Financial Statement Analysis Chipotle Mexican Grill
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EXECUTIVE SUMMARY
Chipotle Mexican Grill was founded and incorporated in 1993, and became a publicly traded company in 1998 on NASDAQ as CMG. McDonald’s began by purchasing 10% of the shares in 1998, which became the major shareholder a year later. It has grown to over 1400 locations in forty-three states, along with location in Canada, the UK and France.
Business/Products
Chipotle Mexican Grill began as start to a better quality restaurant without the look and feel of a fast-food chain. Their menu was simple, great burritos made to order, along with rice or salad bowls. They have kept the selection low but have added tacos and quesadillas to the line. Don’t think that you don’t have many choices because when you add all the combinations of condiments, you have tens of thousands of options.
Financial Highlights
Chipotle Mexican Grill has shown a trend in the last five years for growth in revenue. The FY2012 revenue was $2,731,224 with a gross profit of $740,340 and a net income of $278,00. Earnings per share were $8.75 in FY2012. They have done all this while keeping their debt at the absolute minimum (zero dollars).
Chipotle Mexican Grill has a solid and consistent management team that is shown by their ability to control costs, and not spend money they don’t have. They are definitely headed in the right direction, and I think if we move aggressively and offer about 500-515 dollars a share we can make our money back in no time.
THE CMG STORY
Chipotle Mexican Grill opened its doors back in 1993, but what the owner Steve Ells didn’t realize, was that it would transform the way we all saw the fast-food industry. He created what was supposed to be a small business, which has quickly grown to over 1400 locations in four countries and forty-three states. This all happened because after opening up “Ells and his father calculated that the store would need to sell 107 burritos per day to be profitable. After one month, the original restaurant was selling over 1,000 burritos a day” (Chipotle Mexican Grill, 2013). His vision was to create a gourmet style meal with only the freshest ingredients, at a great price, but at the speed and convenience of fast-food restaurants.
“As Chipotle began to grow and expand, they learned quite a bit about the way most of the food in the US is produced and processed — and what I learned was pretty grim. Pigs are raised in stark confinement, produce is grown on vast factory farms with little or no regard for the environment, and dairy cows are confined and injected with hormones that can make them ill in an effort to increase their milk production” (Ells, n.d.). This was something that didn’t sit well the owner, so he set out to transform the meat and produce industry for all the products he would serve at his restaurants. “Steve Ells met ranchers and farmers dedicated to raising livestock and growing produce using responsible, respectful, and sustainable techniques. By partnering with these producers they have increased the amount of naturally raised meats and responsibly grown produce they purchase exponentially” (Ells, n.d.).
Chipotle has expanded so quickly since they opened up, and they haven’t had a hiccup yet, they continue to open stores left and right, introducing the world to what is now becoming a house hold name like McDonald’s. They have held many events where they have held free burrito days, from promotions during Halloween, to feeding reporters during trials. They have started to gain more airtime, from advertisements via billboards, radio commercials, television ads and have even entered into the smart phone application store. You can go in, design your burrito, or bowl, and have it ready for you when you get to the restaurant, hence making it even faster for you to get your meal.
CHIPOTLE FINANCIAL HISTORY:
Comparative financial statements for Chipotle Mexican Grill can be found below for years 2009 through 2011 in the form of comparative Income Statement’s, Balance Sheets, cash flow statements, as well as the Ratios, Common Size Financials and Proforma Financials respectively.
The auditors’ opinion on Chipotle Mexican Grills financial statements is unqualified for the years 2009 through 2011. Additionally, all values are expressed in millions of dollars unless otherwise specifically noted.
INCOME STATEMENT:
Net income attributable to Chipotle Mexican Grill for FY2009 compared to FY2010 (after considering extraordinary items) grew $52.13 (41%). This can be contributed to an increase in number of Chipotle locations, as well as a continued effort to achieve and run a debt free company. The Net Income continued to grow from FY2010 to FY2011 by $35.97 (20%). Granted the increase in Net Income dropped to about half the percentage from a year earlier, but they have continued to grow much faster than they would have ever anticipated.
Net Income
2011
Gross Profit
1,518.42
1,835.92
2,269.55
Total Operating Expense
1,314.71
1,548.09
1,918.99
Income from Operations
203.71
287.83
350.56
Income & Other Income
2.09
Income & Other Expense
(0.41)
(0.27)
(2.95)
Income Before Income Taxes
204.23
289.06
349.71
Provision for Income Tax
(77.38)
(110.08)
(134.76)
Net Income
126.85
178.98
214.95
Gross Profit has had a steady increase over the last few years at a rate of about 123%. When looking at the continued growth effort by Chipotle Mexican Grill, we see that number of locations increased from 956 locations in 2009, to 1,230 locations in 2011, which is about a 114% increase in locations each year. This coupled with a rising net income is proof that they pick their locations wisely, and do not sacrifice gross profit, for the ability to open more locations. They have found a medium of keeping profit up, as well as opening new doors to places they haven’t touched before.
Total Restaurants at End of Year
2011
Beginning of Year
837.00
956.00
1,084.00
Openings Minus Closing & Relocations
119.00
128.00
146.00
Total Restaurants at EOY
956.00
1,084.00
1,230.00
By looking at the average sales per location for the past three