Earnings Release Is Chipotle Mexican Grill A Buy?

 

Chipotle Mexican Grill, Inc. (NYSE: CMG) today reported financial results for its first quarter ended March 31, 2021.

First quarter highlights, year over year:
— Revenue increased 23.4% to $1.7 billion

— Comparable restaurant sales increased 17.2%

— Digital sales grew 133.9% and accounted for 50.1% of sales

— Restaurant level operating margin was 22.3%, an increase of 470 basis
points

— Diluted earnings per share was $4.45, net of a $0.91 after-tax impact
from expenses related to the 2018 performance share (“PSU”) modification
to account for the unplanned effects of COVID-19, restaurant asset
impairment and closure costs, as well as corporate restructuring, a 64.8%
increase from $2.70. Adjusted diluted earnings per share excluding these
charges was $5.36, a 74.0% increase from $3.08 1

— Opened 40 new restaurants and closed 5 restaurants
(1) Adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures. Reconciliations to GAAP measures and further information are set forth in the table at the end of this press release.

“Chipotle is off to a great start in 2021 thanks to our employees and their incredible level of collaboration and tireless dedication,” said Brian Niccol, Chairman and CEO, Chipotle. “As vaccines roll out and we get closer to moving past this pandemic, I believe Chipotle is well positioned for growth. I’m excited about our future as we remain focused on innovating in culinary, leading in food with integrity, and providing convenient access inside our restaurants and through our expanding digital ecosystem.”

COVID-19 and Liquidity Update:

The health and well-being of our employees and guests continues to be our top priority. Beyond the investments made in our people, restaurants, and supply chain, we are closely following the recommendations of the CDC and local health departments and have implemented social distancing, wearing face masks, a tamper evident packaging seal for all digital orders, as well as creating the steward role to sanitize high-traffic areas. Collectively, these efforts give our employees and guests confidence that Chipotle remains steadfast in our commitment to keep them safe as we continue to increase capacity for in-restaurant dining.

As of March 31, 2021, Chipotle continues to maintain a strong financial position with nearly $1.2 billion in cash, investments and restricted cash, and no debt. We also have access to a recently refinanced $500 million untapped credit facility with which to continue to navigate this crisis. Our financial strength gives us the opportunity to make on-going strategic investments in our people, business, and communities, which we believe will benefit us for years to come.

Results for the three months ended March 31, 2021:

Revenue in the first quarter was $1.7 billion, an increase of 23.4% compared to the first quarter of 2020 and includes a 17.2% increase in comparable restaurant sales. We believe several new menu items, effective marketing, and on-going strength in digital sales, as well as a tailwind from government stimulus payments to consumers contributed to first quarter revenue growth. For Q2, we expect our comparable restaurant sales to be in the range of high twenties to 30% with quesadilla incidence normalizing, and lower marketing investment.

Digital sales grew 133.9% year over year to $869.8 million and represented 50.1% of sales. A little more than half of the digital sales were from order ahead transactions as guests increasingly appreciate both the value and convenience offered by this channel, as well as the added convenience of more Chipotlanes.

 

 

CMG

 

We opened 40 new restaurants during the first quarter and closed five restaurants, bringing the total restaurant count to 2,803. During the quarter, 26 of the 40 new restaurants included a Chipotlane. These formats continue to perform very well and are helping enhance guest access and convenience, as well as increase new restaurant sales, margins, and returns.

Food, beverage and packaging costs in the first quarter were 30.0% of revenue, a decrease of 280 basis points compared to the first quarter of 2020. The decrease was primarily due to the benefit of menu price increases, and to a lesser extent, a mix shift towards higher margin proteins and lower waste. These decreases were partially offset by costs associated with cauliflower rice and fewer sales of high margin beverages.

Restaurant level operating margin was 22.3%, an increase from 17.6% in the first quarter of 2020. The improvement was driven primarily by leverage from the comparable restaurant sales increase and menu price increases, partially offset by increased delivery expense and wage inflation.

General and administrative expenses for the first quarter were $155.1 million on a GAAP basis, or $129.2 million on a non-GAAP basis, excluding $24.4 million for a modification to 2018 performance shares to account for the unplanned effects of COVID-19 and $1.6 million of transformation expenses. GAAP and non-GAAP general and administrative expenses for the first quarter of 2021 also include underlying general and administrative expenses totaling $89.0 million, $29.7 million of non-cash stock compensation, and $10.2 million related to higher bonus accruals as well as payroll taxes on equity vesting and stock option exercises.

The GAAP effective income tax rate for the first quarter was 20.2%, which is lower than our expected effective income tax rate for the full year 2021, primarily due to elevated excess tax benefits related to option exercises and equity vesting in the first quarter. On a non-GAAP basis, the 2021 first quarter effective tax rate was 18.5%.

Net income for the first quarter was $127.1 million, or $4.45 per diluted share, an increase from $76.4 million, or $2.70 per diluted share, in the first quarter of 2020. Excluding the impact of PSU modifications, restaurant asset impairment and closure costs, and corporate restructuring expenses, adjusted net income was $153.1 million and adjusted diluted earnings per share was $5.36.

During the quarter, our Board of Directors approved the investment of up to an additional $100 million, exclusive of commissions, to repurchase shares of our common stock, subject to market conditions. Including this repurchase authorization, approximately $153.8 million was available as of March 31, 2021. The repurchase authorization may be modified, suspended, or discontinued at any time. We restarted the buyback program in late February and repurchased $61.2 million of stock at an average price of $1,425 during the first quarter.

More information will be available in our Quarterly Report on Form 10-Q, which will be filed with the SEC by the end of April.

Outlook

For 2021, management is anticipating the following:
— Given on-going uncertainty surrounding the future impact of COVID-19 on
the broader US economy and any specific impact to our company, we are not
providing fiscal 2021 comparable restaurant sales growth guidance

— Around 200 new restaurant openings, which assumes minimal construction
and permit delays related to COVID-19

— An estimated effective full year tax rate between 25% and 27%
Definitions

The following definitions apply to these terms as used throughout this release:
— Comparable restaurant sales, or sales comps, and comparable restaurant
transactions, represent the change in period-over-period total revenue or
transactions for restaurants in operation for at least 13 full calendar
months.

— Average restaurant sales refer to the average trailing 12-month food and
beverage revenue for restaurants in operation for at least 12 full
calendar months.

— Restaurant level operating margin represents total revenue less direct
restaurant operating costs, expressed as a percent of total revenue.

— Digital sales represent food and beverage revenue generated through the
Chipotle website, Chipotle app or third-party delivery aggregators.
Digital sales exclude revenue deferrals associated with Chipotle Rewards.
Conference Call Details

Chipotle will host a conference call to discuss first quarter 2021 financial results on Wednesday, April 21, 2021, at 4:30 PM Eastern time.

The conference call can be accessed live over the phone by dialing 1-888-317-6003 or for international callers by dialing 1-412-317-6061 and use code: 5215022. The call will be webcast live from the company’s website on the investor relations page at ir.chipotle.com/events. An archived webcast will be available approximately one hour after the end of the call.

About Chipotle

Chipotle Mexican Grill, Inc. (NYSE: CMG) is cultivating a better world by serving responsibly sourced, classically-cooked, real food with wholesome ingredients without artificial colors, flavors or preservatives. Chipotle had over 2,800 restaurants as of March 31, 2021, in the United States, Canada, the United Kingdom, France and Germany and is the only restaurant company of its size that owns and operates all its restaurants. With over 97,000 employees passionate about providing a great guest experience, Chipotle is a longtime leader and innovator in the food industry. Chipotle is committed to making its food more accessible to everyone while continuing to be a brand with a demonstrated purpose as it leads the way in digital, technology and sustainable business practices. Steve Ells, founder and former executive chairman, first opened Chipotle with a single restaurant in Denver, Colorado in 1993. For more information or to place an order online, visit WWW.CHIPOTLE.COM.


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