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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________

FORM 10-Q

______________________________

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

Commission File Number: 1-32731

______________________________

CHIPOTLE MEXICAN GRILL, INC.

(Exact name of registrant as specified in its charter)

______________________________

 

Delaware

84-1219301

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

610 Newport Center Drive, Suite 1300 Newport Beach, CA

92660

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (949524-4000

______________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

CMG

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes       No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 

 Large accelerated filer

 Accelerated filer

 Non-accelerated filer

 Smaller reporting company

 Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of April 26, 2021, there were 28,150,479 shares of the registrant’s common stock, par value of $0.01 per share outstanding.

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Income and Comprehensive Income

2

Condensed Consolidated Statements of Shareholders’ Equity

3

Condensed Consolidated Statements of Cash Flows

4

Notes to Condensed Consolidated Financial Statements

5

Note 1 - Basis of Presentation and Update to Accounting Policy

5

Note 2 - Recently Issued Accounting Standards

5

Note 3 - Revenue Recognition

5

Note 4 - Fair Value of Financial Instruments

6

Note 5 - Shareholders' Equity

8

Note 6 - Stock-Based Compensation

8

Note 7 - Income Taxes

8

Note 8 - Leases

9

Note 9 - Earnings Per Share

9

Note 10 - Commitments and Contingencies

9

Note 11 - Debt

10

Note 12 - Related Party Transactions

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 4.

Controls and Procedures

16

PART II

Item 1.

Legal Proceedings

17

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

Item 6.

Exhibits

18

 

Signatures

19


Table of Contents

PART I

ITEM 1.  FINANCIAL STATEMENTS

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

March 31,

December 31,

2021

2020

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

694,776

$

607,987

Accounts receivable, net

68,449

104,500

Inventory

24,304

26,445

Prepaid expenses and other current assets

61,615

54,906

Income tax receivable

244,122

282,783

Investments

363,585

343,616

Total current assets

1,456,851

1,420,237

Leasehold improvements, property and equipment, net

1,613,670

1,584,311

Long-term investments

110,928

102,328

Restricted cash

27,863

27,849

Operating lease assets

2,858,345

2,767,185

Other assets

59,463

59,047

Goodwill

21,939

21,939

Total assets

$

6,149,059

$

5,982,896

Liabilities and shareholders' equity

Current liabilities:

Accounts payable

$

147,417

$

121,990

Accrued payroll and benefits

221,677

203,054

Accrued liabilities

145,627

164,649

Unearned revenue

110,197

127,750

Current operating lease liabilities

209,086

204,756

Total current liabilities

834,004

822,199

Commitments and contingencies (Note 10)

 

 

Long-term operating lease liabilities

3,040,176

2,952,296

Deferred income tax liabilities

135,929

149,422

Other liabilities

41,419

38,844

Total liabilities

4,051,528

3,962,761

Shareholders' equity:

Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of March 31, 2021 and December 31, 2020, respectively

-

-

Common stock, $0.01 par value, 230,000 shares authorized, 36,936 and 36,704 shares issued as of March 31, 2021 and December 31, 2020, respectively

369

367

Additional paid-in capital

1,606,501

1,549,909

Treasury stock, at cost, 8,777 and 8,703 common shares as of March 31, 2021 and December 31, 2020, respectively

(2,908,111)

(2,802,075)

Accumulated other comprehensive loss

(4,492)

(4,229)

Retained earnings

3,403,264

3,276,163

Total shareholders' equity

2,097,531

2,020,135

Total liabilities and shareholders' equity

$

6,149,059

$

5,982,896

See accompanying notes to condensed consolidated financial statements.

1


Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

Three months ended

March 31,

2021

2020

Food and beverage revenue

$

1,715,990

$

1,402,117

Delivery service revenue

25,585

8,655

Total revenue

1,741,575

1,410,772

Restaurant operating costs (exclusive of depreciation and amortization shown separately below):

Food, beverage and packaging

522,671

462,299

Labor

433,669

393,565

Occupancy

101,769

95,279

Other operating costs

294,710

210,762

General and administrative expenses

155,103

106,470

Depreciation and amortization

63,122

58,374

Pre-opening costs

3,421

3,566

Impairment, closure costs, and asset disposals

5,668

9,336

Total operating expenses

1,580,133

1,339,651

Income from operations

161,442

71,121

Interest and other income (expense), net

(2,168)

2,743

Income before income taxes

159,274

73,864

Benefit/(provision) for income taxes

(32,173)

2,524

Net income

$

127,101

$

76,388

Earnings per share:

Basic

$

4.52

$

2.75

Diluted

$

4.45

$

2.70

Weighted-average common shares outstanding:

Basic

28,125

27,792

Diluted

28,582

28,323

Other comprehensive income (loss), net of income taxes:

Foreign currency translation adjustments

$

(263)

$

(1,841)

Comprehensive income

$

126,838

$

74,547

See accompanying notes to condensed consolidated financial statements.

 

2


Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)

Common Stock

Treasury Stock

Shares

Amount

Additional
Paid-In
Capital

Shares

Amount

Retained
Earnings

Accumulated Other Comprehensive Income (Loss)

Total

Balance, December 31, 2019

36,323 

$

363 

$

1,465,697 

8,568 

$

(2,699,119)

$

2,921,448 

$

(5,363)

$

1,683,026 

Adoption of ASU No. 2016-13, Financial Instrument-Credit Losses (Topic 326)

-

-

-

-

-

(1,051)

-

(1,051)

Stock-based compensation

-

-

17,708 

-

-

-

-

17,708 

Stock plan transactions and other

194 

2 

(181)

-

-

-

-

(179)

Acquisition of treasury stock

-

-

-

134 

(102,031)

-

-

(102,031)

Net income

-

-

-

-

-

76,388 

-

76,388 

Other comprehensive income (loss), net of income tax

-

-

-

-

-

-

(1,841)

(1,841)

Balance, March 31, 2020

36,517 

$

365 

$

1,483,224 

8,702 

$

(2,801,150)

$

2,996,785 

$

(7,204)

$

1,672,020 

Balance, December 31, 2020

36,704 

$

367 

$

1,549,909 

8,703 

$

(2,802,075)

$

3,276,163 

$

(4,229)

$

2,020,135 

Stock-based compensation

-

-

55,960 

-

-

-

-

55,960 

Stock plan transactions and other

232 

2 

632 

-

-

-

-

634 

Acquisition of treasury stock

-

-

-

74 

(106,036)

-

-

(106,036)

Net income

-

-

-

-

-

127,101 

-

127,101 

Other comprehensive income (loss), net of income tax

-

-

-

-

-

-

(263)

(263)

Balance, March 31, 2021

36,936 

$

369 

$

1,606,501 

8,777 

$

(2,908,111)

$

3,403,264 

$

(4,492)

$

2,097,531 

See accompanying notes to condensed consolidated financial statements.

3


Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three months ended

March 31,

2021

2020

Operating activities

Net income

$

127,101

$

76,388

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

63,122

58,374

Amortization of operating lease assets

49,269

42,961

Deferred income tax provision

(13,482)

27,343

Impairment, closure costs, and asset disposals

4,937

8,805

Provision for credit losses

(275)

(90)

Stock-based compensation expense

55,390

17,395

Other

2,180

707

Changes in operating assets and liabilities:

Accounts receivable

32,175

25,967

Inventory

2,148

2,734

Prepaid expenses and other current assets

(8,756)

(4,158)

Other assets

(186)

(5,133)

Accounts payable

19,446

20,245

Accrued payroll and benefits

18,188

5,839

Accrued liabilities

(17,869)

(9,389)

Unearned revenue

(15,606)

(15,924)

Income tax payable/receivable

38,640

(29,179)

Operating lease liabilities

(50,902)

(40,918)

Other long-term liabilities

453

104

Net cash provided by operating activities

305,973

182,071

Investing activities

Purchases of leasehold improvements, property and equipment

(86,619)

(77,653)

Purchases of investments

(90,477)

(80,746)

Maturities of investments

60,593

99,037

Net cash used in investing activities

(116,503)

(59,362)

Financing activities

Acquisition of treasury stock

(57,229)

(54,401)

Tax withholding on stock-based compensation awards

(44,810)

(47,630)

Other financing activities

(221)

(69)

Net cash used in financing activities

(102,260)

(102,100)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(407)

(819)

Net change in cash, cash equivalents, and restricted cash

86,803

19,790

Cash, cash equivalents, and restricted cash at beginning of period

635,836

508,481

Cash, cash equivalents, and restricted cash at end of period

$

722,639

$

528,271

Supplemental disclosures of cash flow information

Income taxes paid (refunded)

$

6,909

$

(14)

Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities

$

54,868

$

33,757

Acquisition of treasury stock accrued in accounts payable and accrued liabilities

$

3,997

$

-

See accompanying notes to condensed consolidated financial statements.


4


Table of Contents

CHIPOTLE MEXICAN GRILL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar and share amounts in thousands, unless otherwise specified)

(unaudited)

1. Basis of Presentation and Update to Accounting Policies

In this quarterly report on Form 10-Q, Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries, is collectively referred to as “Chipotle,” “we,” “us,” or “our.”

We develop and operate restaurants that serve a relevant menu of burritos, burrito bowls, quesadillas, tacos, and salads, made using fresh, high-quality ingredients. As of March 31, 2021, we operated 2,759 Chipotle restaurants throughout the United States as well as 40 international Chipotle restaurants. We are also an investor in a consolidated entity that owns and operates four Pizzeria Locale restaurants, a fast-casual pizza concept. We manage our operations based on eight regions and have aggregated our operations to one reportable segment.

Certain prior-year amounts have been reclassified to conform to the current year presentation.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2020.

2. Recently Issued Accounting Standards

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference rates but do not expect a significant impact to our consolidated financial statements.

We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

Recently Adopted Accounting Standards

On January 1, 2021, we adopted ASU 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”, which modified certain technical guidelines for accounting for income taxes. The adoption of ASU 2019-12 did not result in a material change to our condensed consolidated financial statements.

3. Revenue Recognition

Gift Cards

We sell gift cards, which do not have expiration dates and we do not deduct non-usage fees from outstanding gift card balances. Gift card balances are initially recorded as unearned revenue. We recognize revenue from gift cards when the gift card is redeemed by the customer. Historically, the majority of gift cards are redeemed within one year. In addition, based on historical redemption rates, a portion of gift cards are not expected to be redeemed and will be recognized as breakage over time in proportion to gift card redemptions. The breakage rates are based on company and program specific information, including historical redemption patterns, and expected remittance to government agencies under unclaimed property laws, if applicable. We evaluate our breakage rate estimate annually, or more frequently as circumstances warrant, and apply that rate to gift card redemptions. Gift card liability balances are typically highest at the end of each calendar year following increased gift card sales during the holiday season; accordingly, revenue recognized from gift card liability balances is highest in the first quarter of each calendar year.

5


Table of Contents

The gift card liability included in unearned revenue on the condensed consolidated balance sheets was as follows:

March 31,

December 31,

2021

2020

Gift card liability

$

86,272

$

105,413

Revenue recognized from the redemption of gift cards that was included in unearned revenue at the beginning of the year was as follows:

Three months ended

March 31,

2021

2020

Revenue recognized from gift card liability balance at the beginning of the year

$

30,866

$

28,070

Chipotle Rewards

We have a national loyalty program called Chipotle Rewards. Eligible customers who enroll in the program generally earn points for every dollar spent. After accumulating a certain number of points, the customer earns a reward that can be redeemed for a free entrée. We may also periodically offer promotions, which typically provide the customer with the opportunity to earn bonus points or free food vouchers (“Bonus Vouchers”). Earned rewards generally expire one to two months after they are issued, and points generally expire if an account is inactive for a period of six months.

We defer revenue associated with the estimated selling price of points or Bonus Vouchers earned by customers as each point or Bonus Voucher is earned, net of points we do not expect to be redeemed. The estimated selling price of each point or Bonus Voucher earned is based on the estimated value of the product for which the reward is expected to be redeemed. Our estimate of points and Bonus Vouchers we expect to be redeemed is based on historical data. The cost associated with rewards and Bonus Vouchers redeemed are included in food, beverage, and packaging expense on our condensed consolidated statements of income and comprehensive income.

We recognize loyalty revenue within food and beverage revenue on the condensed consolidated statements of income and comprehensive income when a customer redeems an earned reward. Deferred revenue associated with Chipotle Rewards is included in unearned revenue on our condensed consolidated balance sheets.

Changes in our Chipotle Rewards liability included in unearned revenue on the condensed consolidated balance sheets were as follows:

Three months ended

March 31,