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.