Chipotle Mexican Grill, Inc. Announces Fourth Quarter and Full Year 2014 Results

DENVER--(BUSINESS WIRE)--

Chipotle Mexican Grill, Inc. CMG today reported financial results for its fourth quarter and full year ended December 31, 2014.

Highlights for the fourth quarter of 2014 as compared to the fourth quarter of 2013 include:

• Revenue increased 26.7% to $1.07 billion
• Comparable restaurant sales increased 16.1%
• Restaurant level operating margin was 26.6%, an increase of 100 basis points
• Net income was $121.2 million, an increase of 52.3%
• Diluted earnings per share was $3.84, an increase of 51.8%
• Opened 60 new restaurants

Highlights for the twelve months ended December 31, 2014 as compared to the prior year include:

• Revenue increased 27.8% to $4.11 billion
• Comparable restaurant sales increased 16.8%
• Restaurant level operating margin was 27.2%, an increase of 60 basis points
• Net income was $445.4 million, an increase of 36.0%
• Diluted earnings per share was $14.13, an increase of 35.0%
• Opened 192 new restaurants

"We continue to make significant progress on our important journey to change the way people think about and eat fast food," said Steve Ells, chairman and co-CEO of Chipotle. "Consumer trends are changing, which we believe is a great result of people becoming more discerning about where their food comes from, how it was raised, and how their meal was prepared. The continued loyalty we see from our customers, as well as third party research, and the growing number of concepts imitating Chipotle, all point to the relevance of our vision and the impact we are having on food culture. We are delighted to see that this vision, a very lofty goal, is becoming a reality.”

Results for the fourth quarter 2014

Revenue for the quarter was $1.07 billion, up 26.7% from the prior year period. The growth in revenue was the result of a 16.1% increase in comparable restaurant sales and new restaurant openings. Comparable restaurant sales growth was primarily driven by an increase in customer visits, as well as the benefit of a nationwide menu price increase taken last summer.

During the quarter we opened 60 new restaurants, bringing the total restaurant count to 1,783.

Food costs were 35.0% of revenue, an increase of 110 basis points due primarily to higher dairy and beef costs, partially offset by the benefit from the menu price increase.

Restaurant level operating margin was 26.6% in the quarter, an increase of 100 basis points from the prior year period. The increase was primarily driven by favorable sales leverage partially offset by higher food costs.

General and administrative expenses were 5.7% of revenue, down 90 basis points from the prior year primarily due to the timing of our accrual for annual bonus and increased acceleration of stock compensation expense into the first three quarters of the year as another officer achieved retiree status during 2014.

Net income for the fourth quarter of 2014 was $121.2 million, or $3.84 per diluted share, compared to $79.6 million, or $2.53 per diluted share, in the fourth quarter of 2013.

Results for the full year ended December 31, 2014

Revenue for the full year of 2014 was $4.11 billion, up 27.8% from the prior year. The growth in revenue was the result of a 16.8% increase in comparable restaurant sales and new restaurant openings. Comparable restaurant sales growth was primarily driven by an increase in customer visits, along with the benefit of the nationwide menu price increase taken last summer.

During the full year, we opened 192 new restaurants.

Food costs were 34.6% of revenue, an increase of 120 basis points basis points due primarily to higher beef, avocado and dairy costs, partially offset by the menu price increase.

Restaurant level operating margin was 27.2% for the full year 2014, an increase of 60 basis points from the prior year. The increase was primarily driven by favorable sales leverage partially offset by higher food costs.

General and administrative expenses for the full year 2014 were 6.7% of revenue, 40 basis points higher than the prior year. The increase as a percent of revenue was driven by higher stock based compensation expense and costs in 2014 from our biennial All Managers' Conference, partially offset by favorable sales leverage.

Net income for the full year 2014 was $445.4 million, or $14.13 per diluted share, compared to $327.4 million, or $10.47 per diluted share for 2013.

Our Board of Directors has also 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 up to approximately $98 million available as of February 2^nd for repurchases under a previously announced repurchase authorization, may be modified, suspended, or discontinued at any time.

"Our performance is the direct result of the vision we have set for ourselves and the development of a people culture that makes it possible to pursue such an ambitious goal," said Monty Moran, co-CEO at Chipotle. "By hiring teams of top performers and empowering them to achieve high standards, we are constantly enhancing the experience we provide in our restaurants and our potential to continue to provide great results for our shareholders."

Outlook

For 2015, management expects the following:

• 190 – 205 new restaurant openings
• Low to mid-single digit comparable restaurant sales increases
• An estimated effective tax rate of 39.0%, which excludes federal work opportunity and R&D credits, which have not been renewed for 2015.

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 the comparable restaurant base. A restaurant becomes comparable in its 13^th full calendar month of operation.

Average restaurant sales refer 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 complete fourth quarter and full year 2014 financial results on Tuesday, February 3, 2015 at 4:30 PM Eastern time.

The conference call can be accessed live over the phone by dialing 1-800-967-7135 or for international callers by dialing 1-719-325-2122. 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 3513793. The replay will be available until February 10, 2015. 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 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 1,780 restaurants, including 17 Chipotle restaurants outside the US, nine ShopHouse Southeast Asian Kitchen restaurants, and is an investor in an entity that owns and operates two Pizzeria Locale restaurants. For more information, visit Chipotle.com.

Forward-Looking Statements

Certain statements in this press release, including statements regarding consumer trends and the impact of our vision to change the way the world thinks about and eats fast food, statements under the heading “Outlook” of our expected number of new restaurant openings, comparable restaurant sales, and effective tax rates in 2015, and statements regarding our potential to achieve results for shareholders 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 consumer preferences or decreased consumer spending, our possible inability to increase menu prices or realize the benefits of menu price increases, or the impact of competition; 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; the potential for increased labor costs or difficulty retaining qualified employees, including as a result of immigration enforcement activities; the risk of food-borne illnesses and other health concerns about our food or dining out generally; 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 related to 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; 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; 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 Web site 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
			2014										2013
Revenue			$	1,069,811				100.0		%			$	844,147				100.0		%
Restaurant operating costs
(Exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging				373,991				35.0						285,912				33.9
Labor				237,310				22.2						193,818				23.0
Occupancy				60,930				5.7						52,795				6.3
Other operating costs				112,732				10.5						95,389				11.3
General and administrative expenses				60,929				5.7						55,844				6.6
Depreciation and amortization				29,750				2.8						24,903				3.0
Pre-opening costs				4,088				0.4						4,775				0.6
Loss on disposal of assets				2,209				0.2						1,607				0.2
Total operating expenses				881,939				82.4						715,043				84.7
Income from operations				187,872				17.6						129,104				15.3
Interest and other income (expense), net				885				0.1						390				-
Income before income taxes				188,757				17.6						129,494				15.3
Provision for income taxes				(67,523	)			(6.3	)					(49,872	)			(5.9	)
Net income			$	121,234				11.3		%			$	79,622				9.4		%
Other comprehensive income:
Foreign currency translation adjustments				(1,008	)									222
Comprehensive income			$	120,226									$	79,844
Earnings per share:
Basic			$	3.91									$	2.57
Diluted			$	3.84									$	2.53
Weighted average common shares outstanding:
Basic				31,024										31,019
Diluted				31,542										31,425

Chipotle Mexican Grill, Inc. Condensed Consolidated Statement of Income and Comprehensive Income (in thousands, except per share data) (unaudited)
			Years ended December 31
			2014										2013
Revenue			$	4,108,269				100.0		%			$	3,214,591				100.0		%
Restaurant operating costs
(Exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging				1,420,994				34.6						1,073,514				33.4
Labor				904,407				22.0						739,800				23.0
Occupancy				230,868				5.6						199,107				6.2
Other operating costs				434,244				10.6						347,401				10.8
General and administrative expenses				273,897				6.7						203,733				6.3
Depreciation and amortization				110,474				2.7						96,054				3.0
Pre-opening costs				15,609				0.4						15,511				0.5
Loss on disposal of assets				6,976				0.2						6,751				0.2
Total operating expenses				3,397,469				82.7						2,681,871				83.4
Income from operations				710,800				17.3						532,720				16.6
Interest and other income (expense), net				3,503				0.1						1,751				0.1
Income before income taxes				714,303				17.4						534,471				16.6
Provision for income taxes				(268,929	)			(6.5	)					(207,033	)			(6.4	)
Net income			$	445,374				10.8		%			$	327,438				10.2		%
Other comprehensive income:
Foreign currency translation adjustments				(2,049	)									596
Comprehensive income			$	443,325									$	328,034
Earnings per share:
Basic			$	14.35									$	10.58
Diluted			$	14.13									$	10.47
Weighted average common shares outstanding:
Basic				31,038										30,957
Diluted				31,512										31,281

Chipotle Mexican Grill, Inc. Condensed Consolidated Balance Sheet (in thousands, except per share data) (unaudited)
			December 31
			2014						2013
Assets
Current assets:
Cash and cash equivalents			$	419,465					$	323,203
Accounts receivable, net of allowance for doubtful accounts of $1,199 and $1,190 as of
December 31, 2014 and December 31, 2013, respectively				34,839						24,016
Inventory				15,332						13,044
Current deferred tax asset				18,968						13,212
Prepaid expenses and other current assets				34,795						34,204
Income tax receivable				16,488						3,657
Investments				338,592						254,971
Total current assets				878,479						666,307
Leasehold improvements, property and equipment, net				1,106,984						963,238
Long term investments				496,106						313,863
Other assets				42,777						43,933
Goodwill				21,939						21,939
Total assets			$	2,546,285					$	2,009,280
Liabilities and shareholders' equity
Current liabilities:
Accounts payable			$	69,613					$	59,022
Accrued payroll and benefits				73,894						67,195
Accrued liabilities				102,203						73,011
Total current liabilities				245,710						199,228
Deferred rent				219,414						192,739
Deferred income tax liability				40,529						55,434
Other liabilities				28,263						23,591
Total liabilities				533,916						470,992
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of
December 31, 2014 and December 31, 2013, respectively				-						-
Common stock $0.01 par value, 230,000 shares authorized, and 35,394 and 35,245
shares issued as of December 31, 2014 and December 31, 2013, respectively				354						352
Additional paid-in capital				1,038,932						919,840
Treasury stock, at cost, 4,367 and 4,212 common shares at December 31, 2014 and
December 31, 2013, respectively				(748,759	)					(660,421	)
Accumulated other comprehensive income				(429	)					1,620
Retained earnings				1,722,271						1,276,897
Total shareholders' equity				2,012,369						1,538,288
Total liabilities and shareholders' equity			$	2,546,285					$	2,009,280

Chipotle Mexican Grill, Inc. Condensed Consolidated Statement of Cash Flows (in thousands) (unaudited)
			Years ended December 31
			2014						2013
Operating activities
Net income			$	445,374					$	327,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization				110,474						96,054
Deferred income tax (benefit) provision				(20,671	)					2,103
Loss on disposal of assets				6,976						6,751
Bad debt allowance				9						19
Stock-based compensation expense				96,440						63,657
Excess tax benefit on stock-based compensation				(21,667	)					(38,379	)
Other				104						507
Changes in operating assets and liabilities:
Accounts receivable				(10,966	)					(7,238	)
Inventory				(2,307	)					(1,950	)
Prepaid expenses and other current assets				(658	)					(6,806	)
Other assets				1,071						(1,354	)
Accounts payable				2,168						2,052
Accrued liabilities				35,019						12,020
Income tax payable/receivable				8,831						44,334
Deferred rent				27,025						25,715
Other long-term liabilities				4,845						3,857
Net cash provided by operating activities				682,067						528,780
Investing activities
Purchases of leasehold improvements, property and equipment				(252,590	)					(199,926	)
Purchases of investments				(521,004	)					(387,639	)
Maturities of investments				254,750						159,250
Net cash used in investing activities				(518,844	)					(428,315	)
Financing activities
Acquisition of treasury stock				(88,338	)					(138,903	)
Excess tax benefit on stock-based compensation				21,667						38,379
Stock plan transactions and other financing activities				(66	)					173
Net cash used in financing activities				(66,737	)					(100,351	)
Effect of exchange rate changes on cash and cash equivalents				(224	)					536
Net change in cash and cash equivalents				96,262						650
Cash and cash equivalents at beginning of year				323,203						322,553
Cash and cash equivalents at end of year			$	419,465					$	323,203
Supplemental disclosures of cash flow information
Income taxes paid			$	280,687					$	160,973
Increase in purchases of leasehold improvements, property and
equipment accrued in accounts payable and accrued liabilities			$	9,424					$	(1,736	)

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,
			2014						2014						2014						2014						2013
Number of restaurants opened				60						43						45						44						56
Restaurant relocations				(1	)					-						(1	)					(2	)					-
Number of restaurants at end of period				1,783						1,724						1,681						1,637						1,595
Average restaurant sales			$	2,472					$	2,403					$	2,307					$	2,226					$	2,169
Comparable restaurant sales increases				16.1	%					19.8	%					17.3	%					13.4	%					9.3	%