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Why Chipotle’s net income and profit margins increased

Must-know: Chipotle Mexican Grill's 3Q14 earnings are strong (Part 11 of 14)

(Continued from Part 10)

Net income

Net income for Chipotle Mexican Grill (CMG) grew by 56.9% to $130.8 million year-over-year (or YoY). It was $83.4 million in the same quarter last year. The profit margins also increased to 12.1% from 10.1% YoY. They increased mainly because of a strong revenue growth of 31%.

Operating expenses declined to 81% from 83% YoY as a percentage of sales. The decrease was mainly due to sales leverage.

As of 3Q14, the company had no debt on its balance sheet. It had a cash balance of $1.2 billion. The company plans to use part of the cash towards its two new concept restaurants. It will also use some of the cash to develop restaurants outside the U.S.

Tax rates

For the quarter, Chipotle’s effective tax rate was 37.2%. This was lower than the effective tax rate of 39.5% YoY. The company also repurchased $13 million of its shares at an average price of $654. This left $127 million on its share buyback program.

CMG is part of the Consumer Discretionary Select Sector SPDR Fund (XLY). Restaurant stocks—like McDonald’s (MCD), Yum! Brands (YUM), and Darden Restaurants (DRI)—are also part of this exchange-traded fund (or ETF).

During the earnings call, management usually shares forward guidance on company expectations. We’ll discuss this in the next part of the series.

Continue to Part 12

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