News

Chipotle reports Q3 struggles, plans to rebound

October 25, 2016

Chipotle reported that its revenue decreased 14.8 percent to $1 billion over the third quarter, which ended Sept. 30.

"We continued to make steady progress in our sales recovery during the third quarter," said Steve Ells, founder, chairman and co-CEO of Chipotle. "We are earning back our customers' trust, and our research demonstrates that people are feeling better about our brand, and the quality of our food.

"While this year has been a year of reinvestment, we are now focused on continuing to further recover sales and improve our economic model to create long-term shareholder value."

Overview for the three months ended Sept. 30,2016,as compared to the three months ended Sept. 30, 2015, include:

• Comparable restaurant transactions decreased 15.2 percent.
• Comparable restaurant sales decreased 21.9 percent, which includes a 0.8 percent decrease from a revenue deferral related to unredeemed Chiptopia awards.
• Restaurant level operating margin was 14.1 percent, a decrease from 28.3 percent. The Chiptopia revenue deferral negatively impacted restaurant level operating margins by 0.9 percent.
• Net income was $7.8 million, a decrease from $144.9 million. Net income includes a $14.5 million non-cash, pretax impairment charge related to ShopHouse and was reduced by an $11.5 million pretax revenue deferral related to Chiptopia.
• Diluted earnings per share was $0.27, a decrease from $4.59, including $0.29 related to the ShopHouse impairment charge and $0.23 due to the deferral of revenue from Chiptopia.
• Opened 54 new restaurants, net of one closure

Overview for the nine months ended Sept. 30, 2016, as compared to the nine months ended September 30, 2015:

• Revenue decreased 18.1 percent to $2.9 billion.
• Comparable restaurant transactions decreased 17.9 percent.
• Comparable restaurant sales decreased 24.9 percent, which includes a 0.3 percent decrease from the revenue deferral related to unredeemed Chiptopia awards.
• Restaurant level operating margin was 12.5 percent, a decrease from 27.9 percent.
• Net income was $7.0 million, a decrease from net income of $407.7 million.
• Diluted earnings per share was $0.23, a decrease from $12.92.
• Opened 168 restaurants, net of 3 relocations or closures.

"Our restaurant teams are very excited to see more customers return to their restaurants, and are working hard to reward them with an excellent guest experience," said Monty Moran, co-CEO. "After successfully implementing an industry leading food safety program, and as our marketing efforts are driving more people to our restaurants, it is critical that we are prepared to delight customers on every visit. We are confident that we have the leadership and teams in place to do just that."

For 2016, management expects the following:

• Restaurant openings for the full year at or above the high end of the previously disclosed range of 220 to 235.
• Comparable restaurant sales declines in the low single-digits for the fourth quarter.
• And an effective full-year tax rate of approximately 38.2 percent, which benefited from the recognition of tax credits earned in prior years.

For 2017, management is targeting the following:

• 195-210 restaurant openings.
• Comparable restaurant sales increases in the high, single-digits.
• Restaurant level operating margins of  20 percent.
• An estimated effective full year tax rate of approximately 39.5 percent  which will be impacted by volatility due to a recently issued accounting standard that changes how the company accounts for taxes associated with stock-based compensation awards.
• $10 earnings per diluted share.