Chipotle Announces Third Quarter 2019 Results

Newport Beach / CA. (cmg) Chipotle Mexican Grill Inc. reported financial results for its third quarter ended September 30, 2019.

Third quarter highlights, year over year

• Revenue increased 14.6 percent to USD 1.4 billion
• Comparable restaurant sales increased 11.0 percent, net of 10 bps from loyalty deferral, and included nearly 7.5 percent of comparable restaurant transactions growth
• Digital sales grew 87.9 percent and accounted for 18.3 percent of sales for the quarter
• Restaurant level operating margin was 20.8 percent, an increase of 210 basis points
• Diluted earnings per share was USD 3.47, net of a USD 0.35 after-tax impact from expenses related to restaurant asset impairment, corporate restructuring, and certain other costs, a 155.1 percent increase from USD 1.36. Adjusted diluted earnings per share excluding these charges was USD 3.82, a 76.9 percent increase from USD 2.16.1
• Opened 25 new restaurants including one relocation, and closed one restaurant

«We’re pleased with our overall results in the quarter, which reflects further progress on our key strategic initiatives to provide a great guest experience and position Chipotle to deliver above industry growth for many years to come,» said Brian Niccol, Chief Executive Officer. «These strong results reinforce that running great restaurants with a purpose of cultivating a better world is a compelling proposition.»

Results for the three months ended September 30, 2019

Revenue in the third quarter increased to USD 1.4 billion, an increase of 14.6 percent compared with the same quarter a year ago. The increase was driven by an 11.0 percent increase in comparable restaurant sales, net of a 10 basis points as a result of deferred revenue from our Chipotle Rewards loyalty program. Comparable restaurant sales improved due to a nearly 7.5 percent increase in comparable restaurant transactions and a 3.5 percent increase in the average check, which includes a benefit from menu price increases that were implemented during 2018.

We opened 25 new restaurants during the quarter including one relocation, and closed one restaurant, bringing the total restaurant count to 2,546. Based on the early success of Chipotlanes, we shifted our real estate strategy to seek more sites that can accommodate a Chipotlane. As a result, of the more than 80 restaurants currently under construction, about half of them will have a Chipotlane, which will result in a total of about 60 Chipotlanes by the end of 2019. Given the longer construction timeline associated with Chipotlanes, some of the new openings are likely to shift from Q4 into early 2020, so we expect our total openings for 2019 to fall at or slightly below the low end of our FY 2019 range of 140 to 155 openings. For 2020, we anticipate opening 150 – 165 new restaurants, with more than half including a Chipotlane.

Food, beverage and packaging costs were 33.2 percent of revenue, a decrease of 20 basis points compared to the third quarter of 2018. The decrease was primarily due to menu price increases nationwide at the end of 2018, partially offset by higher costs of several ingredients.

Restaurant level operating margin was 20.8 percent, an increase from 18.7 percent in the third quarter of 2018. The improvement was driven primarily by leverage from the comparable restaurant sales increase, partially offset by wage inflation at the crew level, higher costs of several ingredients, and increased delivery expenses.

General and administrative expenses for the quarter were USD 115.1 million on a GAAP basis, or USD 104.8 million on a non-GAAP basis, excluding USD 7.6 million for settlements of several distinct legal matters and USD 2.7 million related to transformation expenses. GAAP and non-GAAP general and administrative expenses for the third quarter of 2019 also include underlying general and administrative expenses totaling USD 72.0 million, USD 25.1 million related to non-cash stock compensation, USD 4.8 million related to higher bonus accruals from our strong operating performance and payroll taxes on stock option exercises, and USD 2.9 million related to other expenses, including our upcoming All Manager Conference.

The effective income tax rate for the three months ended September 30, 2019, was 17.9 percent, a decrease from 36.8 percent for the three months ended September 30, 2018, primarily due to excess tax benefits for stock-based compensation, a reduction in non-deductible employee meals, changes in tax position due to legislative guidance, and a non-recurring prior year tax expense attributable to tax reform in the comparable period.

Net income was USD 98.6 million, or USD 3.47 per diluted share, an increase from USD 38.2 million, or USD 1.36 per diluted share, in the third quarter of 2018. Excluding the impact of restaurant closure costs, corporate restructuring, agreements to settle several legal matters, and certain other costs, adjusted net income was USD 108.3 million and adjusted diluted earnings per share was USD 3.82.

Outlook

For 2019, management is anticipating the following:

• Being at the top end of our prior high single digit comparable restaurant sales growth guidance
• Being at or slightly below our prior guidance of 140 to 155 new restaurant openings
• An estimated underlying effective Q4 tax rate in the range of 26 percent to 29 percent, before the impact of any stock option exercises

For 2020, management is anticipating the following:

• 150 to 165 new restaurant openings