Chipotle Mexican Grill, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared primarily with FY2022. The filing reports annual results, not standalone fourth-quarter results. Chipotle operated 3,437 restaurants at year-end: 3,371 in the U.S. and 66 internationally. It reports one operating segment.
Financial and operating performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $9.872 billion | $8.635 billion | +14.3% |
| Comparable restaurant sales | +7.9% | +8.0% | Transactions +5.0%; average check +2.9% |
| Operating income | $1.558 billion | $1.160 billion | +34.2% |
| Net income | $1.229 billion | $899.1 million | +36.7% |
| Diluted EPS | $44.34 | $32.04 | +38.4% |
| Operating margin | 15.8% | 13.4% | +2.4 percentage points |
| Restaurant operating costs as % of revenue | 73.8% | 76.1% | Improved 2.3 percentage points |
| Cash from operating activities | $1.783 billion | $1.323 billion | +$460 million |
| Capital expenditures | $560.7 million | $479.2 million | +$81.6 million |
Food, beverage and packaging costs were 29.5% of revenue versus 30.1%; labor was 24.7% versus 25.5%; occupancy was 5.1% versus 5.3%; and other operating costs were 14.5% versus 15.2%. Management attributed lower cost ratios principally to sales leverage, with lower avocado costs also helping food costs; ingredient and wage inflation partly offset these benefits. Digital sales were 37.4% of food and beverage revenue, down from 39.4%.
Approximate cash flow after capital expenditures was $1.223 billion in FY2023, calculated as operating cash flow less reported capital expenditures. The filing does not present this as a company-defined free-cash-flow measure.
Liquidity, debt and capital allocation
- Year-end cash and marketable investments were reported by management at approximately $1.8 billion; restricted cash was $25.6 million. The balance sheet reports $560.6 million of cash and cash equivalents, $734.8 million of current investments and $564.5 million of long-term investments.
- No borrowings were outstanding under the $500 million revolving credit facility; the company reported compliance with its covenants. Thus, it reported no outstanding debt under this facility, while operating lease liabilities were $4.052 billion.
- FY2023 operating cash flow of $1.783 billion funded expansion and other needs. Cash used in investing was $946.0 million and cash used in financing was $660.7 million.
- Chipotle repurchased $592.3 million of shares for cash during the year. At December 31, $424.1 million remained authorized for repurchases. The company does not anticipate paying cash dividends in the foreseeable future.
Changes, outlook and management commentary
- Revenue growth reflected 7.9% comparable sales growth, higher transactions, menu pricing and new restaurants. Menu prices increased 5.2% in FY2023, compared with 12.0% in FY2022.
- The company opened 271 new restaurants, including 238 with a Chipotlane. It expects approximately 285–315 openings in 2024, including 5–10 relocations, with at least 80% expected to include a Chipotlane. This outlook assumes development, permitting, inspection and utility delays do not worsen.
- Expected FY2024 capital expenditures are approximately $635 million, including about $430 million for new restaurant construction before landlord reimbursements and about $130 million for existing restaurants. Management believes operating cash flow and existing cash and investments will meet foreseeable needs, assuming no significant decline in comparable sales.
- California’s $20-per-hour minimum wage for restaurant workers takes effect in April 2024. Management expects it to increase California wages nearly 20% and plans menu-price increases in the state to mitigate the impact.
- The company signed its first Middle East development agreement with Alshaya Group, initially covering Dubai and Kuwait. The Cultivate Next Fund had invested $33 million of its initial $50 million by year-end; the board approved a further $50 million commitment in December 2023, none of which had yet been invested.
Risks, contingencies and unusual items
- Key risks include food safety incidents and reputational harm; inflation and volatility or shortages in ingredients; wage increases and staffing challenges; competition and consumer sensitivity to pricing; reliance on third-party delivery; cybersecurity, privacy and technology disruptions; and delays or higher costs in restaurant development.
- California wage legislation, employment-law compliance, and pending employment-related claims and audits could increase costs or liabilities. The company reported $7.6 million of accrued legal liabilities at year-end and stated it did not expect pending or threatened claims to have a material adverse effect; outcomes remain uncertain.
- FY2023 impairment, closure costs and asset disposals rose to $38.4 million from $21.1 million, including elevated lease and leasehold impairment and costs associated with closing all Pizzeria Locale restaurants.
- Diluted EPS included a net $0.52 per-share impact from restaurant and corporate impairment and closure costs, accelerated depreciation and corporate restructuring, partially offset by a reduction in certain legal contingencies.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. The audit’s critical audit matter concerned assumptions used to estimate vesting of performance-based stock awards.
Important facts for investors to verify
- Whether comparable-sales growth and traffic trends remain durable as menu pricing moderates and consumer spending conditions change.
- The realized effect of California’s wage law, other wage inflation and planned price increases on traffic, margins and labor costs.
- Progress against 2024 restaurant-opening and capital-spending plans, including permitting, construction and utility constraints.
- Ingredient inflation and availability, particularly for beef, tortillas, queso, avocados and other fresh or responsibly sourced products.
- Future share repurchases, investment commitments and liquidity needs, alongside substantial lease obligations and potential legal or regulatory costs.