Chipotle Mexican Grill Inc: Form 10-Q for the period ended Mar 31, 2025

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this report are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the number of new restaurants we expect to open and the number with Chipotlanes, our expectation to generate positive cash flow for the foreseeable future, our expectations for utilization of cash flow from operations, our ability to manage prices, risks and volatility in our supply chain, our plans for continuing stock buybacks and the period of time during which our cash and short-term investment will fund our operations. We use words such as “anticipate”, “believe”, “could”, “should”, “may”, “approximately”, “estimate”, “expect”, “intend”, “project”, “target”, "goal" and similar terms and phrases, including references to assumptions, to identify forward-looking statements. The forward-looking statements in this report are based on currently available operating, financial and competitive information available to us as of the date of this filing and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements, including but not limited to: increasing wage inflation, including as a result of state or local regulations mandating higher minimum wages, and the competitive labor market, which impacts our ability to attract and retain qualified employees and has resulted in occasional staffing shortages; the impact of any union organizing efforts and our responses to such efforts; risks of food safety incidents and food-borne illnesses; risks associated with our reliance on certain information technology systems and potential material failures, interruptions or outages; privacy and cyber security risks, including risk of breaches, unauthorized access, theft, modification, destruction or ransom of guest or employee personal or confidential information stored on our network or the network of third party providers; the impact of competition, including from sources outside the restaurant industry; the impact of federal, state or local government regulations relating to our employees, employment practices, restaurant design and construction, and the sale of food or alcoholic beverages; our ability to achieve our planned growth, such as the costs and availability of suitable new restaurant sites, construction materials and contractors and restaurant equipment; the expected costs and risks related to our international expansion, including through licensed restaurants in the Middle East and Mexico; increases in ingredient and other operating costs due to inflation, global conflicts, severe weather and climate change, our Food with Integrity philosophy, tariffs or trade restrictions; intermittent supply shortages relating to our Food with Integrity philosophy, rapid expansion and supply chain disruptions; the uncertainty of our ability to achieve expected levels of comparable restaurant sales due to factors such as changes in guests' perceptions of our brand, including as a result of negative publicity or social media posts, increased consumer uncertainty and decreased consumer spending (including as a result of higher inflation, mass layoffs, fear of possible recession and higher energy prices), or the inability to increase menu prices or realize the benefits of menu price increases; risks associated with our digital business, including risks arising from our reliance on third party delivery services and the IT infrastructure; litigation risks, including possible governmental actions and potential class action litigation related to food safety incidents, cybersecurity incidents, employment or privacy laws, advertising claims, contract disputes or other matters; and other risk factors described from time to time in our SEC reports, including our Annual Report on Form 10-K for the year ended December 31, 2024, and in other reports filed with the SEC, all of which are available on the investor relations page of our website at ir.Chipotle.com.

As of March 31, 2025, we owned 3,697 Chipotle restaurants throughout the United States and 84 international Chipotle restaurants. Additionally, we had five international licensed restaurants. We manage our U.S. operations based on 11 regions and aggregate our operations to one reportable segment.

Throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” we commonly discuss the following key operating metrics which we believe will drive our financial results and long-term growth model. We believe these metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies:

• Comparable restaurant sales
• Food, beverage, and packaging as a percentage of total revenue
• Labor as a percentage of total revenue
• Occupancy as a percentage of total revenue
• Other operating costs as a percentage of total revenue
• New restaurant openings

First Quarter 2025 Financial Highlights, year-over-year:

• Total revenue increased 6.4% to $2.9 billion
• Comparable restaurant sales decreased 0.4%
• Diluted earnings per share was $0.28, a 7.7% increase from $0.26

Sales Trends. Comparable restaurant sales decreased 0.4% for the three months ended March 31, 2025. The decrease is attributable to lower transactions of 2.3% which is offset by a 1.9% increase in average check. Transactions have been impacted by both a slowdown in consumer spending, which has continued into April, as well as periods of inclement weather across the country. Comparable restaurant sales represent the change in period-over-period total revenue for restaurants in operation for at least 13 full calendar months. Digital sales represented 35.4% of total food and beverage revenue.

Restaurant Development. During the three months ended March 31, 2025, we opened 57 restaurants, which included 48 restaurants with a Chipotlane. We expect to open approximately 315 to 345 company-owned restaurants in 2025. We expect that at least 80% of our new company-owned restaurants will include a Chipotlane.

Licensing. During the three months ended March 31, 2025, two licensed restaurants were opened in the Middle East.

Restaurant Activity

The following table details company-owned restaurant unit data for the periods indicated.

The following table details licensed restaurant unit data for the periods indicated.

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Results of Operations

Our results of operations as a percentage of total revenue and period-over-period change are discussed in the following section.

Revenue

(dollars in millions)

(1) Average restaurant sales refers to the average trailing 12-month food and beverage revenue for restaurants in operation for at least 12 full calendar months.

The following is a summary of the change in restaurant sales for the period indicated:

(dollars in millions)

Food, Beverage and Packaging Costs

(dollars in millions)

Food, beverage and packaging costs increased 0.4% as a percentage of total revenue for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was due to inflation and higher usage across several ingredient costs, primarily avocados, dairy and chicken, as well as a protein mix shift from limited time offerings. This increase was partially offset by a 0.9% benefit from menu price increases in the prior year and, to a lesser extent, a benefit from recent supply chain initiatives.

We estimate that the tariffs enacted in April 2025 will increase food, beverage and packaging costs by about 50 basis points on an ongoing basis. Due to goods imported prior to the enactment of tariffs, we anticipate a 20 basis point increase in food, beverage and packaging costs during the second quarter of 2025 relating to tariffs.

Labor Costs

(dollars in millions)

Labor costs increased 0.6% as a percentage of total revenue for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was due to the impact from lower sales volumes, as a 0.7% benefit from menu price increases in the prior year was offset by restaurant wage inflation, including minimum wage increases for our restaurants in California.

Occupancy Costs

(dollars in millions)

Occupancy costs increased 0.2% as a percentage of total revenue for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was due the impact from lower sales volumes, as a 0.1% benefit from menu price increases in the prior year was offset by expenses associated with new restaurants.

Other Operating Costs

(dollars in millions)

Other operating costs increased 0.1% as a percentage of total revenue for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was due to the impact from lower sales volumes as a 0.3% benefit from menu price increases in the prior year more than offset the overall increase in costs, primarily associated with utilities and marketing and promotional activities.

General and Administrative Expenses

(dollars in millions)

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The following is a summary of the change in general and administrative expense for the period indicated:

(dollars in millions)

Provision for Income Taxes

(dollars in millions)

The effective income tax rate increased 0.9% for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in the effective tax rate for the three months ended March 31, 2025, was primarily driven by an 0.8% decrease in tax benefits related to option exercises and equity vesting.

Seasonality

Seasonal factors cause our profitability to fluctuate from quarter to quarter. Historically, our average daily restaurant sales and net income are lower in the first and fourth quarters due, in part, to the holiday season and because fewer people eat out during periods of inclement weather (the winter months) than during periods of mild or warm weather (the spring, summer and fall months). Other factors also have a seasonal effect on our results. For example, restaurants located near colleges and universities generally do more business during the academic year. Seasonal factors, however, might be moderated or outweighed by other factors that may influence our quarterly results, such as unexpected publicity impacting our business in a positive or negative way, disease outbreak, epidemic or endemic, the impact of inflation on consumer spending, fluctuations in food or packaging costs, the timing of holidays, or the timing of menu price increases or promotional activities and other marketing initiatives. The number of trading days in a quarter can also affect our results, although, on an overall annual basis, changes in trading days do not have a significant impact.

Our quarterly results are also affected by other factors such as the amount and timing of non-cash stock-based compensation expense and related tax rate impacts, litigation, settlement costs and related legal expenses, impairment charges and non-operating costs, timing of marketing or promotional expenses, the number and timing of new restaurants opened in a quarter, and closure of restaurants. New restaurants typically have higher operating costs following opening because of the expenses associated with their opening and operating inefficiencies in the months immediately following opening. Accordingly, results for a particular quarter are not necessarily indicative of results to be expected for any other quarter or for any year.

Liquidity and Capital Resources

Cash and Investments

As of March 31, 2025, we had a cash and marketable investments balance of $2.0 billion, non-marketable investments of $88.4 million, and $30.5 million of restricted cash. After funding the current operations in our restaurants and support centers, the first planned use of our cash flow from operations is to provide capital for the continued investment in new restaurant construction. In addition to continuing to invest in our restaurant expansion, we expect to utilize cash flow from operations to: repurchase additional shares of our common stock subject to market conditions; invest in, maintain, and refurbish our existing restaurants; and for general corporate purposes. As of March 31, 2025, $874.7 million remained available for repurchases of shares of our common stock, which includes the $400.0 million additional authorization approved by our Board of Directors on March 27, 2025. Under the remaining repurchase authorizations, shares may be purchased from time to time in open market transactions, subject to market conditions.

Borrowing Capacity

As of March 31, 2025, we had $500.0 million of undrawn borrowing capacity under a line of credit facility.

Use of Cash

We believe that cash from operations, together with our cash and investment balances, will be sufficient to meet ongoing capital expenditures, working capital requirements and other cash needs for the foreseeable future. Assuming no significant declines in comparable restaurant sales, we expect we will generate positive cash flow for the foreseeable future.

We have not required significant working capital because guests generally pay using cash or credit and debit cards and because our operations do not require significant receivables, nor do they require significant inventories due, in part, to our use of various fresh ingredients. In addition, we generally have the right to pay for the purchase of food, beverages and supplies sometime after the receipt of those items, generally within ten days, thereby reducing the need for incremental working capital to support our growth.

Cash Flows

Cash provided by operating activities was $557.1 million for the three months ended March 31, 2025, compared to $569.2 million for the three months ended March 31, 2024. The decrease was primarily due to net cash changes in operating assets and liabilities. This was partially offset by higher net earnings.

Cash provided by investing activities was $6.1 million for the three months ended March 31, 2025, compared to cash used in investing activities of $301.0 million for the three months ended March 31, 2024. The change was primarily associated with a $319.2 million decrease in investment purchases net of investment maturities. This was partially offset by increased capital expenditures of $12.1 million primarily related to costs associated with new restaurant development.

Cash used in financing activities was $585.2 million for the three months ended March 31, 2025, compared to $100.1 million for the three months ended March 31, 2024. The change was primarily due to increased repurchases of common stock of $526.8 million and, to a lesser extent, $39.8 million of lower payments of tax withholding related to stock-based compensation.

Critical Accounting Estimates

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or factors. We had no significant changes to our critical accounting estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2024.

Commodity Price Risks

We are exposed to commodity price risks. The prices of many of the ingredients we use to prepare our food, as well as our packaging materials, kitchen equipment, construction material and utilities to run our restaurants, are affected by the price of other commodities, exchange rates, trade tariffs, foreign demand, weather, seasonality, production, availability and other factors outside our control. We work closely with our suppliers and use a mix of forward pricing protocols under which we agree with our supplier on fixed prices for deliveries at some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that protocol, formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot prices or based on changes in industry indices, and range forward protocols under which we agree on a price range for the duration of that protocol. Generally, our pricing protocols with suppliers can remain in effect for periods ranging from one to 24 months, depending on the outlook for prices of the particular ingredient. In some cases, we have minimum purchase obligations. We have tried to increase the number of suppliers and geographic locations for our ingredients, packaging, equipment, construction and utilities, which we believe can help mitigate pricing volatility and supply continuity risks, and we follow industry news, trade tariffs, exchange rates, foreign demand, weather, geopolitical crises and other world events that may affect our ingredient prices. Increases in ingredient prices could adversely affect our results if we choose for competitive or other reasons not to increase menu prices at the same rate at which ingredient costs increase, or if menu price increases result in guest resistance. We also could experience shortages of key ingredients for many unforeseen reasons, such as crop damage due to inclement weather, if our suppliers need to close or restrict operations, or due to industry-wide shipping and freight delays.

Changing Interest Rates

We are exposed to interest rate risk through fluctuations of interest rates on our investments. As of March 31, 2025, we had $2.1 billion in cash and cash equivalents, current and long-term investments, and restricted cash, of which the substantial majority are interest bearing. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations.

Foreign Currency Exchange Risk

A portion of our operations consist of activities outside of the U.S. and we have currency risk on the transactions in other currencies and translation adjustments resulting from the conversion of our international financial results into the U.S. dollar. However, a substantial majority of our operations and investment activities are transacted in the U.S., and therefore our foreign currency risk is not material at this date.

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As of March 31, 2025, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes during the fiscal quarter ended March 31, 2025 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

For a description of risk factors that could impact our business, including risks and uncertainties related to consumer sentiment and changes in discretionary spending; potential increases in the costs of ingredients and restaurant equipment, including due to tariffs, trade sanctions or taxes; and macroeconomic and geopolitical conditions, see Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2024.