest
experience. In the upcoming year we intend to continue to simplify
and improve our restaurant operations, utilize creative marketing
to rebuild our brand, and further the roll-out of our digital sales
efforts. All three of these strategic initiatives are centered on
improving the guest experience and restoring customer affinity for
the Chipotle brand, and we are confident in our teams’ abilities as
we start this new year.”
Fourth quarter 2016 results
Revenue for the quarter was $1.0 billion, up 3.7% from the
fourth quarter of 2015. The increase in revenue was driven by new
restaurant openings, partially offset by a 4.8% decrease in
comparable restaurant sales. Comparable restaurant sales declined
primarily as a result of a decrease in the number of transactions
in our restaurants, and to a lesser extent from a decline in
average check. Comparable restaurant sales decreased 20.2% and 1.4%
in October and November 2016, and increased 14.7% in December 2016.
Comparable restaurant sales benefitted from easier comparisons due
to lower sales levels in November and December 2015. We opened 72
new restaurants during the quarter, bringing the total restaurant
count to 2,250.
Food costs were 35.3% of revenue, an increase of 150 basis
points compared to the fourth quarter of 2015. The increase was
driven by higher avocado prices and increased expense for pre-diced
tomatoes, partially offset by relief in beef prices.
Restaurant level operating margin was 13.5% in the quarter, a
decrease from 19.6% in the fourth quarter of 2015. The decrease was
driven primarily by increased marketing and promotional spend,
sales deleveraging and higher food costs.
General and administrative expenses were 6.3% of revenue for the
fourth quarter of 2016, an increase of 160 basis points over the
fourth quarter of 2015. In dollar terms, general and administrative
expenses increased compared to the fourth quarter of 2015 due to
increased stock based compensation and legal expenses, partially
offset by lower bonus expense.
Net income for the fourth quarter of 2016 was $16.0 million, or
$0.55 per diluted share, compared to net income of $67.9 million,
or $2.17 per diluted share, in the fourth quarter of 2015.
Full year ended December 31, 2016 results
Revenue for the full year 2016 was $3.9 billion, down 13.3% from
the prior year. The decrease in revenue was driven by a 20.4%
decrease in comparable restaurant sales, partially offset by
revenue from new restaurants. Comparable restaurant sales declined
primarily as a result of a decrease in the number of transactions
in our restaurants, and to a lesser extent from a decline in
average check.
We opened 240 new restaurants during the full year 2016, net of
3 relocations or closures, bringing the total restaurant count to
2,250.
Food costs were 35.0% of revenue, an increase of 160 basis
points as compared to the prior year. The increase was driven by
increased waste and costs related to new food safety procedures as
well as higher avocado prices, partially offset by relief in beef
prices and a benefit of menu price increases implemented in select
restaurants in the second half of 2015.
Restaurant level operating margin was 12.8% for the full year
2016, a decrease from 26.1% from the prior year. The decrease was
driven by sales deleverage, increased marketing and promotional
spending, and other increased costs of doing business.
General and administrative expenses were 7.1% of revenue for the
full year of 2016, an increase of 150 basis points over the prior
year, primarily as a result of sales deleverage. In dollar terms,
general and administrative costs increased compared to the prior
year due to higher legal expense, higher payroll costs as we grew,
and expenses associated with our biennial All Managers’ Conference
held during 2016, partially offset by lower bonus expense and
travel costs.
Our 2016 effective tax rate was 40.8%, an increase of 2.6% from
2015, due to higher state tax rates, not qualifying for the federal
research and development tax credit in 2016, and non-deductible
items on overall lower pre-tax operating income.
Net income for the full year of 2016 was $22.9 million, or $0.77
per diluted share, compared to net income of $475.6 million, or
$15.10 per diluted share, for the prior year.
Outlook
For 2017, management is targeting the following:
- Comparable restaurant sales increases
in the high-single digits
- 195 - 210 new restaurant openings
- An estimated effective full year tax
rate to be between 39.0% and 39.5%, which will be impacted by
volatility due to a recently issued accounting standard that
changes how we account for taxes associated with stock-based
compensation awards.
Definitions
The following definitions apply to these terms as used
throughout this release:
Comparable restaurant sales, or sales comps, represent
the change in period-over-period sales for restaurants in operation
for at least 13 full calendar months.
Comparable restaurant transactions represent the change
in period-over-period transactions, including transactions with no
sales dollars due to promotional discounts, for restaurants in
operation for at least 13 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 2016 financial results on Thursday, February
2, 2017 at 4:30 PM Eastern time.
The conference call can be accessed live over the phone by
dialing 1-888-791-4326 or for international callers by dialing
1-913-905-3216. The call will be webcast live from the company's
website on the investor relations page at ir.chipotle.com. An
archived webcast will be available approximately one hour after the
end of the call.
About Chipotle
Steve Ells, our founder, chairman and 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, and salads made from fresh,
high-quality ingredients, prepared using classic cooking methods
and served in an interactive style allowing people to get exactly
what they want. Chipotle seeks out extraordinary ingredients that
are not only fresh, but that are raised responsibly, with respect
for the animals, the land, and the people who produce them.
Chipotle prepares its food using whole, unprocessed ingredients and
without the use of added colors, flavors or other additives
typically found in fast food. Chipotle opened with a single
restaurant in Denver in 1993 and as of December 31, 2016, operated
2,250 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 comparable restaurant
sales, number of new restaurant openings, and effective tax rate,
for 2017 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 due to factors such as
changes in consumers’ perceptions of our brand, including as a
result of food-borne illness incidents beginning in late 2015, the
impact of competition, including from sources outside the
restaurant industry, decreased overall consumer spending, 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 related to our
marketing and advertising strategies, which may not be successful
and may expose us to liabilities; 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 philosophy, 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 and uncertainties arising from recent changes in our
management team; risks regarding our 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 the investor relations page of our website
at ir.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,
2016 2015 Revenue $ 1,034,560
100.0 % $ 997,507 100.0 %
Restaurant operating costs (exclusive of depreciation and
amortization shown separately below): Food, beverage and packaging
365,612 35.3 337,065 33.8 Labor 284,250 27.5 260,585 26.1 Occupancy
76,489 7.4 68,143 6.8 Other operating costs 168,563 16.3 136,184
13.7 General and administrative expenses 65,069 6.3 46,875 4.7
Depreciation and amortization 38,072 3.7 34,140 3.4 Pre-opening
costs 4,118 0.4 5,452 0.5 Loss on disposal and impairment of assets
1,837 0.2 5,450 0.5
Total operating expenses 1,004,010 97.0
893,894 89.6 Income from
operations 30,550 3.0 103,613 10.4 Interest and other income, net
588 0.1 1,795 0.2
Income before income taxes 31,138 3.0 105,408 10.6 Provision
for income taxes (15,163 ) (1.5 ) (37,534 )
(3.8 ) Net income $ 15,975 1.5 % $ 67,874 6.8
% Other comprehensive income (loss), net of income taxes: Foreign
currency translation adjustments (2,252 ) (1,718 ) Unrealized gain
(loss) on investments, net of income taxes of $336 and $946
(464 ) (1,522 ) Other comprehensive income (loss), net of
income taxes (2,716 ) (3,240 ) Comprehensive income $
13,259 $ 64,634 Earnings per share: Basic $ 0.55
$ 2.19 Diluted $ 0.55 $ 2.17 Weighted
average common shares outstanding: Basic 28,903
31,027 Diluted 29,003 31,312
Chipotle Mexican Grill, Inc.
Condensed Consolidated Statement of Income and Comprehensive
Income (in thousands, except per share data)
Year ended December 31, 2016
2015 (unaudited)
Revenue $ 3,904,384 100.0 % $ 4,501,223 100.0 %
Restaurant operating costs (exclusive of depreciation and
amortization shown separately below): Food, beverage and packaging
1,365,580 35.0 1,503,835 33.4 Labor 1,105,001 28.3 1,045,726 23.2
Occupancy 293,636 7.5 262,412 5.8 Other operating costs 641,953
16.4 514,963 11.4 General and administrative expenses 276,240 7.1
250,214 5.6 Depreciation and amortization 146,368 3.7 130,368 2.9
Pre-opening costs 17,162 0.4 16,922 0.4 Loss on disposal and
impairment of assets 23,877 0.6 13,194
0.3 Total operating expenses 3,869,817
99.1 3,737,634 83.0 Income from
operations 34,567 0.9 763,589 17.0 Interest and other income, net
4,172 0.1 6,278 0.1
Income before income taxes 38,739 1.0 769,867 17.1 Provision for
income taxes (15,801 )
(0.4
)
(294,265 )
(6.5
)
Net income $ 22,938 0.6 % $ 475,602 10.6 % Other
comprehensive income (loss), net of income taxes: Foreign currency
translation adjustments (1,291 ) (6,322 ) Unrealized gain (loss) on
investments, net of income taxes of ($849) and $946 1,402
(1,522 ) Other comprehensive income (loss), net of
income taxes 111 (7,844 ) Comprehensive income
$ 23,049 $ 467,758 Earnings per share: Basic $ 0.78
$ 15.30 Diluted $ 0.77 $ 15.10 Weighted
average common shares outstanding: Basic 29,265
31,092 Diluted 29,770 31,494
Chipotle Mexican Grill, Inc.
Condensed Consolidated Balance Sheet (in thousands,
except per share data)
December 31, 2016 2015
(unaudited) Assets Current assets: Cash and cash
equivalents $ 87,880 $ 248,005 Accounts receivable, net of
allowance for doubtful accounts of $259 and $1,176 as of December
31, 2016 and 2015, respectively 40,451 38,283 Inventory 15,019
15,043 Prepaid expenses and other current assets 44,080 39,965
Income tax receivable 5,108 58,152 Investments 329,836
415,199 Total current assets 522,374 814,647
Leasehold improvements, property and equipment, net 1,303,558
1,217,220 Long term investments 125,055 622,939 Other assets 53,177
48,321 Goodwill 21,939 21,939 Total
assets $ 2,026,103 $ 2,725,066
Liabilities and
shareholders' equity Current liabilities: Accounts payable $
78,363 $ 85,709 Accrued payroll and benefits 76,301 64,958 Accrued
liabilities 127,129 129,275 Total
current liabilities 281,793 279,942 Deferred rent 288,927 251,962
Deferred income tax liability 18,944 32,305 Other liabilities
33,946 32,883 Total liabilities
623,610 597,092 Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no
shares issued as of December 31, 2016 and 2015, respectively - -
Common stock $0.01 par value, 230,000 shares authorized, and 35,833
and 35,790 shares issued as of December 31, 2016 and 2015,
respectively 358 358 Additional paid-in capital 1,238,875 1,172,628
Treasury stock, at cost, 7,019 and 5,206 common shares at December
31, 2016 and 2015, respectively (2,049,389 ) (1,234,612 )
Accumulated other comprehensive income (loss) (8,162 ) (8,273 )
Retained earnings 2,220,811 2,197,873
Total shareholders' equity 1,402,493 2,127,974
Total liabilities and shareholders' equity $ 2,026,103
$ 2,725,066
Chipotle Mexican Grill,
Inc. Condensed Consolidated Statement of Cash Flows
(in thousands) Year
ended December 31, 2016 2015
(unaudited) Operating activities Net income $ 22,938
$ 475,602 Adjustments to reconcile net income to net cash provided
by operating activities: Depreciation and amortization 146,368
130,368 Deferred income tax (benefit) provision (14,207 ) 11,666
Loss on disposal and impairment of assets 23,877 13,194 Bad debt
allowance (262 ) (23 ) Stock-based compensation expense 64,166
57,911 Excess tax benefit on stock-based compensation (1,320 )
(74,442 ) Other (604 ) 582 Changes in operating assets and
liabilities: Accounts receivable (1,923 ) (3,504 ) Inventory (91 )
262 Prepaid expenses and other current assets (4,259 ) (5,259 )
Other assets (4,855 ) (5,619 ) Accounts payable (6,734 ) 19,525
Accrued liabilities 33,491 (7,440 ) Income tax payable/receivable
54,340 32,756 Deferred rent 37,030 32,911 Other long-term
liabilities 1,287 4,826 Net cash provided by
operating activities 349,242 683,316
Investing
activities Purchases of leasehold improvements, property and
equipment (258,842 ) (257,418 ) Purchases of investments - (559,372
) Maturities of investments 45,000 352,650 Proceeds from sale of
investments 540,648 - Net cash provided by (used in)
investing activities 326,806 (464,140 )
Financing
activities Acquisition of treasury stock (837,655 ) (460,675 )
Excess tax benefit on stock-based compensation 1,320 74,442 Stock
plan transactions and other financing activities 52 (207 )
Net cash used in financing activities (836,283 ) (386,440 ) Effect
of exchange rate changes on cash and cash equivalents 110 (4,196 )
Net change in cash and cash equivalents (160,125 ) (171,460 ) Cash
and cash equivalents at beginning of year 248,005 419,465
Cash and cash equivalents at end of year $ 87,880 $
248,005 Supplemental disclosures of cash flow information
Income taxes paid $ 23,862 $ 248,547
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, 2016 2016 2016
2016 2015 Number of restaurants opened 72 55 58 58 79
Restaurant relocations/closures - (1 ) - (2 ) - Number of
restaurants at end of period 2,250 2,178 2,124 2,066 2,010 Average
restaurant sales $ 1,868 $ 1,914 $ 2,067 $ 2,230 $ 2,424 Comparable
restaurant sales increase (decrease) (4.8 %) (21.9 %) (23.6 %)
(29.7 %) (14.6 %)
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version on businesswire.com: http://www.businesswire.com/news/home/20170202006247/en/
Chipotle Mexican Grill, Inc.Investor Relations:Mark
Alexee, 303-605-1042
Chipotle Mexican Grill (NYSE:CMG)
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