Chipotle Mexican Grill, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. Chipotle operated one reportable segment. The quarter remained affected by COVID-19 restrictions, though most restaurants were open for dine-in with restrictions.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $1.742 billion | $1.411 billion | +23.4% |
| Comparable restaurant sales | +17.2% | +3.3% | — |
| Operating income | $161.4 million | $71.1 million | +127% |
| Net income | $127.1 million | $76.4 million | +66% |
| Diluted EPS | $4.45 | $2.70 | +65% |
| Net cash from operations | $306.0 million | $182.1 million | +$123.9 million |
| Capital expenditures | $86.6 million | $77.7 million | +$8.966 million |
Restaurant operating costs were 77.7% of revenue, down from 82.4%. Food, beverage and packaging costs were 30.0% of revenue (32.8% prior year); labor was 24.9% (27.9%); occupancy was 5.8% (6.8%). Other operating costs rose to 16.9% of revenue from 14.9%, primarily reflecting higher delivery expense. General and administrative expense increased to $155.1 million from $106.5 million, including higher stock-based compensation.
Liquidity and capital: Cash and cash equivalents were $694.8 million; cash plus current and long-term investments totaled approximately $1.17 billion. Cash, cash equivalents and restricted cash were $722.6 million at quarter-end. Current assets were $1.46 billion and current liabilities $834.0 million. The company reported no borrowings on its credit facility at March 31. Total liabilities were $4.05 billion, including $3.25 billion of operating lease liabilities. Financing cash outflows included $57.2 million for treasury stock and $44.8 million of tax withholding on stock awards.
Material changes and operating developments
- Digital sales increased 133.9% to $869.8 million and represented 50.1% of sales. Management attributed sales growth to higher average checks, more entrees sold, sides attachment, marketing, new menu items and stimulus payments.
- The company opened 40 restaurants and permanently closed five; 26 new locations included Chipotlanes. Management said the format was performing well and expressed confidence in the long-term opportunity to more than double U.S. restaurant count.
- Operating income growth reflected sales leverage and improved cost ratios, partly offset by delivery expense and wage inflation. Other operating costs rose 39.8% year over year.
- Q1 diluted EPS included a reported $0.91 after-tax impact from expenses related to the 2018 PSU modification, restaurant impairment and closure costs, and corporate restructuring. The 2018 PSU modification generated $24.4 million of compensation expense in the quarter.
- Restaurant impairment, closure costs and asset disposals were $5.7 million, down from $9.3 million. Management said COVID-19 still weighed on near-term cash-flow assumptions for certain restaurants or markets.
Outlook, risks and contingencies
Management expected cash from operations and existing cash and investments to cover capital expenditures, working capital and other needs for the foreseeable future. It expected positive cash flow for the foreseeable future assuming no significant decline in comparable sales. The filing did not provide a specific numerical full-year revenue, earnings or restaurant-opening forecast. Management remained focused on new restaurant construction, remodels, digital kitchens and Chipotlanes, and said stock repurchases could continue subject to market conditions.
COVID-19 could continue to disrupt operations, staffing, supply chains and results. The company reported no significant supply-chain disruption to date but warned that future disruption was possible. Other risks include commodity-price increases and potential customer resistance to menu-price increases. The company disclosed ordinary-course litigation, including employment, personal injury, consumer and commercial claims; it accrued $29.1 million for estimated legal liabilities and did not expect the ultimate resolution of current claims to materially harm its financial position or results. No material changes to previously disclosed risk factors were reported.
After quarter-end, on April 13, 2021, Chipotle replaced its $600 million revolving facility with a new five-year $500 million facility. On April 21, the company announced an additional $100 million share-repurchase authorization. The filing reported no material off-balance-sheet arrangements and effective disclosure controls.
Important facts for investors to verify
- Whether comparable-sales momentum and digital sales growth persist as dining restrictions and pandemic conditions change.
- Whether increased delivery expense, wage inflation and commodity costs pressure restaurant margins, and whether menu pricing can offset them.
- The extent and timing of remaining PSU-modification expense and any further restaurant impairments, closures or legal settlements.
- Capital allocation, including actual repurchases under the expanded authorization, and compliance with covenants on the new credit facility.
- The filing gives restaurant counts in different contexts; verify the relevant count and definition when assessing expansion plans.