Chipotle Mexican Grill, Inc. Announces Third Quarter 2014 Results

Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its third quarter ended September 30, 2014.

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

• Revenue increased 31.1% to $1.08 billion
• Comparable restaurant sales increased 19.8%
• Restaurant level operating margin was 28.8%, an increase of 200 basis points
• Net income was $130.8 million, an increase of 56.9%
• Diluted earnings per share was $4.15, an increase of 56.0%
• Opened 43 new restaurants

Highlights for the nine months ended September 30, 2014 as compared to the prior year include:

• Revenue increased 28.2% to $3.04 billion
• Comparable restaurant sales increased 17.0%
• Restaurant level operating margin was 27.4%, an increase of 50 basis points
• Net income was $324.1 million, an increase of 30.8%
• Diluted earnings per share was $10.29, an increase of 29.8%
• Opened 132 new restaurants

“We are extremely pleased with our performance for the third quarter and throughout the year. Our relentless focus on our vision to change the way people think about and eat fast food results in better quality food and a compelling dining experience for our customers, and superior business results for our shareholders. The way we source, prepare and serve our food; the way we hire, develop and empower our people; and the way we operate our business is very different than the traditional fast food model. Recent industry trends suggest the Chipotle model is resonating with customers, who are realizing there are better alternatives to traditional fast food. We believe these trends will continue, and that’s good for our customers and our shareholders,” said Steve Ells, founder, chairman and co-CEO of Chipotle.

“We could not provide the quality of experience that our restaurants deliver or generate the results we do without having teams of top performers who are empowered to achieve high standards. We ask a lot of our restaurant managers and crews, and they are constantly stepping up to meet and even exceed our expectations. The leadership we are developing in our restaurants and throughout our company not only provides strong performance in the short term, but is developing the leaders we will need to accommodate our growth well into the future,” said Monty Moran, co-CEO at Chipotle.

Third quarter 2014 results

Revenue for the quarter was $1.08 billion, up 31.1% from the third quarter of 2013. The growth in revenue was driven by a 19.8% increase in comparable restaurant sales and from new restaurants not in the comparable base. Comparable restaurant sales growth was driven primarily by increased traffic and from an increase in average check, which includes the benefit of a nationwide menu price increase that was fully rolled out by the end of the second quarter.

We opened 43 new restaurants during the quarter, bringing the total restaurant count to 1,724.

Food costs were 34.3% of revenue, an increase of 70 basis points, driven by increased prices for beef, avocados, and dairy, partially offset by the menu price increase.

Restaurant level operating margin was 28.8% in the quarter, an increase of 200 basis points from the third quarter of 2013. The increase was primarily driven by favorable sales leverage, partially offset by higher food costs, primarily for beef, avocados and dairy.

General and administrative expenses were 6.6% of revenue, an increase of 20 basis points due to costs from our biennial All Managers’ Conference held during the third quarter, partially offset by favorable sales leverage.

Net income for the third quarter of 2014 was $130.8 million, or $4.15 per diluted share, compared to $83.4 million, or $2.66 per diluted share, in the third quarter of 2013.

Results for the nine months ended September 30, 2014

Revenue for the first nine months of 2014 was $3.04 billion, up 28.2% from the prior year period. The growth in revenue was the result of a 17.0% increase in comparable restaurant sales and from new restaurants not in the comparable base. Comparable restaurant sales growth was primarily driven by increased traffic and to a lesser extent from an increase in our average check.

During the first nine months of the year, we opened 132 new restaurants.

Restaurant level operating margin was 27.4% for the first nine months, an increase of 50 basis points from the prior year period. The increase was primarily driven by favorable sales leverage, partially offset by higher food costs, primarily beef, avocados and dairy.

General and administrative expenses for the first nine months were 7.0% of revenue, or an increase of 80 basis points from the prior year period. The increase was from higher stock based compensation expense, costs from our biennial All Managers’ Conference and higher bonus costs.

Net income for the first nine months of 2014 was $324.1 million, or $10.29 per diluted share, compared to $247.8 million, or $7.93 per diluted share, in the first nine months of 2013.

Net cash generated from operating activities was $549.8 million, an increase of 41.4% from last year.

Outlook

For 2014, management expects the following:

• 180 - 195 new restaurant openings
• Mid-teens comparable restaurant sales increases
• An effective full year tax rate of approximately 38.5%

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 39.1%

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 13th full calendar month of operation.

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 restaurant operating costs, expressed as a percent of total revenue.

Conference Call

Chipotle will host a conference call to discuss the third quarter 2014 financial results on Monday, October 20, 2014 at 5:00 PM Eastern time.

The conference call can be accessed live over the phone by dialing 1-800-500-3170 or for international callers by dialing 1-719-457-2620. 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 6325988. The replay will be available until October 27, 2014. 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 1,700 restaurants, including 17 Chipotle restaurants outside the US, eight 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 under the heading “Outlook” of our expected number of new restaurant openings, comparable restaurant sales trends, and effective tax rates in 2014 and 2015, as well as statements about our ability to accommodate our future growth, 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 decreased consumer spending and economic uncertainty, 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; the effects of continuing economic uncertainty on our business and on our suppliers, landlords and potential developers; the uncertainty of our ability to protect our name, logo and other proprietary information or the reputation of our brand; the potential effects of inclement weather; 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