CHIPOTLE MEXICAN GRILL INC quarterly report, Q1 FY2024

Chipotle Mexican Grill, Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023 unless otherwise noted. Chipotle operated 3,479 restaurants and reports one operating segment.

Financial and operating performance

MetricQ1 2024Prior period / change
Total revenue$2.702 billion$2.369 billion; up 14.1%
Comparable restaurant salesUp 7.0%Up 10.9%
Net income$359.3 million$291.6 million; up 23.2%
Diluted EPS$13.01$10.50; up 23.9%
Income from operations$441.3 million$367.6 million
Operating margin16.3%15.5%
Net margin13.3%12.3%
Cash provided by operating activities$569.2 million$455.0 million
Capital expenditures$132.7 million$120.4 million

Comparable sales growth was driven primarily by transactions (+5.4%), with average check up 1.6%. Digital sales were 36.5% of food and beverage revenue. Restaurant operating costs were 72.5% of revenue, down from 74.4%.

Costs, cash, and financial position

  • Food, beverage and packaging costs were 28.8% of revenue versus 29.2%; management cited prior-year menu pricing benefits, partly offset by beef and produce inflation and product mix.
  • Labor costs were 24.4% of revenue versus 24.6%. Sales leverage offset wage inflation and higher performance-based compensation.
  • G&A rose 37.9% to $204.6 million, or 7.6% of revenue versus 6.3%. Increases included a biennial managers’ conference, stock compensation, legal contingencies and corporate initiatives.
  • Cash and cash equivalents were $727.4 million; current and long-term investments were $1.469 billion. Cash, cash equivalents, investments and restricted cash totaled approximately $2.2 billion. Operating cash flow increased year over year; investing cash use was $301.0 million and financing cash use was $100.1 million.
  • No borrowings were outstanding on the $500 million revolving credit facility, and Chipotle reported compliance with its covenants. Operating lease liabilities totaled approximately $4.16 billion. The filing reports no outstanding funded debt.
  • Stock repurchases remained authorized, with approximately $399.1 million available at quarter-end. The company stated that operating cash flow and existing cash and investments should be sufficient for foreseeable needs.

Changes, outlook, and management commentary

  • Chipotle opened 47 restaurants, including 43 with a Chipotlane; three restaurants permanently closed and two relocated. It ended the quarter with 3,479 locations.
  • Management expected to open approximately 285–315 restaurants in 2024, with at least 80% expected to include a Chipotlane. It also expected positive cash flow for the foreseeable future, assuming no significant decline in comparable sales. No specific full-year revenue or EPS guidance is provided in the filing.
  • In April 2024, California’s $20 minimum wage for restaurant workers took effect. Chipotle said this resulted in nearly 20% higher labor costs in California and subsequently raised menu prices there by 6–7% to mitigate the increase.
  • Interest and other income more than doubled to $19.4 million, primarily due to higher investment balances and interest rates. The effective tax rate declined to 22.0% from 22.5%, mainly due to tax benefits related to option exercises and equity vesting.
  • Diluted EPS growth included an estimated $0.36 after-tax impact from increased legal reserves. Accrued legal liabilities rose to $21.6 million from $7.6 million at year-end. Management did not expect pending or threatened ordinary-course claims to materially affect the company, but noted that more claims or higher liabilities could have adverse effects.

Risks and contingencies

Key risks cited include wage and food-cost inflation, California labor regulation, labor availability and union activity, food safety, supply shortages, cybersecurity and privacy incidents, competition, consumer spending and pricing response, delivery-platform reliance, litigation, and costs and execution risks from restaurant and international expansion. The company reported no material changes to the risk factors in its 2023 Form 10-K. Results are seasonal and quarterly performance may not predict full-year results.

Important facts for investors to verify

  • Whether transaction-led comparable sales growth continues and how California price increases affect traffic and average check.
  • Whether wage, beef and produce inflation can be offset by pricing, sales leverage and operating efficiencies.
  • Progress toward the 2024 opening target and the planned share of new restaurants with Chipotlanes.
  • Developments in legal matters and the increase in accrued legal liabilities, including the effect on future earnings.
  • Capital spending, repurchases and investment deployment relative to operating cash flow and the company’s growth plans.