Chipotle Mexican Grill, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This annual filing also provides unaudited fourth-quarter results. Chipotle operated 2,619 Chipotle restaurants and three Pizzeria Locale restaurants at year-end, with one reportable segment.
Financial performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $5.586 billion | $4.865 billion | +14.8% |
| Comparable restaurant sales | +11.1% | +4.0% | Acceleration |
| Income from operations | $444.0 million | $258.4 million | +71.8% |
| Operating margin | 7.9% | 5.3% | +2.6 percentage points |
| Net income | $350.2 million | $176.6 million | +98.3% |
| Diluted EPS | $12.38 | $6.31 | +96.2% |
| Net cash from operations | $721.6 million | $621.6 million | +16.1% |
| Capital expenditures | $333.9 million | $287.4 million | +16.2% |
Comparable sales growth reflected transactions up 7.0% and average check up 4.1%, including menu-price effects. Average restaurant sales were $2.2 million versus $2.0 million. Restaurant operating costs were 79.5% of revenue, down from 81.3%; sales leverage was partly offset by higher food costs, wage inflation, rewards-program costs and delivery expense. General and administrative expense rose 20.3% to $451.6 million, including increased legal loss-contingency estimates and compensation costs.
Cash and short-term investments totaled $880.8 million at year-end. The company reported no outstanding debt or committed credit facilities. After adoption of lease accounting, operating lease liabilities were $2.85 billion, including $173.1 million current and $2.68 billion long-term. Current assets were $1.07 billion and current liabilities $666.6 million. Operating cash flow less capital expenditures was approximately $387.7 million, calculated from reported figures.
Material changes and operating developments
- Digital sales reached 18.0% of revenue, compared with 10.9% in 2018. Delivery was available across more than 98% of the restaurant base; digital pickup shelves and digital make lines were installed in almost all locations.
- Chipotle opened 140 restaurants in 2019, including 56 with Chipotlanes, and closed or relocated seven Chipotle restaurants. The total restaurant count increased from 2,491 to 2,622 across all concepts.
- Adoption of the new lease standard on January 1, 2019 added substantial right-of-use assets and lease liabilities to the balance sheet; comparative 2018 balance-sheet figures were not restated.
- The effective tax rate declined to 23.6% from 34.2%, primarily due to stock-based compensation tax benefits and lower tax expense related to equity award expirations.
- Share repurchases were $190.6 million in 2019. The company does not pay dividends and said it expects to retain earnings for operations, expansion and repurchases.
Outlook, risks and contingencies
- Management expected 2020 comparable sales growth in the mid-single-digit range, 150–165 new restaurant openings, and approximately $350 million of capital expenditures. Openings were expected to be weighted toward the second half of the year.
- Management cited planned investment in new and existing restaurants, technology, a culinary and training center, corporate offices and the mobile app. It believed available cash and operating cash flow would meet foreseeable needs.
- Key risks include food safety incidents and reputational effects; dependence on fresh ingredients and concentrated suppliers; commodity, labor, rent and construction cost inflation; competition; staffing and retention; reliance on third-party delivery and technology providers; cyber and privacy incidents; and execution of restaurant growth and digital initiatives.
- A federal criminal investigation concerning company-wide food-safety matters dating back to 2013 remained ongoing. Chipotle had reserved $25 million toward a potential settlement, which could include monetary and non-monetary terms; timing and outcome were uncertain.
- A $15 million accrual remained for the 2017 payment-card malware incident. The consolidated customer lawsuit settlement received final court approval in December 2019, with its financial terms covered by insurance.
- Other accrued estimated legal liabilities were $45.7 million. The filing cautions that ultimate legal outcomes and payments may differ from recorded estimates; certain claims and contingencies were excluded from contractual-obligation totals.
Most important facts to verify
- Whether comparable-sales momentum and digital-channel growth continued after 2019, and the effect on transaction counts and average check.
- Progress against 2020 restaurant-opening and capital-spending plans, including returns from Chipotlanes and remodels.
- Developments, settlement terms and any additional costs arising from the federal food-safety investigation and other legal contingencies.
- Lease obligations and restaurant occupancy economics, given $2.85 billion of recognized lease liabilities and substantial future contractual lease payments.
- Whether food, labor and delivery-cost pressures offset sales leverage, and whether menu pricing can recover cost increases without reducing traffic.