Chipotle Mexican Grill, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; unaudited. Chipotle operated 3,321 restaurants at quarter-end and reports one operating segment.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $2,471.9m (+11.3%) | $2,220.2m | $7,355.3m (+14.0%) | $6,454.1m |
| Operating income | $395.0m | $336.3m | $1,194.4m | $864.1m |
| Net income | $313.2m | $257.1m | $946.7m | $675.4m |
| Diluted EPS | $11.32 (+23.0%) | $9.20 | $34.13 | $24.02 |
| Operating margin | 16.0% | 15.1% | 16.2% | 13.4% |
| Net margin | 12.7% | 11.6% | 12.9% | 10.5% |
Q3 comparable restaurant sales grew 5.0%, driven by transactions (+4.1%) and average check (+0.9%); menu price increases contributed 2.8%, partly offset by lower check mix. Digital sales were 36.6% of food and beverage revenue. For the nine months, comparable sales increased 7.7%, with transactions up 4.3% and average check up 3.4%.
Q3 restaurant operating costs were 73.7% of revenue versus 74.7% a year earlier, reflecting sales leverage, partly offset by food and wage inflation. Food, beverage and packaging costs were 29.7% of revenue; labor 24.9%; occupancy 5.1%; and other operating costs 14.0%. The nine-month effective tax rate was 23.5% versus 23.1%.
Cash flow, liquidity and capital
- Nine-month operating cash flow was $1,518.0m, compared with $921.6m. Capital expenditures were $388.8m; operating cash flow less capital expenditures was approximately $1,129.2m.
- Investing cash outflow was $794.0m, including investment purchases net of maturities and restaurant development spending. Financing cash outflow was $505.4m, including $437.3m of treasury-stock repurchases.
- Cash and marketable investments were approximately $1.9bn, excluding non-marketable investments and restricted cash. A $500m revolving facility was undrawn; no borrowings were outstanding and covenants were met.
- Operating lease liabilities totaled approximately $4.02bn ($245.0m current and $3,773.1m long-term). No material funded debt was reported.
Changes, outlook and risks
- Revenue and earnings rose year over year; Q3 revenue growth reflected comparable-sales gains and restaurants outside the comparable base. Nine-month revenue increased 14.0%.
- Chipotle opened 62 restaurants in Q3, 54 with a Chipotlane; it opened 149 during the first nine months. Management remained on track for approximately 255–285 openings in 2023, including 10–15 relocations, and expected approximately 285–315 in 2024, assuming construction, utility, permit and inspection delays do not worsen. At least 80% of new restaurants were expected to include a Chipotlane.
- Management expects positive cash flow for the foreseeable future, assuming no significant decline in comparable sales, and considers cash, investments and operating cash flow sufficient for foreseeable needs. Planned cash uses include restaurant construction and upkeep, share repurchases and general corporate purposes. A further $368.4m was authorized for repurchases at quarter-end, including a $300m authorization approved in September.
- Q3 diluted EPS included a $0.04 after-tax impact from corporate restructuring expenses. Nine-month impairment, closure and asset-disposal costs were $31.8m versus $15.4m, including elevated leasehold and restaurant-asset impairments and costs related to the Pizzeria Locale closure. The company closed all non-Chipotle restaurants during the quarter.
- Key risks cited include food and labor inflation, wage regulation including California AB 1228, staffing and union activity, food safety, supply availability, consumer spending and pricing acceptance, competition, construction constraints, digital and third-party delivery reliance, cybersecurity/privacy, and litigation. The filing reported no material changes to previously disclosed risk factors. Ordinary-course legal claims were not expected to have a material adverse effect, though outcomes are uncertain.
Important facts for investors to verify
- Whether comparable-sales growth, transaction trends and menu pricing remain sustainable.
- Whether food-cost and wage inflation, including the effects of California AB 1228, alter restaurant margins.
- Whether restaurant-opening targets are achieved without worsening construction and permitting delays or materially higher capital needs.
- How share repurchases, substantial lease obligations and restaurant investment affect liquidity and returns.
- Developments in legal, food-safety, cybersecurity and supply-chain matters; management’s stated outlook is subject to these risks.