Chipotle Mexican Grill, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023 unless otherwise noted. Chipotle operated 3,479 restaurants and reports one operating segment.
Financial and operating performance
| Metric | Q1 2024 | Prior period / change |
|---|---|---|
| Total revenue | $2.702 billion | $2.369 billion; up 14.1% |
| Comparable restaurant sales | Up 7.0% | Up 10.9% |
| Net income | $359.3 million | $291.6 million; up 23.2% |
| Diluted EPS | $13.01 | $10.50; up 23.9% |
| Income from operations | $441.3 million | $367.6 million |
| Operating margin | 16.3% | 15.5% |
| Net margin | 13.3% | 12.3% |
| Cash provided by operating activities | $569.2 million | $455.0 million |
| Capital expenditures | $132.7 million | $120.4 million |
Comparable sales growth was driven primarily by transactions (+5.4%), with average check up 1.6%. Digital sales were 36.5% of food and beverage revenue. Restaurant operating costs were 72.5% of revenue, down from 74.4%.
Costs, cash, and financial position
- Food, beverage and packaging costs were 28.8% of revenue versus 29.2%; management cited prior-year menu pricing benefits, partly offset by beef and produce inflation and product mix.
- Labor costs were 24.4% of revenue versus 24.6%. Sales leverage offset wage inflation and higher performance-based compensation.
- G&A rose 37.9% to $204.6 million, or 7.6% of revenue versus 6.3%. Increases included a biennial managers’ conference, stock compensation, legal contingencies and corporate initiatives.
- Cash and cash equivalents were $727.4 million; current and long-term investments were $1.469 billion. Cash, cash equivalents, investments and restricted cash totaled approximately $2.2 billion. Operating cash flow increased year over year; investing cash use was $301.0 million and financing cash use was $100.1 million.
- No borrowings were outstanding on the $500 million revolving credit facility, and Chipotle reported compliance with its covenants. Operating lease liabilities totaled approximately $4.16 billion. The filing reports no outstanding funded debt.
- Stock repurchases remained authorized, with approximately $399.1 million available at quarter-end. The company stated that operating cash flow and existing cash and investments should be sufficient for foreseeable needs.
Changes, outlook, and management commentary
- Chipotle opened 47 restaurants, including 43 with a Chipotlane; three restaurants permanently closed and two relocated. It ended the quarter with 3,479 locations.
- Management expected to open approximately 285–315 restaurants in 2024, with at least 80% expected to include a Chipotlane. It also expected positive cash flow for the foreseeable future, assuming no significant decline in comparable sales. No specific full-year revenue or EPS guidance is provided in the filing.
- In April 2024, California’s $20 minimum wage for restaurant workers took effect. Chipotle said this resulted in nearly 20% higher labor costs in California and subsequently raised menu prices there by 6–7% to mitigate the increase.
- Interest and other income more than doubled to $19.4 million, primarily due to higher investment balances and interest rates. The effective tax rate declined to 22.0% from 22.5%, mainly due to tax benefits related to option exercises and equity vesting.
- Diluted EPS growth included an estimated $0.36 after-tax impact from increased legal reserves. Accrued legal liabilities rose to $21.6 million from $7.6 million at year-end. Management did not expect pending or threatened ordinary-course claims to materially affect the company, but noted that more claims or higher liabilities could have adverse effects.
Risks and contingencies
Key risks cited include wage and food-cost inflation, California labor regulation, labor availability and union activity, food safety, supply shortages, cybersecurity and privacy incidents, competition, consumer spending and pricing response, delivery-platform reliance, litigation, and costs and execution risks from restaurant and international expansion. The company reported no material changes to the risk factors in its 2023 Form 10-K. Results are seasonal and quarterly performance may not predict full-year results.
Important facts for investors to verify
- Whether transaction-led comparable sales growth continues and how California price increases affect traffic and average check.
- Whether wage, beef and produce inflation can be offset by pricing, sales leverage and operating efficiencies.
- Progress toward the 2024 opening target and the planned share of new restaurants with Chipotlanes.
- Developments in legal matters and the increase in accrued legal liabilities, including the effect on future earnings.
- Capital spending, repurchases and investment deployment relative to operating cash flow and the company’s growth plans.