Chipotle Announces Second Quarter 2021 Results – Restaurant News Resource Mobile Edition

Chipotle Mexican Grill, Inc. (NYSE: CMG) reported financial results for its second quarter ended June 30, 2021.

Second quarter highlights, year over year:

Revenue increased 38.7% to $1.9 billion
Comparable restaurant sales increased 31.2%
Digital sales grew 10.5% and accounted for 48.5% of sales
Operating margin was 13.0%, an increase from -0.4%
Restaurant level operating margin was 24.5%¹, the highest since Q3, 2015, and an increase of 1,230 basis points
Diluted earnings per share was $6.60, a 2,175.9% increase from $0.29. Excluding an $0.86 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, corporate restructuring, legal proceedings as well as other costs, adjusted diluted earnings per share was $7.46, a 1,765.0% increase from $0.40¹
Opened 56 new restaurants including one relocation, and closed five

¹ Restaurant level operating margin, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures.

“Chipotle’s second quarter results highlight the strength of our brand and our people, as we demonstrated growing momentum in the business,” said Brian Niccol, Chairman and CEO, Chipotle. “We remain confident in our key growth strategies and believe they will help us achieve our next goal of $3 million average unit volumes with industry leading returns on invested capital that improve as we continue to add Chipotlanes. Strong restaurant level economics combined with significant restaurant growth should allow us to optimize earnings power for many years to come.”

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. We have implemented and enhanced numerous protocols that give our employees and guests confidence that Chipotle remains steadfast in our commitment to keep them safe as capacity restrictions ease and in-restaurant ordering and dining increases.

As of June 30, 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 $500 million untapped credit facility. 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 June 30, 2021:

Revenue in the second quarter was $1.9 billion, an increase of 38.7% compared to the second quarter of 2020 and includes a 31.2% increase in comparable restaurant sales. We believe on-going strength in digital sales, the strong recovery of in-restaurant sales, positive customer reception to our new menu items, and lapping the peak of the pandemic from last year contributed to second quarter revenue growth. For Q3, while uncertainty still exists with the potential impact of COVID-19, as well as the pace of the economic recovery, if the current trends continue, we expect our comparable restaurant sales to be in the low to mid double-digits range.

Digital sales grew 10.5% year over year to $916.5 million and represented 48.5% 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.

We opened 56 new restaurants during the second quarter including one relocation, and closed five restaurants, bringing the total restaurant count to 2,853. During the quarter, 45 of the 56 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 second quarter were 30.4% of revenue, a decrease of nearly 300 basis points compared to the second quarter of 2020. The decrease was primarily due to the benefit of menu price increases as well as lower beef prices, partially offset by higher costs associated with new menu items, like quesadillas, and, to a lesser extent, avocado costs.

Restaurant level operating margin was 24.5%, an increase from 12.2% in the second quarter of 2020. The improvement was driven primarily by leverage from comparable restaurant sales including menu price increases, lower promotional activity as well as lower beef prices, partially offset by higher costs associated with new menu items, wage inflation for one month of the second quarter, and avocados.

General and administrative expenses for the second quarter were $146.0 million on a GAAP basis, or $119.2 million on a non-GAAP basis, excluding $23.5 million for a modification to 2018 performance shares to account for the unplanned effects of COVID-19, $2.1 million of certain legal expenses, and $1.2 million of transformation expenses. GAAP and non-GAAP general and administrative expenses for the second quarter of 2021 also include underlying general and administrative expenses totaling $92.0 million, $22.4 million of non-cash stock compensation, and $4.4 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 second quarter was 23.7%, which is lower than our expected effective income tax rate for the full year 2021, due to elevated excess tax benefits related to option exercises and equity vesting in the second quarter. On a non-GAAP basis, the 2021 second quarter effective tax rate was 22.4%.

Net income for the second quarter was $188.0 million, or $6.60 per diluted share, an increase from $8.2 million, or $0.29 per diluted share, in the second quarter of 2020. Excluding the impact of PSU modifications, restaurant asset impairment and closure costs, legal proceeding costs, and corporate restructuring expenses, adjusted net income was $212.8 million and adjusted diluted earnings per share was $7.46.

During the quarter, our Board of Directors approved the investment of up to an additional $200 million, exclusive of commissions, to repurchase shares of our common stock, subject to market conditions. Including this repurchase authorization, $208.5 million was available as of June 30, 2021. The repurchase authorization may be modified, suspended, or discontinued at any time. We repurchased $145.3 million of stock at an average price per share of $1,408 during the second 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 July.

Outlook

For 2021, management is anticipating the following:

Third quarter comparable restaurant sales growth in the low to mid double-digits range
At or slightly above 200 new restaurant openings
An estimated effective full year tax rate between 25% and 27%

About Chipotle

Chipotle had over 2,850 restaurants as of June 30, 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. Chipotle is ranked on the Fortune 500 and is recognized on the 2021 lists for Forbes’ America’s Best Employers and Fortune’s Most Admired Companies.

CHIPOTLE MEXICAN GRILL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)

	Three months ended June 30,
	2021				2020
Food and beverage revenue	$	1,869,365	98.8	%	$	1,350,188	98.9	%
Delivery service revenue		23,173	1.2			14,550	1.1
Total revenue		1,892,538	100.0			1,364,738	100.0
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging		574,478	30.4			454,756	33.3
Labor		464,506	24.5			385,266	28.2
Occupancy		103,430	5.5			95,576	7.0
Other operating costs		287,242	15.2			262,378	19.2
General and administrative expenses		146,044	7.7			102,647	7.5
Depreciation and amortization		62,082	3.3			60,024	4.4
Pre-opening costs		4,965	0.3			3,644	0.3
Impairment, closure costs, and asset disposals		4,266	0.2			5,386	0.4
Total operating expenses		1,647,013	87.0			1,369,677	100.4
Income (loss) from operations		245,525	13.0			(4,939)	(0.4)
Interest and other income (expense), net		851	–			623	–
Income (loss) before income taxes		246,376	13.0			(4,316)	(0.3)
Benefit/(provision) for income taxes		(58,402)	(3.1)			12,491	0.9
Net income	$	187,974	9.9	%	$	8,175	0.6	%
Earnings per share:
Basic	$	6.68			$	0.29
Diluted	$	6.60			$	0.29
Weighted-average common shares outstanding:
Basic		28,134				27,911
Diluted		28,501				28,333
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments	$	305			$	1,055
Comprehensive income	$	188,279			$	9,230

CHIPOTLE MEXICAN GRILL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)

	Six months ended June 30,
	2021				2020
Food and beverage revenue	$	3,585,355	98.7	%	$	2,752,305	99.2	%
Delivery service revenue		48,758	1.3			23,205	0.8
Total revenue		3,634,113	100.0			2,775,510	100.0
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging		1,097,149	30.2			917,055	33.0
Labor		898,175	24.7			778,831	28.1
Occupancy		205,199	5.6			190,855	6.9
Other operating costs		581,952	16.0			473,140	17.0
General and administrative expenses		301,147	8.3			209,117	7.5
Depreciation and amortization		125,204	3.4			118,398	4.3
Pre-opening costs		8,386	0.2			7,210	0.3
Impairment, closure costs, and asset disposals		9,934	0.3			14,722	0.5
Total operating expenses		3,227,146	88.8			2,709,328	97.6
Income (loss) from operations		406,967	11.2			66,182	2.4
Interest and other income (expense), net		(1,317)	(0.0)			3,366	0.1
Income (loss) before income taxes		405,650	11.2			69,548	2.5
Benefit/(provision) for income taxes		(90,575)	(2.5)			15,015	0.5
Net income	$	315,075	8.7	%	$	84,563	3.0	%
Earnings per share:
Basic	$	11.20			$	3.04
Diluted	$	11.04			$	2.99
Weighted-average common shares outstanding:
Basic		28,130				27,851
Diluted		28,542				28,328
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments	$	42			$	(786)
Comprehensive income	$	315,117			$	83,777

CHIPOTLE MEXICAN GRILL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

	June 30,		December 31,
	2021		2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	668,269	$	607,987
Accounts receivable, net		75,697		104,500
Inventory		25,159		26,445
Prepaid expenses and other current assets		71,613		54,906
Income tax receivable		284,612		282,783
Investments		322,460		343,616
Total current assets		1,447,810		1,420,237
Leasehold improvements, property and equipment, net		1,666,184		1,584,311
Long-term investments		150,814		102,328
Restricted cash		27,877		27,849
Operating lease assets		2,945,912		2,767,185
Other assets		59,918		59,047
Goodwill		21,939		21,939
Total assets	$	6,320,454	$	5,982,896
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	140,251	$	121,990
Accrued payroll and benefits		225,104		203,054
Accrued liabilities		143,469		164,649
Unearned revenue		113,016		127,750
Current operating lease liabilities		213,646		204,756
Total current liabilities		835,486		822,199
Long-term operating lease liabilities		3,134,555		2,952,296
Deferred income tax liabilities		133,510		149,422
Other liabilities		42,745		38,844
Total liabilities		4,146,296		3,962,761
Shareholders’ equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of June 30, 2021 and December 31, 2020, respectively		–		–
Common stock, $0.01 par value, 230,000 shares authorized, 36,988 and 36,704 shares issued as of June 30, 2021 and December 31, 2020, respectively		370		367
Additional paid-in capital		1,654,195		1,549,909
Treasury stock, at cost, 8,890 and 8,703 common shares as of June 30, 2021 and December 31, 2020, respectively		(3,067,458)		(2,802,075)
Accumulated other comprehensive loss		(4,187)		(4,229)
Retained earnings		3,591,238		3,276,163
Total shareholders’ equity		2,174,158		2,020,135
Total liabilities and shareholders’ equity	$	6,320,454	$	5,982,896

CHIPOTLE MEXICAN GRILL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six months ended
	June 30,
	2021		2020
Operating activities
Net income	$	315,075	$	84,563
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		125,204		118,398
Amortization of operating lease assets		105,485		88,139
Deferred income tax provision		(15,884)		55,122
Impairment, closure costs, and asset disposals		8,235		13,747
Provision for credit losses		(220)		82
Stock-based compensation expense		102,680		40,762
Other		2,467		1,670
Changes in operating assets and liabilities:
Accounts receivable		37,286		22,598
Inventory		1,309		2,029
Prepaid expenses and other current assets		(18,186)		(6,250)
Other assets		117		(8,574)
Accounts payable		12,525		40,530
Accrued payroll and benefits		21,068		3,264
Accrued liabilities		(20,102)		(8,120)
Unearned revenue		(11,487)		(4,027)
Income tax payable/receivable		(1,851)		(70,119)
Operating lease liabilities		(101,818)		(69,468)
Other long-term liabilities		955		587
Net cash provided by operating activities		562,858		304,933
Investing activities
Purchases of leasehold improvements, property and equipment		(212,123)		(165,455)
Purchases of investments		(190,920)		(101,104)
Maturities of investments		162,045		198,578
Proceeds from sale of equipment		2,885		–
Acquisitions of equity method investments		–		(7,525)
Net cash used in investing activities		(238,113)		(75,506)
Financing activities
Acquisition of treasury stock		(203,151)		(54,401)
Tax withholding on stock-based compensation awards		(58,860)		(47,947)
Other financing activities		(2,208)		(1,855)
Net cash used in financing activities		(264,219)		(104,203)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(216)		(104)
Net change in cash, cash equivalents, and restricted cash		60,310		125,120
Cash, cash equivalents, and restricted cash at beginning of period		635,836		508,481
Cash, cash equivalents, and restricted cash at end of period	$	696,146	$	633,601
Supplemental disclosures of cash flow information
Income taxes paid	$	108,247	$	657
Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities	$	50,403	$	41,504
Acquisition of treasury stock accrued in accounts payable and accrued liabilities	$	3,372	$	–

CHIPOTLE MEXICAN GRILL, INC.
SUPPLEMENTAL FINANCIAL AND OTHER DATA
(dollars in millions)
(unaudited)

	For the three months ended
	Jun. 30,		Mar. 31,		Dec. 31,		Sep. 30,		Jun. 30,
	2021		2021		2020		2020		2020
Number of restaurants opened		56		40		61		44		37
Restaurant closures		(5)		(5)		(1)		(3)		(3)
Restaurant relocations		(1)		–		(2)		–		(3)
Number of restaurants at end of period		2,853		2,803		2,768		2,710		2,669
Average restaurant sales⁽¹⁾	$	2,466	$	2,313	$	2,223	$	2,199	$	2,161
Average restaurant sales, excluding delivery MPI⁽²⁾	$	2,405	$	2,273	$	2,200	$	2,192	$	2,161
Comparable restaurant sales increase (decrease)		31.2%		17.2%		5.7%		8.3%		(9.8%)

(1) Beginning in Q3 2020, we revised the definition of average restaurant sales to exclude delivery service revenues (refer to Definitions section above). We made this change to more closely align with how management views the business and given the increase in the delivery business. Average restaurant sales in all comparative periods presented has been updated to conform with the new definition. Average restaurant sales is a trailing 12-month measure.
(2) In Q3 2020, we began implementing delivery menu-price increases (“MPI”) to partially offset the increased cost of delivery. “Average restaurant sales, excluding delivery MPI” represents average restaurant sales, as defined above, adjusted to remove the impact of delivery menu price increases. This is intended to illustrate our underlying food and beverage sales per restaurant.

CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts)
(unaudited)

The following tables provide a reconciliation of non-GAAP financial measures presented in the text above to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Adjusted net income is net income excluding expenses related to restaurant asset impairment, corporate restructuring, legal proceedings, stock-based compensation modification expense, and certain other costs. Adjusted general and administrative expense is general and administrative expense excluding transformation expenses, stock-based compensation modification expense, and certain other costs. The non-GAAP effective tax rate is the effective tax rate adjusted to reflect the tax effect of non-GAAP adjustments. Restaurant Level Operating Margin, a non-GAAP financial measure, is equal to the revenues generated by our restaurants less their direct operating costs which consist of food, beverage and packaging, labor, occupancy and other operating costs. This performance measure primarily includes the costs that restaurant level managers can directly control and excludes other operating costs that are essential to conduct our business. Management uses restaurant level operating margin as a measure of restaurant performance. Management believes restaurant level operating margin is useful to investors in that it highlights trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP financial measures. We present these non-GAAP measures in order to facilitate meaningful evaluation of our operating performance across periods. These adjustments are intended to provide greater transparency of underlying performance and to allow investors to evaluate our business on the same basis as our management, which uses these non-GAAP measures in evaluating the company’s performance. Our adjusted net income, adjusted diluted earnings per share, adjusted general and administrative expenses, non-GAAP effective tax rate and restaurant level operating margin measures may not be comparable to other companies’ adjusted measures. These adjustments are not necessarily indicative of what our actual financial performance would have been during the periods presented and should be viewed in addition to, and not as an alternative to, our results prepared in accordance with GAAP. Further details regarding these adjustments are included in the tables below.

	Three months ended
	June 30,
	2021		2020
Net income	$	187,974	$	8,175
Non-GAAP adjustments:
Restaurant costs:
Operating lease asset impairment and other restaurant costs⁽¹⁾		115		2,107
Duplicate rent expense⁽²⁾		51		80
Corporate Restructuring:
Duplicate rent expense⁽²⁾		1,070		1,216
Employee related restructuring costs⁽³⁾		129		295
Legal proceedings⁽⁴⁾		2,092		–
Stock-based compensation modification expense⁽⁵⁾		23,473		–
Other adjustments⁽⁶⁾		850		–
Total non-GAAP adjustments	$	27,780	$	3,698
Tax effect of non-GAAP adjustments above		(3,002)		(425)
After tax impact of non-GAAP adjustments	$	24,778	$	3,273
Adjusted net income	$	212,752	$	11,448

Diluted weighted-average number of common shares outstanding		28,501		28,333
Diluted earnings per share	$	6.60	$	0.29
Adjusted diluted earnings per share	$	7.46	$	0.40

(1) Operating lease asset impairment charges, and other expenses for restaurants due to underperformance.
(2) Duplicate rent expense for the corporate headquarter relocation and office consolidation announced in May 2018 and rent expense for closed restaurants announced in June 2018.
(3) Costs for recruitment, relocation costs, third party and other employee-related costs.
(4) Charges relate to estimated settlements for distinct legal matters that exceeded or are expected to exceed typical costs for these types of legal proceedings.
(5) For the three months ended June 30, 2021, stock-based compensation consists of a modification to 2018 performance shares.
(6) For the three months ended June 30, 2021, other adjustments consist of asset impairment charges for equipment related to a discontinued restaurant initiative, and certain corporate equipment.

CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands)
(unaudited)

Adjusted General and Administrative Expenses

	Three months ended
	June 30,
	2021		2020
General and administrative expenses	$	146,044	$	102,647
Non-GAAP adjustments:
Transformation expenses⁽¹⁾		(1,250)		(1,591)
Stock-based compensation modification expense⁽²⁾		(23,473)		–
Legal proceedings⁽³⁾		(2,092)		–
Total non-GAAP adjustments	$	(26,815)	$	(1,591)
Adjusted general and administrative expenses	$	119,229	$	101,056

(1) Transformation expenses include duplicate rent expense for office and restaurant closures announced in June 2018 due to the corporate restructuring and underperformance of $1,121 and $1,296 for the three months ended June 30, 2021 and 2020, respectively, and employee related restructuring costs of $129 and $295 for the three months ended June 30, 2021 and 2020, respectively.
(2) For the three months ended June 30, 2021, stock-based compensation consists of a modification to 2018 performance shares.
(3) For the three months ended June 30, 2021, charges related to estimated settlements for distinct legal matters that exceeded or are expected to exceed typical costs for these types of legal proceedings.

CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited)

Non-GAAP Effective Tax Rate

	Three months ended
	June 30,
	2021		2020
Effective income tax rate	23.7	%	289.4	%
Tax effect of non-GAAP adjustments	(1.3)		1,663.0
Adjusted income tax rate	22.4	%	1,952.4	%

CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited)

Restaurant Level Operating Margin

	Three months ended June 30,
	2021				2020
Income from operations	$	245,525	13.0	%	$	(4,939)	(0.4)	%
Non-GAAP Adjustments:
General and administrative expenses		146,044	7.7			102,647	7.5
Depreciation and amortization		62,082	3.3			60,024	4.4
Pre-opening costs		4,965	0.3			3,644	0.3
Impairment, closure costs, and asset disposals		4,266	0.2			5,386	0.4
Total Non-GAAP Adjustments	$	217,357	11.5	%	$	171,701	12.6	%
Restaurant level operating margin	$	462,882	24.5	%	$	166,762	12.2	%

SOURCE Chipotle Mexican Grill, Inc.