filings.toolsChipotle Mexican Grill 10-Q 2024-09-30
Filed 2024-10-30. 8 sections, 119K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-32731
CHIPOTLE MEXICAN GRILL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 84-1219301 | ||||
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||
| 610 Newport Center Drive, Suite 1100 Newport Beach, CA | 92660 | ||||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (949) 524-4000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common stock, par value $0.01 per share | CMG | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):
| x | Large accelerated filer | o Accelerated filer | o Non-accelerated filer | o | Smaller reporting company | o | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
As of October 25, 2024, there were 1,362,593 shares of the registrant’s common stock, par value of $0.01 per share outstanding.
TABLE OF CONTENTS
PART I
Item 1. FINANCIAL STATEMENTS
CHIPOTLE MEXICAN GRILL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| September 30, 2024 | December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 698,547 | $ | 560,609 | |||||||
| Accounts receivable, net | 93,202 | 115,535 | |||||||||
| Inventory | 49,848 | 39,309 | |||||||||
| Prepaid expenses and other current assets | 87,896 | 117,462 | |||||||||
| Income tax receivable | 82,087 | 52,960 | |||||||||
| Investments | 668,676 | 734,838 | |||||||||
| Total current assets | 1,680,256 | 1,620,713 | |||||||||
| Leasehold improvements, property and equipment, net | 2,320,395 | 2,170,038 | |||||||||
| Long-term investments | 892,487 | 564,488 | |||||||||
| Restricted cash | 27,969 | 25,554 | |||||||||
| Operating lease assets | 3,954,689 | 3,578,548 | |||||||||
| Other assets | 113,935 | 63,082 | |||||||||
| Goodwill | 21,939 | 21,939 | |||||||||
| Total assets | $ | 9,011,670 | $ | 8,044,362 | |||||||
| Liabilities and shareholders' equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 221,301 | $ | 197,646 | |||||||
| Accrued payroll and benefits | 184,367 | 227,537 | |||||||||
| Accrued liabilities | 181,354 | 147,688 | |||||||||
| Unearned revenue | 180,288 | 209,680 | |||||||||
| Current operating lease liabilities | 270,574 | 248,074 | |||||||||
| Total current liabilities | 1,037,884 | 1,030,625 | |||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| Long-term operating lease liabilities | 4,212,868 | 3,803,551 | |||||||||
| Deferred income tax liabilities | 79,519 | 89,109 | |||||||||
| Other liabilities | 67,501 | 58,870 | |||||||||
| Total liabilities | 5,397,772 | 4,982,155 | |||||||||
| Shareholders' equity: | |||||||||||
| Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of September 30, 2024 and December 31, 2023, respectively | - | - | |||||||||
| Common stock, $0.01 par value, 11,500,000 shares authorized, 1,363,639 and 1,874,139 shares issued as of September 30, 2024 and December 31, 2023, respectively | 13,635 | 18,741 | |||||||||
| Additional paid-in capital | 2,030,178 | 1,937,794 | |||||||||
| Treasury stock, at cost, 0 and 502,843 common shares as of September 30, 2024 and December 31, 2023, respectively | - | (4,944,656) | |||||||||
| Accumulated other comprehensive loss | (7,440) | (6,657) | |||||||||
| Retained earnings | 1,577,525 | 6,056,985 | |||||||||
| Total shareholders' equity | 3,613,898 | 3,062,207 | |||||||||
| Total liabilities and shareholders' equity | $ | 9,011,670 | $ | 8,044,362 |
See accompanying notes to condensed consolidated financial statements.
CHIPOTLE MEXICAN GRILL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Food and beverage revenue | $ | 2,778,034 | $ | 2,456,039 | $ | 8,417,396 | $ | 7,304,557 | |||||||||||||||
| Delivery service revenue | 15,542 | 15,909 | 51,147 | 50,772 | |||||||||||||||||||
| Total revenue | 2,793,576 | 2,471,948 | 8,468,543 | 7,355,329 | |||||||||||||||||||
| Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | |||||||||||||||||||||||
| Food, beverage and packaging | 855,515 | 734,186 | 2,508,264 | 2,165,409 | |||||||||||||||||||
| Labor | 696,847 | 616,282 | 2,072,924 | 1,811,754 | |||||||||||||||||||
| Occupancy | 142,570 | 126,269 | 416,932 | 372,097 | |||||||||||||||||||
| Other operating costs | 386,463 | 345,368 | 1,156,992 | 1,058,281 | |||||||||||||||||||
| General and administrative expenses | 126,614 | 159,501 | 506,267 | 464,337 | |||||||||||||||||||
| Depreciation and amortization | 84,349 | 78,546 | 251,154 | 233,902 | |||||||||||||||||||
| Pre-opening costs | 12,786 | 9,605 | 28,992 | 23,341 | |||||||||||||||||||
| Impairment, closure costs, and asset disposals | 15,176 | 7,241 | 26,417 | 31,842 | |||||||||||||||||||
| Total operating expenses | 2,320,320 | 2,076,998 | 6,967,942 | 6,160,963 | |||||||||||||||||||
| Income from operations | 473,256 | 394,950 | 1,500,601 | 1,194,366 | |||||||||||||||||||
| Interest and other income, net | 29,307 | 18,392 | 70,532 | 43,787 | |||||||||||||||||||
| Income before income taxes | 502,563 | 413,342 | 1,571,133 | 1,238,153 | |||||||||||||||||||
| Provision for income taxes | 115,175 | 100,125 | 368,787 | 291,502 | |||||||||||||||||||
| Net income | $ | 387,388 | $ | 313,217 | $ | 1,202,346 | $ | 946,651 | |||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 0.28 | $ | 0.23 | $ | 0.88 | $ | 0.69 | |||||||||||||||
| Diluted | $ | 0.28 | $ | 0.23 | $ | 0.87 | $ | 0.68 | |||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||
| Basic | 1,367,038 | 1,377,525 | 1,370,671 | 1,379,640 | |||||||||||||||||||
| Diluted | 1,374,605 | 1,384,062 | 1,379,099 | 1,386,934 | |||||||||||||||||||
| Other comprehensive income/(loss), net of income taxes: | |||||||||||||||||||||||
| Foreign currency translation adjustments | $ | 1,074 | $ | (1,128) | $ | (783) | $ | (192) | |||||||||||||||
| Comprehensive income | $ | 388,462 | $ | 312,089 | $ | 1,201,563 | $ | 946,459 |
See accompanying notes to condensed consolidated financial statements.
CHIPOTLE MEXICAN GRILL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | --- | --
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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; increasing supply costs; 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; the expected costs and risks related to our international expansion, including through licensed restaurants in the Middle East; 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, 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, 2023, 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 September 30, 2024, we operated 3,540 Chipotle restaurants throughout the United States and 75 international Chipotle restaurants. Additionally, we had two international licensed restaurants. We manage our U.S. operations based on nine 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
Third Quarter 2024 Financial Highlights, year-over-year:
-
Total revenue increased 13.0% to $2.8 billion
-
Comparable restaurant sales increased 6.0%
-
Diluted earnings per share was $0.28, a 21.7% increase from $0.23, which includes a $0.01 after-tax net benefit in stock-based compensation expense due to unvested equity awards forfeited by our former CEO and related retention equity awards granted to key executives, an unrealized gain on a long-term investment, and an impairment charge related to a software asset.
Sales Trends. Comparable restaurant sales increased 6.0% for the three months ended September 30, 2024. The increase is attributable to higher transactions of 3.3% and a 2.7% increase in average check. 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 34.0% of total food and beverage revenue.
Restaurant Development. During the three months ended September 30, 2024, we opened 86 company-operated restaurants, which included 73 restaurants with a Chipotlane. We are on track to open approximately 285 to 315 new company-operated restaurants in 2024 and expect to open approximately 315 to 345 new company-operated restaurants in 2025, which assumes utility, construction, permit and inspection delays do not worsen. We expect that at least 80% of our new company-operated restaurants will include a Chipotlane.
Licensing. During the three months ended September 30, 2024, we opened one licensed restaurant in Kuwait in partnership with international licensed retail operator Alshaya Group.
Cultivate Next Fund. Our Cultivate Next Fund is a venture formed to make early-stage investments into strategically aligned companies that further our mission to Cultivate a Better World. The Fund has a size of $100.0 million, which is financed almost entirely by Chipotle. During the three months ended September 30, 2024, we made $28.0 million in investments through this Fund.
Restaurant Activity
The following table details company-operated restaurant unit data for the periods indicated.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Beginning of period | 3,530 | 3,268 | 3,437 | 3,187 | |||||||||||||||||||
| Chipotle openings | 86 | 62 | 185 | 149 | |||||||||||||||||||
| Non-Chipotle openings | - | - | - | 1 | |||||||||||||||||||
| Chipotle permanent closures | (1) | (1) | (5) | (1) | |||||||||||||||||||
| Chipotle relocations | - | (2) | (2) | (9) | |||||||||||||||||||
| Non-Chipotle permanent closures | - | (6) | - | (6) | |||||||||||||||||||
| Total at end of period | 3,615 | 3,321 | 3,615 | 3,321 |
The following table details licensed restaurant unit data for the periods indicated.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Beginning of period | 1 | - | - | - | |||||||||||||||||||
| Licensed restaurant openings | 1 | - | 2 | - | |||||||||||||||||||
| Total at end of period | 2 | - | 2 | - |
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
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Food and beverage revenue | $ | 2,778.0 | $ | 2,456.0 | 13.1 | % | $ | 8,417.4 | $ | 7,304.6 | 15.2 | % | |||||||||||||||||||||||
| Delivery service revenue | 15.5 | 15.9 | (2.3 | %) | 51.1 | 50.8 | 0.7 | % | |||||||||||||||||||||||||||
| Total revenue | $ | 2,793.6 | $ | 2,471.9 | 13.0 | % | $ | 8,468.5 | $ | 7,355.3 | 15.1 | % | |||||||||||||||||||||||
| Average restaurant sales (1) | $ | 3.184 | $ | 2.972 | 7.1 | % | $ | 3.184 | $ | 2.972 | 7.1 | % | |||||||||||||||||||||||
| Comparable restaurant sales increase | 6.0% | 5.0% | 8.1 | % | 7.7 | % | |||||||||||||||||||||||||||||
| Transactions | 3.3% | 4.1% | 5.8% | 4.3% | |||||||||||||||||||||||||||||||
| Average check | 2.7% | 0.9% | 2.3% | 3.4% | |||||||||||||||||||||||||||||||
| Menu price increase | 3.6% | 2.8% | 3.2% | 6.0% | |||||||||||||||||||||||||||||||
| Check mix | (0.9 | %) | (1.9 | %) | (0.9 | %) | (2.6 | %) |
(1)Average restaurant sales refer 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:
| Three months ended | Nine months ended | ||||||||||
| (dollars in millions) | |||||||||||
| For the period ended September 30, 2023 | $ | 2,471.9 | $ | 7,355.3 | |||||||
| Change from: | |||||||||||
| Comparable restaurant sales | 141.9 | 568.0 | |||||||||
| Restaurant not yet in comparable base opened in 2024 | 84.1 | 144.5 | |||||||||
| Restaurant not yet in comparable base opened in 2023 | 96.5 | 404.1 | |||||||||
| Other | (0.8) | (3.4) | |||||||||
| For the period ended September 30, 2024 | $ | 2,793.6 | $ | 8,468.5 |
Food, Beverage and Packaging Costs
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Food, beverage and packaging | $ | 855.5 | $ | 734.2 | 16.5 | % | $ | 2,508.3 | $ | 2,165.4 | 15.8 | % | |||||||||||||||||||||||
| As a percentage of total revenue | 30.6 | % | 29.7 | % | 0.9 | % | 29.6 | % | 29.4 | % | 0.2 | % |
Food, beverage and packaging costs increased 0.9% as a percentage of total revenue for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was due to inflation across several ingredient costs, primarily avocados and dairy, higher usage of ingredients as we focused on ensuring consistent and generous portions, and a protein mix shift from the Smoked Brisket limited time offering. This increase was partially offset by a 1.2% benefit from menu price increases in the prior year.
Food, beverage and packaging costs increased 0.2% as a percentage of total revenue for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was due to higher usage of ingredients as we focused on ensuring consistent and generous portions, inflation across several ingredient costs, primarily avocados, and a protein mix shift from a Braised Beef Barbacoa marketing initiative and the Smoked Brisket limited time offering. This increase was partially offset by a 1.1% benefit from menu price increases in the prior year.
Labor Costs
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Labor costs | $ | 696.8 | $ | 616.3 | 13.1 | % | $ | 2,072.9 | $ | 1,811.8 | 14.4 | % | |||||||||||||||||||||||
| As a percentage of total revenue | 24.9 | % | 24.9 | % | — | % | 24.5 | % | 24.6 | % | (0.1 | %) |
Labor costs remained flat as a percentage of total revenue for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The 1.0% benefit from sales leverage was offset by 0.8% due to restaurant wage inflation, of which 0.5% was due to minimum wage increases for our restaurants in California.
Labor costs decreased 0.1% as a percentage of total revenue for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, including 1.2% from sales leverage, partially offset by 0.9% due to restaurant wage inflation, of which 0.3% was due to minimum wage increases for our restaurants in California.
Occupancy Costs
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Occupancy costs | $ | 142.6 | $ | 126.3 | 12.9 | % | $ | 416.9 | $ | 372.1 | 12.0 | % | |||||||||||||||||||||||
| As a percentage of total revenue | 5.1 | % | 5.1 | % | — | % | 4.9 | % | 5.1 | % | (0.2 | %) |
Occupancy costs remained flat as a percentage of total revenue for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The 0.3% benefit from sales leverage was offset by 0.2% due to increased occupancy expense associated with existing restaurants.
Occupancy costs decreased 0.2% as a percentage of total revenue for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, including 0.4% from sales leverage, partially offset by 0.2% due to increased occupancy expense associated with existing restaurants.
Other Operating Costs
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Other operating costs | $ | 386.5 | $ | 345.4 | 11.9 | % | $ | 1,157.0 | $ | 1058.3 | 9.3 | % | |||||||||||||||||||||||
| As a percentage of total revenue | 13.8 | % | 14.0 | % | (0.2 | %) | 13.7 | % | 14.4 | % | (0.7 | %) |
Other operating costs decreased 0.2% as a percentage of total revenue for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to 0.4% of sales leverage and 0.2% of lower delivery expenses, partially offset by 0.2% of higher advertising and marketing promotions expense.
Other operating costs decreased 0.7% as a percentage of total revenue for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to 0.6% of sales leverage and 0.2% of lower delivery expenses.
General and Administrative Expenses
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| General and administrative expenses | $ | 126.6 | $ | 159.5 | (20.6 | %) | $ | 506.3 | $ | 464.3 | 9.0 | % | |||||||||||||||||||||||
| As a percentage of total revenue | 4.5 | % | 6.5 | % | (2.0 | %) | 6.0 | % | 6.3 | % | (0.3 | %) |
The following is a summary of the change in general and administrative expense for the period indicated:
| Three months ended | Nine months ended | ||||||||||
| (dollars in millions) | |||||||||||
| For the period ended September 30, 2023 | $ | 159.5 | $ | 464.3 | |||||||
| Change from: | |||||||||||
| Stock-based compensation, primarily forfeitures and, to a lesser extent, performance-based awards | (32.0) | (2.6) | |||||||||
| Performance bonuses | (5.7) | (0.4) | |||||||||
| Legal contingencies | (2.2) | 12.3 | |||||||||
| Restructuring costs | (1.4) | (6.5) | |||||||||
| Conferences, primarily biennial All Managers’ Conference | (0.3) | 17.8 | |||||||||
| Outside services related to corporate initiatives | 1.4 | 7.5 | |||||||||
| Wages | 6.7 | 14.1 | |||||||||
| Other | 0.6 | (0.2) | |||||||||
| For the period ended September 30, 2024 | $ | 126.6 | $ | 506.3 |
Depreciation and Amortization
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 84.3 | $ | 78.5 | 7.4 | % | $ | 251.2 | $ | 233.9 | 7.4 | % | |||||||||||||||||||||||
| As a percentage of total revenue | 3.0 | % | 3.2 | % | (0.2 | %) | 3.0 | % | 3.2 | % | (0.2 | %) |
Depreciation and amortization decreased 0.2% as a percentage of total revenue for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023, primarily due to sales leverage, partially offset by increased depreciation expense associated with new restaurants.
Impairment, Closure Costs, and Asset Disposals
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Impairment, closure costs, and asset disposals | $ | 15.2 | $ | 7.2 | 109.6 | % | $ | 26.4 | $ | 31.8 | (17.0 | %) | |||||||||||||||||||||||
| As a percentage of total revenue | 0.5 | % | 0.3 | % | 0.2 | % | 0.3 | % | 0.4 | % | (0.1 | %) |
Impairment, closure costs, and asset disposals increased in dollar terms for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to property and equipment impairment charges related to a software asset.
Impairment, closure costs, and asset disposals decreased in dollar terms for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to higher charges related to the replacement of certain leasehold improvements in the comparable period.
Interest and Other Income, Net
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Interest and other income, net | $ | 29.3 | $ | 18.4 | 59.3 | % | $ | 70.5 | $ | 43.8 | 61.1 | % | |||||||||||||||||||||||
| As a percentage of total revenue | 1.0 | % | 0.7 | % | 0.3 | % | 0.8 | % | 0.6 | % | 0.2 | % |
Interest and other income, net increased in dollar terms for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023, primarily due to increased interest income on our investments in U.S. Treasury securities, money market funds and time deposits due to a higher average investment balance and higher interest rates.
Provision for Income Taxes
| Three months ended September 30, | Percentage | Nine months ended September 30, | Percentage | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | change | 2024 | 2023 | change | ||||||||||||||||||||||||||||||
| (dollars in millions) | (dollars in millions) | ||||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 115.2 | $ | 100.1 | 15.0 | % | $ | 368.8 | $ | 291.5 | 26.5 | % | |||||||||||||||||||||||
| Effective income tax rate | 22.9 | % | 24.2 | % | (1.3 | %) | 23.5 | % | 23.5 | % | — | % |
The effective income tax rate decreased 1.3% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, including 1.3% reduction in nondeductible expenses, a 0.4% release of income tax reserves, and a 0.4% in additional tax benefits related to option exercises and equity vesting, partially offset with a 0.8% decrease in return to provision benefit in 2023 versus 2024.
The effective income tax rate remained flat for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The nine months ended September 30, 2024, had a 0.6% decrease in tax benefits related to option exercises and equity vesting and a 0.3% decrease in return to provision benefit in 2023 versus 2024, partially offset by a 0.5% decrease in tax reserves and 0.4% reduction in nondeductible expenses.
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, worldwide health pandemics, impact of inflation on consumer spending, fluctuations in food or packaging costs, 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 September 30, 2024, we had a cash and marketable investments balance of $2.2 billion, non-marketable investments of $85.4 million and $28.0 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 September 30, 2024, $1,059.6 million remained available for repurchases of shares of our common stock. 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 September 30, 2024, 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 customers 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 $1.6 billion for the nine months ended September 30, 2024, compared to $1.5 billion for the nine months ended September 30, 2023. The increase was primarily due to higher net earnings and, to a lesser extent, net cash changes in non-tax operating assets and liabilities. This increase was partially offset by timing of tax-related payments.
Cash used in investing activities was $701.5 million for the nine months ended September 30, 2024, compared to $794.0 million for the nine months ended September 30, 2023. The change was primarily associated with a $124.4 million decrease in investment purchases net of investment maturities. This was partially offset by increased capital expenditures of $31.9 million primarily related to new restaurant development.
Cash used in financing activities was $735.0 million for the nine months ended September 30, 2024, compared to $505.4 million for the nine months ended September 30, 2023. The change was primarily due to increased repurchases of common stock of $225.3 million.
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, 2023.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Commodity Price Risks
We are exposed to commodity price risks. Many of the ingredients we use to prepare our food, as well as our packaging materials and utilities to run our restaurants, are ingredients or commodities that are affected by the price of other commodities, exchange rates, 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, where practical, the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility, and we follow industry news, trade issues, exchange rates, foreign demand, weather, 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 customer 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 September 30, 2024, we had $2.3 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.
Item 4. CONTROLS AND PROCEDURES
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 September 30, 2024, 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 September 30, 2024 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.
PART II
ITEM 1. LEGAL PROCEEDINGS
For information regarding legal proceedings, refer to Note 11. "Commitments and Contingencies" in our condensed consolidated financial statements included in Item 1. “Financial Statements.”
Item 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
The table below reflects shares of common stock we repurchased during the third quarter of 2024.
| Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs**(1)** | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs**(2)** | |||||||||||||||||||||||
| July | 2,959,476 | $ | 55.30 | 2,959,476 | $ | 484,073,494 | ||||||||||||||||||||
| Purchased 7/1 through 7/31 | ||||||||||||||||||||||||||
| August | 4,012,599 | $ | 53.46 | 4,012,599 | $ | 669,552,782 | ||||||||||||||||||||
| Purchased 8/1 through 8/31 | ||||||||||||||||||||||||||
| September | 1,976,413 | $ | 55.64 | 1,976,413 | $ | 1,059,594,847 | ||||||||||||||||||||
| Purchased 9/1 through 9/30 | ||||||||||||||||||||||||||
| Total | 8,948,488 | $ | 54.55 | 8,948,488 |
(1)Shares were repurchased pursuant to repurchase programs announced on October 26, 2023, February 6, 2024, and July 24, 2024.
(2)The September total includes $400 million in additional authorizations approved by our Board of Directors on August 21, 2024 and $500 million in additional authorizations approved by our Board of Directors on September 19, 2024, and announced on October 29, 2024. There is no expiration date for this program. The authorization to repurchase shares will end when we have repurchased the maximum amount of shares authorized, or we have determined to discontinue such repurchases.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Adoption or Termination of 10b5-1 Trading Plans
During the quarter ended September 30, 2024, no Section 16 officer or director, as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934 (the “Exchange Act”) adopted, modified, or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as such terms are defined in Item 408(a) of Regulation S-K.
Item 6. EXHIBITS
EXHIBIT INDEX
| Description of Exhibit Incorporated Herein by Reference | ||||||||||||||||||||
| Exhibit Number | Exhibit Description | Form | File No. | Filing Date | Exhibit Number | Filed Herewith | ||||||||||||||
| 10.1† | Form of 2024 Retention Restricted Stock Unit Award Agreement for Interim CEO | - | - | - | - | X | ||||||||||||||
| 10.2† | Form of 2024 Retention Restricted Stock Unit Award Agreement for President and Chief Strategy Officer | - | - | - | - | X | ||||||||||||||
| 10.3† | Form of 2024 Retention Restricted Stock Unit Award Agreement for other Executive Officers | - | - | - | - | X | ||||||||||||||
| 10.4† | Form of Incremental Restricted Stock Unit Award Agreement for Interim CEO | - | - | - | - | X | ||||||||||||||
| 10.5† | Form of Incremental Restricted Stock Unit Award Agreement for CFO | - | - | - | - | X | ||||||||||||||
| 31.1 | Certification of Chief Executive Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | - | - | - | - | X | ||||||||||||||
| 31.2 | Certificate of Chief Financial Officer of Chipotle Mexican Grill, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | - | - | - | - | X | ||||||||||||||
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer of Chipotle Mexican Grill, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | - | - | - | - | X | ||||||||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | - | - | - | - | X | ||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | - | - | - | - | X | ||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | - | - | - | - | X | ||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | - | - | - | - | X | ||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | - | - | - | - | X | ||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | - | - | - | - | X | ||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | - | - | - | - | X | ||||||||||||||
| †- Management contracts and compensatory plans or arrangements required to be filed as exhibits. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CHIPOTLE MEXICAN GRILL, INC. | ||||||||
| By: | /s/ Jamie McConnell | |||||||
| Name: | Jamie McConnell | |||||||
| Title: | Chief Accounting and Administrative Officer (principal accounting officer and duly authorized signatory for the registrant) |
Date: October 29, 2024