NEWPORT BEACH, Calif. – Chipotle Mexican Grill Inc. beat Wall Street analysts’ expectations by posting gains in comparable restaurant traffic, net income and revenue for the third quarter.
For the three months ended Sept. 30, 2018, Chipotle reported net income was $38.2 million, or $1.36 per diluted share, compared to $19.6 million, or $0.69 per diluted share, in the third quarter of 2017. Excluding the impact of restaurant asset impairment, moving the company’s headquarters to California and other costs, adjusted net income was $60.7 million and adjusted diluted earnings per share was $2.16.
Revenue was $1.2 billion, an increase of 8.6 percent driven primarily by new restaurant openings and a 4.4 percent increase in comparable restaurant sales, the company noted. Higher average check, including a 3.8 percent effective menu price increase, partially offset a 1.1 percent decline in restaurant transactions.
“Chipotle’s strategy to win today and cultivate a better future is taking hold and I’m pleased to report our third quarter results with strong sales growth and restaurant margin expansion over last year,” said Chipotle CEO Brian Niccol. “We made important progress during the quarter with the introduction of our ‘For Real’ marketing strategy and I’m encouraged by the progress we are making in building a pipeline of customer focused innovation, driving digital sales, elevating our restaurant operations and effectively executing our reorganization.”
Food, beverage and packaging costs declined 160 basis points in the third quarter of 2018, representing 33.4 percent of revenue, the company reported. Chipotle attributed the decrease to the benefit of menu price increases taken in almost all restaurants within the last 12 months and relief in avocado prices, partially offset by elevated prices for beef, paper and packaging items.
Higher comparable restaurant sales coupled with lower marketing and promotional costs lifted restaurant-level operating margin to 18.7 percent in the quarter, an improvement from 16.1 percent in the year-ago period. Increased repairs and maintenance partially offset this result.
General and administrative expenses were 8.9 percent of revenue, which represents an increase of 10 basis points over the third quarter of 2017. The increase was related to corporate restructuring, including stock compensation modification expense, severance, relocation and outside services helping the company relocate its headquarters.
Chipotle opened 28 new restaurants during the third quarter and closed or relocated 32 locations, bringing the chain’s total restaurant count to 2,463.
For the nine months ended Sept. 30, revenue climbed 8.2 percent to $3.6 billion on a 3.3 percent increase in comparable restaurant sales.
Net income for the first nine months of 2018 was $144.5 million, or $5.17 per diluted share, compared to net income of $132.5 million, or $4.62 per diluted share, in the year-ago period. Adjusted net income was $205.4 million, or $7.34 or adjusted diluted earnings per share.
Food beverage and packaging costs were 32.8 percent of revenue, a decrease of 150 basis points compared to the first nine months of 2017.
Restaurant level operating margin improved to 19.3 percent during the first nine months of 2018, from 17.6 percent reported for the comparable year-ago period.
General and administrative expenses increased 40 basis points to 7.5 percent of revenue during the first nine months of 2018.
Impairment, closure costs, and asset disposals increased $46.6 million, primarily driven by the planned closures of underperforming restaurants and the write down of a large portion of the associated long-lived asset values, as well as lease termination costs and impairment related to office closures.
In lieu of a specific fourth-quarter earnings forecast, the outlook at Chipotle is for “Comparable restaurant sales increases for the full year in the low to mid-single digits.” New restaurant openings will be “…at the lower end of the previously announced range of 130 to 150 for the full year.”
In 2019, the company anticipates 140 to 155 new restaurant openings.