Business context and reporting period
Chipotle Mexican Grill, Inc. operates fast-casual restaurants and reports one operating segment. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021, compared with the same periods in 2020. At quarter-end, the company operated 2,853 Chipotle restaurants; it also operated four Pizzeria Locale restaurants through a consolidated entity.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $1,892.5 million | $1,364.7 million | $3,634.1 million | $2,775.5 million |
| Comparable restaurant sales | +31.2% | -9.8% | +24.1% | -3.5% |
| Operating income (loss) | $245.5 million | $(4.9) million | $407.0 million | $66.2 million |
| Net income | $188.0 million | $8.2 million | $315.1 million | $84.6 million |
| Diluted EPS | $6.60 | $0.29 | $11.04 | $2.99 |
| Operating cash flow | Not stated separately for the quarter | Not stated separately for the quarter | $562.9 million | $304.9 million |
Q2 food and beverage revenue increased 38.5%; delivery-service revenue increased 59.3%. Digital sales rose 10.5% to $916.5 million, or 48.5% of sales. Restaurant operating costs were 75.5% of revenue, down from 87.8% a year earlier. Q2 food, beverage and packaging costs were 30.4% of revenue, labor 24.5%, occupancy 5.5%, and other operating costs 15.2%. For the first half, restaurant operating costs were 76.5% of revenue, versus 85.1% in 2020.
For the six months, capital expenditures were $212.1 million; net cash used in investing activities was $238.1 million and net cash used in financing activities was $264.2 million. Cash and cash equivalents were $668.3 million at June 30, with $473.3 million of current and long-term investments and $27.9 million of restricted cash. The company reported no borrowings on its $500 million revolving credit facility and no material off-balance-sheet arrangements. Total liabilities included $3.35 billion of operating lease liabilities.
Material changes versus the prior comparable period
- Results rebounded sharply from the prior-year pandemic period: Q2 comparable sales increased 31.2%, including 27.4% transaction growth, and first-half revenue rose 30.9%.
- Sales leverage and menu-price increases helped reduce key restaurant costs as a share of revenue. Management also cited lower beef costs and lower promotional activity; wage inflation, avocado costs and certain new menu items partly offset the benefits.
- General and administrative expense rose 42.3% in Q2 and 44.0% for the first half, primarily due to higher stock compensation, outside services, bonuses and wages. First-half stock compensation included $47.8 million of expense related to modification of a 2018 performance-share award.
- Cash from operations increased to $562.9 million for the first half from $304.9 million. Treasury-stock purchases were $203.2 million during the first half.
Outlook, risks and unusual items
- Management expects cash from operations, cash and investments to fund ongoing needs for the foreseeable future and expects positive cash flow assuming no significant decline in comparable sales. It plans continued restaurant development, remodeling and share repurchases subject to market conditions. No specific full-year opening target is clear in the filing text.
- The company opened 56 restaurants and permanently closed five in Q2; 45 openings included Chipotlanes. Management cited a long-term opportunity to more than double Chipotle restaurants in North America.
- A company-wide restaurant wage increase implemented by June 30 is expected to result in an average hourly wage of $15. The filing identifies wage inflation as a partial offset to restaurant-cost leverage.
- COVID-19 may continue to affect staffing, supply availability, operations and restaurant cash-flow assumptions. Management reported no significant supply-chain disruption to date, but said future disruption remains possible.
- Q2 diluted EPS included an estimated $0.86 after-tax impact from the 2018 PSU modification, restaurant impairments and closure costs, certain legal expenses and other costs. The filing does not provide a clear breakdown of that total impact by item.
- A New York City agency expanded allegations concerning Fair Work Week and earned sick-time requirements to substantially all company restaurants in the city. Mediation is ongoing; the company cannot reasonably estimate the outcome or potential liability. Accrued legal liabilities were $29.5 million.
- Other risks include food and packaging commodity-price volatility, customer resistance to menu-price increases, interest-rate exposure, seasonal sales variation and litigation. The filing also describes exclusive-forum provisions in the company’s bylaws as a risk to shareholders seeking a different venue.
Important facts for investors to verify
- Whether strong comparable-sales growth persists against less favorable comparisons, and how digital and in-restaurant demand develop.
- The effect of the $15 average hourly wage and broader labor availability and cost trends on restaurant margins.
- Progress on openings, Chipotlane performance and planned remodeling, alongside capital expenditure and repurchase levels.
- Developments in the New York City legal matter and any change in the recorded legal liability.
- COVID-19-related operating and supply risks, and the assumptions underlying management’s positive-cash-flow outlook.