News

Chipotle reports dismal Q2

July 22, 2016

The second-quarter financial news is in for Chipotle Mexican Grill. and it is not good, although the chain has apparently returned to profitability. 

"We returned to profitability and saw a modest improvement in comp sales trends in the second quarter," Chipotle Founder, Chairman and Co-CEO Steve Ells said in a company press release.. "Our most recent marketing efforts, led by our Chiptopia frequency program, are off to a nice start in the third quarter, as customers are embracing the program and nearly 30 percent of all transactions are engaged in Chiptopia. 

"Our entire company is focused on restoring customer trust and re-establishing customer frequency, and rewarding our most loyal customers for visiting more often through Chiptopia is one way to do just that. While it has only been a few weeks since Chiptopia launched, we are pleased to see that July sales comp trends have already improved by 200 to 300 basis points, and transaction comp trends have improved by an even greater amount."

Key results from second quarter: 

For the quarter ending June 30, as compared to the same period last year:

•    Revenue decreased 16.6 percent to $998.4 million.
•    Comparable restaurant sales decreased 23.6 percent. 
•    Comparable restaurant transactions decreased 19.3 percent.
•    Restaurant-level operating margin decreased 28 percent to 15.5 percent. 
•    Net income fell from $140.2 million to $25.6 million. 
•    Diluted earnings per share fell from $4.45 to 87 cents. 
•    58 new restaurants were opened. 

Those results — taken in conjunction with the first quarter of the year results — show that in a comparison of the chain's performance during the first half of this year, to that of last year, revenue fell nearly 20 percent to $1.83 billion, while comparable restaurant sales fell more than 26 percent. Restaurant transactions dropped 20.2 percent, while operating margin fell nearly 28 percent at the restaurant level to 11.6 percent. The diluted loss per share was 3 cents, a decrease from diluted earnings per share of $8.34, according to the release.

Causes of Q2 results

According to a news release about the results last quarter, the chain suffered a drop in comparable restaurant sales due to fewer restaurant transactions and lower than average checks. Food costs also increased 110 basis points compared to the second quarter of last year. That increase was driven by increased costs at suppliers, which the chain said was related to new food safety procedures and food waste costs. Those additional expenditures were partly offset by price increases during the second half of 2015 at select restaurants, according to the release.

Restaurant-level operating margin dropped 12.5 percentage points to 15.5 percent primarily due to what the company termed "unfavorable sales leverage," as well as higher costs for marketing and promotion and, to a lesser extent, by higher marketing and promotional costs.

General and administrative expenses were flat, according to the company, when compared to last year. The report said that was largely the result of higher legal expenses and wages, offset by lower non-cash stock-based compensation expense and employee taxes.

Outlook for the chain
Over the course of this entire year, Chipotle management expects to open as many as 235 new restaurants and pay an effective full-year tax rate of approximately 38.6 percent.

“The best thing that we can do for our business is to earn customers’ trust and loyalty by consistently providing a terrific restaurant experience with safe, delicious food and excellent service," said Co-CEO Monty Moran. "We will do that by continuing to develop great leaders who can build restaurant teams of empowered top performers that can successfully deliver on this goal."