Company Update (NYSE:CMG): Chipotle Mexican Grill, Inc. Announces Fourth Quarter and Full Year 2015 Results


Chipotle Mexican Grill, Inc. (NYSE:CMG) reported financial results for its fourth quarter and full year ended December 31, 2015.

Highlights for the fourth quarter of 2015 as compared to the fourth quarter of 2014 include:

  • Revenue decreased 6.8% to $997.5 million
  • Comparable restaurant sales decreased 14.6%
  • Restaurant level operating margin was 19.6%, a decrease of 700 basis points
  • Net income was $67.9 million, a decrease of 44.0%
  • Diluted earnings per share was $2.17, a decrease of 43.5%
  • Opened 79 new restaurants

Highlights for the twelve months ended December 31, 2015 as compared to the prior year include:

  • Revenue increased 9.6% to $4.5 billion
  • Comparable restaurant sales increased 0.2%
  • Restaurant level operating margin was 26.1%, a decrease of 110 basis points
  • Net income was $475.6 million, an increase of 6.8%
  • Diluted earnings per share was $15.10, an increase of 6.9%
  • Opened 229 new restaurants

“The fourth quarter of 2015 was the most challenging period in Chipotle’s history, but the Centers for Disease Control and Prevention has now concluded its investigation into the recent E. coli incidents associated with Chipotle. We are pleased to have this behind us and can place our full energies to implementing our enhanced food safety plan that will establish Chipotle as an industry leader in food safety. We are extremely focused on executing this program, which designs layers of redundancy and enhanced safety measures to reduce the food safety risk to a level as near to zero as is possible. By adding these programs to an already strong and proven food culture, we strongly believe that we can establish Chipotle as a leader in food safety just as we have become a leader in our quest for the very best ingredients we can find,” said Steve Ells, founder, chairman and co-CEO of Chipotle.

Fourth quarter 2015 results

Revenue for the quarter was $997.5 million, a 6.8% decrease compared to the fourth quarter of 2014. The decrease was due primarily to a 14.6% decrease in comparable restaurant sales. The decrease in comparable restaurant sales was due to publicity during the quarter surrounding food-borne illness incidents associated with a number of Chipotle restaurants.

We opened 79 new restaurants during the quarter, bringing the total restaurant count to 2,010.

Food costs were 33.8% of revenue, a decrease of 120 basis points as compared to the fourth quarter of 2014, as a result of relief in dairy, avocado and beef prices and the benefit of our menu price increase, partially offset by costs related to food waste and testing.

Restaurant level operating margin was 19.6% in the quarter, a decrease of 700 basis points from the fourth quarter 2014. The decrease was primarily driven by the significant decrease in comparable restaurant sales and non-recurring costs related to the food-borne illness incidents, partially offset by favorable food costs.

General and administrative expenses were 4.7% of revenue, a decrease of 100 basis points due primarily to lower non-cash stock-based compensation expense and bonus costs, partially offset by higher wages as we grew.

Net income for the fourth quarter of 2015 was $67.9 million, or $2.17 per diluted share, compared to $121.2 million, or $3.84 per diluted share, in the fourth quarter of 2014. Diluted earnings per share of $2.17 was higher than prior expectations of $1.70 to $1.90 per share primarily driven by lower non-cash stock based compensation expense related to vesting of performance shares.

Full year ended December 31, 2015 results

Revenue for the full year of 2015 was $4.5 billion, up 9.6% from the prior year. The growth in revenue was driven by sales from new restaurants not yet in the comparable base.

We opened 229 new restaurants during the full year of 2015, bringing the total restaurant count to 2,010.

Food costs were 33.4% of revenue, a decrease of 120 basis points as compared to the prior year, primarily as a result of the benefit of menu price increases and relief in dairy and avocado costs. The decrease was partially offset by inflation on beef.

Restaurant level operating margin was 26.1% for the full year of 2015, a decrease of 110 basis points from the prior year. The decrease was primarily driven by higher labor and other operating costs, partially offset by lower food costs.

General and administrative expenses were 5.6% of revenue, a decrease of 110 basis points due to decreased non-cash stock-based compensation expense, lower bonus expense, and decreased expense associated with our biennial All Managers’ Conference held in the third quarter of 2014, partially offset by higher wages as we grew.

Net income for the full year 2015 was $475.6 million, or $15.10 per diluted share, compared to $445.4 million, or $14.13 per diluted share in the full year 2014.

“2016 will be a very difficult year relative to our past performance. But, by staying true to our food culture and unique people culture, and layering on our rigorous food safety program, we are confident that we are now in a position to aggressively welcome customers into our restaurants and restore customer confidence in the things that make Chipotle great. With our full commitment to becoming an industry leader in food safety, and our continued focus on delivering an exceptional customer experience, we are confident that Chipotle will emerge as an even stronger company,” said Monty Moran, co-CEO of Chipotle.

On January 28, 2016, Chipotle was served with a subpoena broadening the scope of the previously-announced criminal investigation by the U.S. Attorney’s office for the Central District of California. The new subpoena requires us to produce documents and information related to company-wide food safety matters dating back to January 1, 2013, and supersedes the subpoena served in December 2015 that was limited to a single Chipotle restaurant in Simi Valley, California. We intend to fully cooperate in the investigation.

Additionally, our Board of Directors has approved the investment of up to an additional $300 million, exclusive of commissions, to repurchase shares of our common stock. This repurchase authorization, in addition to up to approximately $178 million available as of January 31 for repurchases under previously announced repurchase authorizations, may be modified, suspended, or discontinued at any time.

Outlook

For 2016, management expects the following:

  • 220-235 new restaurant openings
  • An effective full year tax rate of approximately 39.0% (Original Source)

Shares of Chipotle are down nearly 2% in after-hours trading. CMG has a 1-year high of $758.61 and a 1-year low of $399.14. The stock’s 50-day moving average is $473.38 and its 200-day moving average is $631.83.

On the ratings front, Chipotle has been the subject of a number of recent research reports. In a report released yesterday, Merrill Lynch analyst Joseph Buckley upgraded CMG to Hold, with a price target of $475, which represents a slight downside potential from current levels. Separately, on the same day, Maxim Group’s Stephen Anderson assigned a Hold rating to the stock and has a price target of $455.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Joseph Buckley and Stephen Anderson have a total average return of 3.6% and 13.1% respectively. Buckley has a success rate of 64.9% and is ranked #876 out of 3632 analysts, while Anderson has a success rate of 70.3% and is ranked #92.

The street is mostly Neutral on CMG stock. Out of 28 analysts who cover the stock, 15 suggest a Hold rating , 12 suggest a Buy and one recommends to Sell the stock. The 12-month average price target assigned to the stock is $505.40, which implies an upside of 6.3% from current levels.

Chipotle Mexican Grill Inc operates Chipotle Mexican Grill restaurants, which serves a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads, made using fresh ingredients.