Chipotle Mexican Grill, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Chipotle operated 3,014 restaurants at quarter-end, including 2,964 in the U.S., 46 internationally and four Pizzeria Locale restaurants. Amounts below are in U.S. dollars.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Total revenue | $2,020.5 million | $1,741.6 million | Up 16.0% |
| Comparable restaurant sales | +9.0% | +17.2% | Growth reflected menu price increases and, to a lesser extent, higher transaction count; group size declined. |
| Operating income | $190.2 million | $161.4 million | Operating margin was 9.4%, versus 9.3%. |
| Net income | $158.3 million | $127.1 million | Net margin was 7.8%, versus 7.3%. |
| Diluted EPS | $5.59 | $4.45 | Up 25.6%; Q1 2022 included an estimated $0.11 after-tax impact from specified charges. |
| Cash from operations | $282.9 million | $306.0 million | Down primarily due to working-capital changes. |
| Capital expenditures | $96.2 million | $86.6 million | Higher mainly with increased restaurant openings. |
Food and beverage revenue rose 16.5% to $1,999.0 million; delivery service revenue fell 15.6% to $21.6 million. In-restaurant sales increased 33.1%, while digital sales were 41.9% of food and beverage revenue, down from 49.1% as in-person business recovered. Chipotle opened 51 restaurants, 42 with a Chipotlane, compared with 40 openings in Q1 2021.
Restaurant operating costs—food, labor, occupancy and other operating costs—were 79.3% of revenue, versus 77.7%. Food costs were 31.0% of revenue (30.0% prior year) and labor was 26.3% (24.9%); inflation, especially for beef, avocados and paper, and prior-year wage increases drove pressure. Occupancy improved to 5.5% from 5.8%, and other operating costs to 16.4% from 16.9%. General and administrative expense declined 5.0% to $147.4 million, largely because prior-year stock-based compensation was higher. The effective tax rate was 16.7%, down from 20.2%, principally due to tax benefits from equity awards; management said the quarterly rate was below its expected full-year rate.
Liquidity, debt and capital allocation
At March 31, 2022, cash and cash equivalents were $615.9 million, current investments $240.4 million and long-term investments $333.1 million. Management reported $1.2 billion in cash and marketable investments, excluding $30.9 million of restricted cash and $34.0 million of non-marketable investments. Cash, cash equivalents and restricted cash totaled $646.7 million, down $199.5 million during the quarter.
Chipotle had no borrowings on its $500 million revolving credit facility and reported compliance with its covenants. The facility includes leverage and fixed-charge coverage requirements. The balance sheet reported $3.55 billion of operating lease liabilities, including current liabilities; these are lease obligations, not funded borrowings. Financing cash outflow was $349.5 million, including $263.3 million for treasury stock and $85.8 million of tax withholding on stock awards. At quarter-end, $280.8 million remained authorized for share repurchases.
Outlook, management commentary and risks
- Management expects cash from operations, cash and investments, and available credit to fund operations, expansion and other needs for the foreseeable future. It expects positive cash flow assuming no significant decline in comparable sales.
- Management reiterated its long-term opportunity to more than double Chipotle restaurants in North America. The filing excerpt does not provide a clear numerical target for 2022 openings.
- Key risks include inflation and commodity-price volatility, labor availability and wage costs, supplier disruptions, COVID-19 impacts, food safety, competition, consumer spending and the ability to pass on menu-price increases. The company also cited technology, cybersecurity, third-party delivery and regulatory risks.
- A New York City proceeding alleges Fair Work Week and sick-time violations. Mediation was ongoing; Chipotle had accrued an estimated liability, included in total accrued legal liabilities of $25.4 million. The company said it did not expect additional losses above the accrued amount to be material. Other ordinary-course claims were also disclosed.
- Q1 included restaurant and office impairment charges, closure costs and asset disposals of $4.3 million, and the previously modified 2018 performance award generated $2.8 million of compensation expense. The filing states Q1 EPS also reflected corporate restructuring and certain legal costs.
Important facts for investors to verify
- Whether menu-price increases can offset food, wage, utility and other inflation without weakening transactions or guest demand.
- Whether comparable-sales growth and restaurant margins remain resilient as sales mix shifts between digital and in-restaurant channels.
- Restaurant opening pace, Chipotlane performance, and the capital and operating costs associated with expansion.
- Cash generation after capital spending and share repurchases, and the planned use of the remaining buyback authorization.
- Developments in the New York City employment-law matter, other litigation, and supplier and food-safety risks.