Newport Beach / CA. (cmg) Chipotle Mexican Grill Inc. reported financial results for its second quarter ended June 30, 2020. Second quarter highlights, which incorporate the impact of Covid-19, year over year:
- Revenue decreased 4.8 percent to USD 1.4 billion
- Comparable restaurant sales declined 9.8 percent
- Digital sales grew 216.3 percent and accounted for 60.7 percent of sales for the quarter
- Restaurant level operating margin was 12.2 percent, a decrease of 8.7 percent
- Diluted earnings per share was USD 0.29, net of a USD 0.11 after-tax impact from expenses related to restaurant asset impairment and closure costs, as well as corporate restructuring, a 91.0 percent decrease from USD 3.22. Adjusted diluted earnings per share excluding these charges was USD 0.40, a 90.0 percent decrease from USD 3.99.
- Opened 37 new restaurants including three relocations and closed three restaurants during the quarter; and about 30 restaurants remain temporarily closed because of Covid-19, mainly inside malls and shopping centers
«I want to thank all of our employees for delivering excellent guest experiences, supporting our restaurants, and supporting each other during these challenging times,» said Brian Niccol, Chairman and CEO, Chipotle. «Our investment in digital over the past few years has provided our customers with convenient access to Chipotle how and where they want it. We’ll continue to invest in elevating the digital experience, including opening more Chipotlanes, while innovating with new culinary offerings such as cauliflower rice, organic beverages and quesadillas. I’m confident we will finish 2020 with good momentum and be well positioned for the long run.»
Covid-19 and Liquidity Update
Chipotle remains steadfast in our commitment to the health and well-being of our guests and employees while providing our safe, delicious, high-quality food made from real ingredients. Our top priorities for the rest of the year include safely running our restaurants and reopening dining rooms, using best practices to support alternate restaurant support center working arrangements, ensuring supply chain consistency, and strengthening our digital ecosystem. Within our restaurants, we have taken a number of steps to enhance our robust food safety protocols including the creation of the steward role which is focused on sanitization in high-touch and high-traffic areas, providing masks for all employees, and having a tamper evident packaging seal for all digital orders.
As of June 30, 2020, Chipotle continues to maintain a strong financial position with USD 934.6 million in cash, short-term investments and restricted cash, and no debt, along with a USD 600 million untapped credit facility with which to continue to navigate this crisis. This financial position improved sequentially from USD 909.2 million in cash, short-term investments and restricted cash, as of March 31, 2020. Furthermore, assuming the comparable restaurant sales improvement we are seeing continues, that gives us greater confidence in our potential to generate positive cash flow for the rest of this year, which will help support on-going strategic investments. That being said, our team remains focused on reducing non-essential controllable costs and judiciously spending on return generating projects to preserve liquidity.
Results for the three months ended June 30, 2020
Revenue in the second quarter was USD 1.4 billion, a decrease of 4.8 percent compared to the second quarter of 2019 and includes a decline of 9.8 percent in comparable restaurant sales. Cadence of monthly comparable restaurant sales during the quarter was:
- April -24.4 percent
- May -7.0 percent
- June +2.0 percent
Comparable restaurant sales in July have continued to improve and are up 6.4 percent month to date including about a 1.4 percent positive impact from the July 4th weekend and about a 2.7 percent negative impact due to under-performing restaurants in the Northeast and international markets, as well as restaurant closures due to Covid-19.
Digital sales grew 216.3 percent year over year to USD 829.3 million, the Company’s highest ever quarterly level, and represented 60.7 percent of sales. Driving increased digital awareness via advertising, new delivery partnerships with Uber Eats and Grubhub, as well as expanding our digital capabilities into Canada are attracting new customers and helping reduce friction while increasing convenient access. Notably, partnering with all the major third-party delivery aggregators has led to an increase in orders, a reduction in delivery time and cancellations, and an improvement in overall customer ratings. Even with in-restaurant dining opening back up, our digital sales momentum remains strong in July with a mix of nearly 50 percent.
We opened 37 new restaurants including three relocations during the quarter and closed three restaurants, bringing the total restaurant count to 2,669. 21 of the 37 new restaurants included a Chipotlane and we recently announced a milestone with the opening of our 100th 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. We remain confident in the long-term opportunity to more than double the number of Chipotle restaurants in the US. In fact, our strong financial position, along with less competition for high quality sites as other businesses pull back, is allowing us to build a robust new unit development pipeline. As a result, we expect to see an acceleration in the number of units opened in 2021.
Food, beverage and packaging costs in the second quarter were 33.3 percent of revenue, a decrease of 40 basis points compared to the second quarter of 2019. The decrease was primarily due to lower avocado costs, the benefit of menu price increases in late 2019, and to a lesser extent, lower waste, freight, and paper costs. These decreases were partially offset by elevated beef prices, and increased incidence of steak, bottled beverages and burritos.
Restaurant level operating margin was 12.2 percent, a decrease from 20.9 percent in the second quarter of 2019 driven primarily by higher delivery expense associated with increased delivery sales, sales deleverage, as well as several temporary investments in our business as a result of Covid-19 including assistance pay and wage inflation, partially offset by lower avocado expense and benefits from menu price increases in late 2019. In addition, we offered free or discounted delivery throughout the quarter, which also increased restaurant operating costs.
General and administrative expenses for the second quarter were USD 102.6 million on a GAAP basis or USD 101.1 million on a non-GAAP basis, excluding USD 1.5 million related to transformation expenses. GAAP and non-GAAP general and administrative expenses for the second quarter of 2020 also include underlying general and administrative expenses totaling USD 75.6 million, USD 23.0 million related to non-cash stock compensation, USD 2.0 million related to payroll taxes on stock option exercises, and USD 0.5 million related to our All Manager Conference that was postponed due to Covid-19.
The effective income tax rate for the three months ended June 30, 2020, was a benefit of 289.4 percent, a change from an effective income tax rate provision of 26.6 percent for the three months ended June 30, 2019, primarily due to excess tax benefits related to option exercises in the quarter, along with a decrease in income before tax.
Net income was USD 8.2 million, or USD 0.29 per diluted share, a decrease from USD 91.0 million, or USD 3.22 per diluted share, in the second quarter of 2019. Excluding the impact of restaurant asset impairment and closure costs, as well as corporate restructuring, adjusted net income was USD 11.4 million and adjusted diluted earnings per share was USD 0.40.
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
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 2020 guidance related to comparable restaurant sales growth, new restaurant openings, and effective full year tax rate.
