Chipotle Fourth Quarter Earnings Per Share Grows 182% to $1.55 on Revenue Increase of 7.3%
Tuesday, February 06, 2018 4:10:00 PM ET Chipotle Mexican Grill, Inc. (CMG ) today reported financial
results for its fourth quarter and year ended December 31, 2017.
Overview for the fourth quarter of 2017 as compared to the fourth
quarter of 2016:
--
Revenue increased 7.3% to $1.1 billion
--
Comparable restaurant sales increased 0.9% for the quarter
--
Restaurant level operating margin was 14.9%, an increase from 13.5%
--
Net income was $43.8 million, an increase from $16.0 million
--
Diluted earnings per share was $1.55, including a benefit of $0.21 per
share resulting from changes in U.S. tax law, compared to $0.55 in the
fourth quarter of 2016
--
Opened 38 new restaurants
Overview for the year ended December 31, 2017 as compared to the
prior year:
--
Revenue increased 14.7% to $4.5 billion
--
Comparable restaurant sales increased 6.4%
--
Restaurant level operating margin was 16.9%, an increase from 12.8%
--
Net income was $176.3 million, an increase from net income of $22.9
million
--
Diluted earnings per share was $6.17, including a benefit of $0.21 per
share resulting from changes in U.S. tax law, compared to $0.77 in 2016
--
Opened 183 new restaurants and closed or relocated 25, including 15
ShopHouse Southeast Asian Kitchen Restaurants
"During 2017, we have made considerable changes around leadership,
operations, and long-term planning and it is clear that, while there is
still work to be done, we are starting to see some success," said Steve
Ells, founder, chairman and chief executive officer. "2018 marks the
25th anniversary of Chipotle, and I am encouraged by the dedication all
of our guests and employees have to this brand. Our focus this year will
be to continue perfecting the dining experience, enhancing the guest
experience through innovations in digital and catering, and reinvesting
in our restaurants. We are making good progress on our search for a new
CEO who can improve execution, drive sales and enable Chipotle to
realize our enormous potential."
Fourth quarter 2017 results
Revenue for the quarter was $1.1 billion, an increase of 7.3% from the
fourth quarter of 2016. The increase in revenue was driven by new
restaurant openings and to a lesser extent by a 0.9% increase in
comparable restaurant sales. Comparable restaurants sales include a 0.6%
reduction related to deferred revenue that was recognized during the
fourth quarter of 2016 related to our Chiptopia Summer Rewards program.
Comparable restaurant sales increased as a result of an increase in the
average check, including a 2.4% impact from menu price increases taken
in select restaurants during the second and fourth quarters of 2017,
partially offset by a decrease in transactions. We opened 38 new
restaurants during the quarter, and relocated or closed four
restaurants, bringing the total restaurant count to 2,408.
Food costs were 34.2% of revenue, a decrease of 110 basis points
compared to the fourth quarter of 2016. The decrease was driven by the
benefit of the menu price increases, cost savings initiatives related to
paper and packaging products, and relief in avocado prices during the
fourth quarter of 2017 compared to the fourth quarter of 2016.
Restaurant level operating margin was 14.9% in the quarter, an
improvement from 13.5% in the fourth quarter of 2016. The improvement
was driven primarily by decreased promotional activity and lower food,
beverage and packaging costs as a percent of revenue.
General and administrative expenses were 5.2% of revenue for the fourth
quarter of 2017, a decrease of 110 basis points over the fourth quarter
of 2016. In dollar terms, general and administrative expenses decreased
compared to the fourth quarter of 2016 due to decreased non-cash
stock-based compensation expense and lower legal costs.
Net income for the fourth quarter of 2017 was $43.8 million, or $1.55
per diluted share, compared to net income of $16.0 million, or $0.55 per
diluted share, in the fourth quarter of 2016. Net income for the fourth
quarter of 2017 included a $6.0 million benefit ($0.21 per diluted
share) for changes in U.S. tax law.
Full year 2017 results
Revenue for the full year 2017 was $4.5 billion, up 14.7% from the prior
year. The increase in revenue was driven by new restaurant openings and
a 6.4% increase in comparable restaurant sales. Comparable restaurant
sales for the full year included a 1.2% benefit from menu price
increases during the second and fourth quarters and a 0.3% benefit from
the accounting for deferred revenue during 2016 and 2017 related to
Chiptopia Summer Rewards. Comparable restaurant sales improved primarily
as a result of an increase in average check during 2017 compared to 2016.
We opened 183 new restaurants during the year and closed or relocated 25
(including the closure of 15 ShopHouse Southeast Asian Kitchen
restaurants), bringing the total restaurant count to 2,408.
Food costs were 34.3% of revenue, a decrease of 70 basis points as
compared to the prior year. The decrease was driven by the benefit of
the menu price increases taken in select restaurants during the second
and fourth quarters of 2017, combined with bringing the preparation of
lettuce and bell peppers back into our restaurants after using pre-cut
produce during portions of 2016, and cost savings initiatives related to
paper and packaging products. These decreases were partially offset by
higher avocado prices.
Restaurant level operating margin was 16.9% for the full year 2017, an
improvement from 12.8% in the prior year. The improvement was driven by
sales leverage, including the benefit of menu price increases, decreased
marketing and promotional spend and labor efficiencies, partially offset
by higher wages paid to crew and managers. Marketing and promotional
expenses were 3.5% of revenue during 2017, compared to 5.1% of revenue
during 2016.
General and administrative expenses were 6.6% of revenue for the full
year of 2017, a decrease of 50 basis points over the prior year,
primarily as a result of sales leverage. In dollar terms, general and
administrative costs increased compared to the prior year primarily due
to recording a liability of $30.0 million, which represents an estimate
of potential claims and assessments by payment card networks related to
the data security incident that was announced in April 2017.
Additionally, increased bonus costs and higher non-cash stock-based
compensation expense contributed to the increase. The increase was
partially offset by lower legal costs, as well as decreased meeting
costs because of the biennial All Managers Conference held in September
2016.
Our 2017 effective tax rate was 36.1%, a decrease of 4.7% from 2016, due
to the enactment of the Tax Cuts and Jobs Act, and a lower state tax
rate. This decrease was partially offset by federal credits on overall
higher pre-tax operating income. The Tax Cuts and Jobs Act reduced the
federal corporate income tax rate to 21% starting in 2018. As a result,
we recognized a $6.0 million benefit related to the remeasurement of our
deferred tax position at the lower rate.
Net income for the full year 2017 was $176.3 million, or $6.17 per
diluted share, compared to net income of $22.9 million, or $0.77 per
diluted share, for the prior year.
With regard to the impact of the Tax Cuts and Jobs Act, Jack Hartung,
Chief Financial Officer, said, "We’re pleased that the lower income tax
rate from the tax law change will result in savings of approximately $40
to $50 million in 2018. We plan to invest more than one-third of these
tax savings in our people, including by making all of our restaurant
managers and crew eligible for a one-time cash bonus, awarding one-time
stock bonuses to a broad group of staff employees, and enhancing a
number of other benefits such as parental leave and short term
disability, all to help position Chipotle as the employer of choice in
the restaurant industry. We’re excited to share further details about
these programs in the coming days."
Outlook
For 2018, management is expecting the following:
--
Comparable restaurant sales increases in the low single digits
--
130 - 150 new restaurant openings
--
An estimated effective tax rate for the full year of between 30.0% and
31.0%, which includes an underlying effective tax rate of about 27% to
28%, plus the effect of prior year employee equity plans which may
either expire without vesting (resulting in no tax deduction), or vest
at lower realized values (resulting in a lower tax deduction). While
we expect future underlying effective tax rates in the 27% to 28%
range, these rates will be further impacted by volatility due to
accounting for taxes associated with previous and future stock-based
compensation awards as well as a deferred tax asset related to
market-based performance stock awards which may not vest.
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.
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 2017 financial results on Tuesday, February 6, 2018 at 4:30 PM
Eastern time.
The conference call can be accessed live over the phone by dialing
1-877-451-6152 or for international callers by dialing 1-201-389-0879.
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 real,
wholesome 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, 2017,
operated 2,408 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 2018, 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
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 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; 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; risks
related to our marketing and advertising strategies, which may not be
successful and may expose us to liabilities; supply chain risks;
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 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;
risks regarding our ability to protect our brand and reputation; risks
associated with our reliance on certain information technology systems;
risks related to our ability to effectively manage our growth; risks
associated with our pending leadership change and 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.
Consolidated Statement
of Income
(in thousands, except per share data)
(unaudited)
Three months ended December 31,
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2017 2016
---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------
Revenue $ 1,110,100 100.0 % $ 1,034,560 100.0 %
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Restaurant operating costs (exclusive of depreciation and
amortization shown separately below):
Food, beverage and packaging 379,914 34.2 365,612 35.3
Labor 305,428 27.5 284,250 27.5
Occupancy 84,650 7.6 76,489 7.4
Other operating costs 175,038 15.8 168,563 16.3
General and administrative expenses 57,690 5.2 65,069 6.3
Depreciation and amortization 41,442 3.7 38,072 3.7
Pre-opening costs 2,577 0.2 4,118 0.4
Loss on disposal and impairment of assets 3,332 0.3 1,837 0.2
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Total operating expenses 1,050,071 94.6 1,004,010 97.0
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Income from operations 60,029 5.4 30,550 3.0
Interest and other income, net 1,437 0.1 588 0.1
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Income before income taxes 61,466 5.5 31,138 3.0
Provision for income taxes (17,673 ) (1.6 ) (15,163 ) (1.5 )
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Net income $ 43,793 3.9 % $ 15,975 1.5 %
==================== ========= ==================== ===== ==================== ==================== ========= ==================== ========== ====================
Earnings per share:
Basic $ 1.56 $ 0.55
==================== ========= ==================== ==================== ========= ====================
Diluted $ 1.55 $ 0.55
==================== ========= ==================== ==================== ========= ====================
Weighted average common shares outstanding:
Basic 28,158 28,903
==================== ========= ==================== ==================== ========= ====================
Diluted 28,164 29,003
==================== ========= ==================== ==================== ========= ====================
Chipotle Mexican Grill, Inc.
Consolidated Statement
of Income
(in thousands, except per share data)
Year ended December 31,
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2017 2016
---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------
(unaudited)
Revenue $ 4,476,412 100.0 % $ 3,904,384 100.0 %
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Restaurant operating costs (exclusive of depreciation and
amortization shown separately below):
Food, beverage and packaging 1,535,428 34.3 1,365,580 35.0
Labor 1,205,992 26.9 1,105,001 28.3
Occupancy 327,132 7.3 293,636 7.5
Other operating costs 651,644 14.6 641,953 16.4
General and administrative expenses 296,388 6.6 276,240 7.1
Depreciation and amortization 163,348 3.6 146,368 3.7
Pre-opening costs 12,341 0.3 17,162 0.4
Loss on disposal and impairment of assets 13,345 0.3 23,877 0.6
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Total operating expenses 4,205,618 94.0 3,869,817 99.1
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Income from operations 270,794 6.0 34,567 0.9
Interest and other income, net 4,949 0.1 4,172 0.1
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Income before income taxes 275,743 6.2 38,739 1.0
Provision for income taxes (99,490 ) (2.2 ) (15,801 ) (0.4 )
-------------------- --------- -------------------- ----- -------------------- -------------------- --------- -------------------- ---------- --------------------
Net income $ 176,253 3.9 % $ 22,938 0.6 %
==================== ========= ==================== ===== ==================== ==================== ========= ==================== ========== ====================
Earnings per share:
Basic $ 6.19 $ 0.78
==================== ========= ==================== ==================== ========= ====================
Diluted $ 6.17 $ 0.77
==================== ========= ==================== ==================== ========= ====================
Weighted average common shares outstanding:
Basic 28,491 29,265
==================== ========= ==================== ==================== ========= ====================
Diluted 28,561 29,770
==================== ========= ==================== ==================== ========= ====================
Chipotle Mexican Grill, Inc.
Consolidated
Balance Sheet
(in thousands, except per share data)
December 31,
-------------------------------------------------------------------------------------------------------------------------------
2017 2016
----------------------------------------------------- -----------------------------------------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 184,569 $ 87,880
Accounts receivable, net of allowance for doubtful accounts of $0 40,453 40,451
and $259 as of December 31, 2017 and 2016, respectively
Inventory 19,860 15,019
Prepaid expenses and other current assets 50,918 44,080
Income tax receivable 9,353 5,108
Investments 324,382 329,836
-------------------- ---------- -------------------- -------------------- ---------- --------------------
Total current assets 629,535 522,374
Leasehold improvements, property and equipment, net 1,338,366 1,303,558
Long term investments - 125,055
Other assets 55,852 53,177
Goodwill 21,939 21,939
-------------------- ---------- -------------------- -------------------- ---------- --------------------
Total assets $ 2,045,692 $ 2,026,103
==================== ========== ==================== ==================== ========== ====================
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable $ 82,028 $ 78,363
Accrued payroll and benefits 82,541 76,301
Accrued liabilities 159,324 127,129
-------------------- ---------- -------------------- -------------------- ---------- --------------------
Total current liabilities 323,893 281,793
Deferred rent 316,498 288,927
Deferred income tax liability 814 18,944
Other liabilities 40,042 33,946
-------------------- ---------- -------------------- -------------------- ---------- --------------------
Total liabilities 681,247 623,610
-------------------- ---------- -------------------- -------------------- ---------- --------------------
Shareholders’ equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no - -
shares issued as of December 31, 2017 and 2016, respectively
Common stock $0.01 par value, 230,000 shares authorized, and 35,852 359 358
and 35,833 shares issued as of December 31, 2017 and 2016,
respectively
Additional paid-in capital 1,305,090 1,238,875
Treasury stock, at cost, 7,826 and 7,019 common shares at December (2,334,409 ) (2,049,389 )
31, 2017 and 2016, respectively
Accumulated other comprehensive income (loss) (3,659 ) (8,162 )
Retained earnings 2,397,064 2,220,811
-------------------- ---------- -------------------- -------------------- ---------- --------------------
Total shareholders’ equity 1,364,445 1,402,493
-------------------- ---------- -------------------- -------------------- ---------- --------------------
Total liabilities and shareholders’ equity $ 2,045,692 $ 2,026,103
==================== ========== ==================== ==================== ========== ====================
Chipotle Mexican Grill, Inc.
Consolidated
Statement of Cash Flows
(in thousands)
Year ended December 31,
---------------------------------------------------------------------------------------------
2017 2016
------------------------------------ ------------------------------------
(unaudited)
Operating activities
Net income $ 176,253 $ 22,938
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 163,348 146,368
Deferred income tax (benefit) provision (18,026 ) (14,207 )
Loss on disposal and impairment of assets 13,345 23,877
Bad debt allowance 214 (262 )
Stock-based compensation expense 65,255 64,166
Excess tax benefit on stock-based compensation - (1,320 )
Other (218 ) (604 )
Changes in operating assets and liabilities:
Accounts receivable (140 ) (1,923 )
Inventory (5,250 ) (91 )
Prepaid expenses and other current assets (6,710 ) (4,259 )
Other assets (2,587 ) (4,855 )
Accounts payable 10,908 (6,734 )
Accrued liabilities 38,574 33,491
Income tax payable/receivable (4,173 ) 54,340
Deferred rent 29,996 37,030
Other long-term liabilities 6,316 1,287
-------- -------------------- -------- --------------------
Net cash provided by operating activities 467,105 349,242
-------- -------------------- -------- --------------------
Investing activities
Purchases of leasehold improvements, property and equipment (216,777 ) (258,842 )
Purchases of investments (199,801 ) -
Maturities of investments 330,000 45,000
Proceeds from sale of investments - 540,648
-------- -------------------- -------- --------------------
Net cash provided by (used in) investing activities (86,578 ) 326,806
-------- -------------------- -------- --------------------
Financing activities
Acquisition of treasury stock (285,920 ) (837,655 )
Excess tax benefit on stock-based compensation - 1,320
Stock plan transactions and other financing activities 26 52
-------- -------------------- -------- --------------------
Net cash used in financing activities (285,894 ) (836,283 )
-------- -------------------- -------- --------------------
Effect of exchange rate changes on cash and cash equivalents 2,056 110
Net change in cash and cash equivalents 96,689 (160,125 )
Cash and cash equivalents at beginning of year 87,880 248,005
-------- -------------------- -------- --------------------
Cash and cash equivalents at end of year $ 184,569 $ 87,880
======== ==================== ======== ====================
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,
2017 2017 2017 2017 2016
------------ ------------ ------------ ------------ ------------------------
Number of restaurants opened 38 38 50 57 72
Restaurant relocations/closures (4 ) (3 ) (2 ) (16 ) -
Number of restaurants at end of period 2,408 2,374 2,339 2,291 2,250
Average restaurant sales $ 1,940 $ 1,948 $ 1,957 $ 1,931 $ 1,868
Comparable restaurant sales increase (decrease) 0.9 % 1.0 % 8.1 % 17.8 % (4.8 %)
http://cts.businesswire.com/ct/CT?id=bwnews&sty=20180206006270r1&sid=cmtx6&distro=nx&lang=en
View source version on businesswire.com: http://www.businesswire.com/news/home/20180206006270/en/
SOURCE: Chipotle Mexican Grill, Inc.
Chipotle Mexican Grill, Inc.
Mark Alexee, 303-605-1042
malexee@chipotle.com
