Chipotle Mexican Grill, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. The company operates one reportable segment, primarily through company-owned restaurants.
Business context and operating results
Chipotle operated 3,187 restaurants at year-end, including 3,182 Chipotle restaurants and five Pizzeria Locale restaurants. It opened 236 restaurants during 2022, including 202 with Chipotlanes.
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $8.635 billion | $7.547 billion | +14.4% |
| Food and beverage revenue | $8.558 billion | $7.457 billion | +14.8% |
| Comparable restaurant sales | +8.0% | +19.3% | Growth slowed |
| Income from operations | $1.160 billion | $805 million | +44.2% |
| Net income | $899 million | $653 million | +37.7% |
| Diluted EPS | $32.04 | $22.90 | +39.9% |
| Operating cash flow | $1.323 billion | $1.282 billion | +3.2% |
| Capital expenditures | $479 million | $442 million | +8.3% |
Operating margin was approximately 13.4% of revenue, compared with 10.7% in 2021; net margin was approximately 10.4%, compared with 8.7%. Restaurant operating costs declined to 76.1% of revenue from 77.4%, mainly on sales leverage and lower delivery expense, partly offset by wage and commodity inflation. Food, beverage and packaging costs were 30.1% of revenue versus 30.6%; labor was 25.5% versus 25.4%.
Liquidity, cash flow and debt
- Cash and marketable investments were approximately $1.2 billion at year-end, excluding restricted cash and non-marketable investments. The balance sheet reported $384 million in cash and cash equivalents, $515 million in current investments and $388 million in long-term investments.
- Operating cash flow was $1.323 billion; investing activities used $830 million, including $479 million of capital expenditures; financing activities used $929 million, principally reflecting share repurchases. Operating cash flow less capital expenditures was approximately $844 million.
- No borrowings were outstanding under the $500 million revolving credit facility; the company reported covenant compliance. Thus, it reported no drawn debt, while operating lease liabilities totaled $3.731 billion.
- Year-end repurchase authorization remaining was approximately $414 million. The company does not anticipate paying cash dividends in the foreseeable future.
Material changes, outlook and management commentary
- Revenue growth reflected comparable-sales gains and new restaurants. Comparable-sales growth was driven primarily by menu price increases and, to a lesser extent, more transactions; in-restaurant sales rose 26.4% as customer behavior shifted from digital to in-store dining.
- Digital sales fell to 39.4% of food and beverage revenue from 45.0% in 2021. Delivery service revenue declined 14.7% to $76.7 million.
- General and administrative expense decreased 7.0% to $564 million, mainly reflecting lower stock-based compensation, performance bonuses and litigation expense, partly offset by higher wages and corporate initiative costs.
- Management expected approximately 255–285 restaurant openings in 2023, including 10–15 relocations, with at least 80% expected to include Chipotlanes. This outlook assumes utility, construction, permitting and material-supply delays do not worsen.
- Management expected 2023 capital expenditures of approximately $485 million: about $350 million for new restaurants and $135 million for existing restaurants and other investments. The company said cash, investments and operating cash flow should fund foreseeable needs, assuming no significant comparable-sales declines.
Risks, contingencies and unusual items
- Key risks include food-safety incidents and reputational impacts; inflation and volatile ingredient, packaging, utility and labor costs; staffing and retention; competition and consumer sensitivity to pricing; reliance on digital systems and third-party delivery; cybersecurity and privacy exposures; and supply disruptions and weather or climate impacts.
- The 2020 Deferred Prosecution Agreement requires a comprehensive food-safety compliance program. Its three-year term was scheduled to end in April 2023; a breach could expose the company to prosecution or civil action.
- A New York City employment-law settlement was signed in August 2022. It included a $1 million civil penalty and up to approximately $20 million in employee compensation. The company reported a $15.2 million accrued legal liability at year-end, including this matter.
- Chipotle Rewards estimates reduced revenue recognized by $6.1 million in the fourth quarter of 2022 after the company increased its estimated ultimate redemption rate. Diluted EPS also included a stated $0.74 after-tax impact from specified legal, compensation, restructuring, separation and restaurant impairment/closure costs, partly offset by an unrealized investment gain.
- The company reported audited financial statements with an unqualified opinion and effective internal control over financial reporting. The auditor identified stock-based compensation valuation and accounting as a critical audit matter, involving judgment about future performance assumptions.
Important facts for investors to verify
- Whether comparable-sales growth and traffic sustain momentum as price increases and consumer spending conditions evolve.
- Whether food, packaging, labor and utility inflation can be offset without weakening demand or margins.
- Progress on the 2023 opening and capital-expenditure plans, including construction and staffing constraints.
- Final outcomes and payments related to the New York settlement and the Deferred Prosecution Agreement.
- Digital-channel economics, including delivery costs and third-party platform dependence, and the effects of loyalty-program redemption estimates.