Chipotle Mexican Grill (CMG) Updates on Q1 Performance; Feb Comps Down 26.1%, Sees Loss of $1/Share or Worse vs. Expected Profit

Chipotle Mexican Grill (NYSE: CMG) disclosed that February comparable restaurant sales declines improved to (26.1%) and they see a Q1 loss of ($1.00) per share or worse, versus the consensus of Q1 EPS of $0.11 profit.

Item 8.01.Other Events.

Chipotle Mexican Grill, Inc. is filing this report to provide an update regarding our financial and operating results thus far for the first quarter of 2016. Since the business update provided on our fourth quarter 2015 earnings conference call on February 3, 2016, our restaurant sales have started to recover. We experienced weekly sequential increases in net sales volumes and sequential improvements in weekly comparable restaurant sales from February 8, 2016 through the first week of March 2016. Our weekly comparable restaurant sales modestly decreased during the second week of March 2016.

Quarter-to-date Financial Impact

• February comparable restaurant sales declines improved to (26.1%)
• For the first quarter 2016, we anticipate restaurant-level operating margin to be in the mid-single digits
• For the first quarter 2016, we expect to report a diluted loss per share

First Quarter 2016 Sales Trend Detail

February sales comps improved to (26.1%) from (36.4%) in January. Leap day added an estimated 2.6% to the February comp. Sales comps improved to (24.7%) for the last two weeks of February, excluding the extra leap day, from an average of (33.8%) during the first two weeks of February. The sales recovery began the week of February 8, 2016, when we launched an aggressive marketing campaign that coincided with our National Team Meeting, to invite customers to dine at Chipotle via a free burrito offer. This sales recovery continued into March, as comparable restaurant sales were (21.5%) during the week ended March 7. Our results the second week of March declined to (27.3%), as they were affected by the temporary closing of a single Boston area restaurant which was the result of our restaurant teams fully following protocols. The restaurant reopened quickly with no customers affected.

Operating Margin and EPS

During the first quarter 2016, we anticipate our restaurant-level operating margin to be in the mid-single digit range. And we also expect EPS will be a loss of ($1.00) per share or worse. (The Street sees Q1 EPS of $0.11.) During the quarter we will incur higher expenses driven by increased marketing and promotions spend in other operating costs, which are anticipated to be significantly higher in the first half of 2016 compared to historic reporting periods. We also anticipate higher food costs due to additional food safety protocols put into place, as well as higher food costs related to food waste, rejection rates related to high resolution DNA testing, and lower volumes. We have also incurred higher labor costs to ensure we were fully staffed as customers redeemed their free burrito offer. The first quarter results will include an estimate of the liability for expected, but unredeemed free burrito offers. We also expect an increase in legal expenses associated with the investigation by the Department of Justice. We continue to expect that our margins and earnings potential will fully recover as our sales improve over time, except that we expect our food costs to be higher on an ongoing basis by about 200bps due to the food safety related actions we have taken.

Chipotle Hires Food Safety Expert

This report is also filed to announce the hiring of James (Jim) Marsden, Ph.D. as Executive Director of Food Safety at Chipotle. Dr. Marsden, one of the nation’s foremost authorities on food safety, is actively working to further our food safety efforts and continue the progress we have already made towards establishing Chipotle as a leader in food safety. Dr. Marsden was previously a member of the faculty at Kansas State University’s Animal Science and Industry Department as the Regent’s Distinguished Professor of Food Safety and Security, and also served as the associate director of the Biosecurity Research Institute at Kansas State University.

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