Chipotle Announces Second Quarter 2023 Results

Total revenue increased 13.6% to $2.5 billion - Comparable restaurant sales increased 7.4%

Jul 28, 2023 - 11:50

Chipotle Mexican Grill, Inc. (NYSE: CMG) reported financial results for its second quarter ended June 30, 2023.

Second quarter highlights, year over year:

  • Total revenue increased 13.6% to $2.5 billion
  • Comparable restaurant sales increased 7.4%
  • In-restaurant sales increased 15.8%, while digital sales represented 38.0% of food and beverage revenue
  • Operating margin was 17.2%, an increase from 15.3%
  • Restaurant level operating margin was 27.5% 1, an increase of 230 basis points
  • Diluted earnings per share was $12.32, a 33.2% increase from $9.25. Excluding a $0.33 after-tax impact from expenses related to restaurant and corporate level impairment and closure costs and corporate restructuring, adjusted diluted earnings per share was $12.65, a 36.0% increase from $9.30 1
  • Opened 47 new restaurants with 40 locations including a Chipotlane

"Chipotle's second quarter results demonstrate our ability to drive strong performance by focusing on exceptional food and exceptional people. Additionally, our investment in our employees, technology, and innovation in our restaurants along with expanding access and convenience in North America and laying the groundwork for international growth, set us up for long term success." said Brian Niccol, Chairman and CEO, Chipotle.

Results for the three months ended June 30, 2023:

Total revenue in the second quarter was $2.5 billion, an increase of 13.6% compared to the second quarter of 2022. The increase in total revenue was driven by a 7.4% increase in comparable restaurant sales and new restaurant openings. In-restaurant sales in the second quarter increased 15.8%, compared to the second quarter of 2022, while digital sales represented 38.0% of total food and beverage revenue.

We opened 47 new restaurants during the second quarter with 40 locations including a Chipotlane. These formats continue to perform well and are helping enhance guest access and convenience, as well as increase new restaurant sales, margins, and returns.

Food, beverage and packaging costs in the second quarter were 29.4% of total revenue, a decrease of about 100 basis points compared to the second quarter of 2022. This decrease results from the benefit of menu price increases taken in the prior year and lower avocado prices, which were partially offset by inflation across several food costs, primarily beef, tortillas, dairy, salsa, beans and rice.

Restaurant level operating margin in the second quarter was 27.5% compared to 25.2% in the second quarter of 2022. The improvement was primarily due to the benefit of sales leverage and, to a lesser extent, lower avocado prices. These decreases were partially offset by higher inflation across several food costs, and to a lesser extent, wage inflation.

General and administrative expenses for the second quarter were $156.5 million on a GAAP basis, or $153.0 on a non-GAAP basis, excluding $3.5 million of corporate restructuring costs related to the May 2023 optimization of our organizational structure. GAAP and non-GAAP general and administrative expenses for the second quarter also include $118.8 million of underlying general and administrative expenses, $29.2 million of non-cash stock compensation, and $4.6 million of higher performance-based accruals and payroll taxes on equity vesting and exercises.

The effective income tax rate for the second quarter was 23.8% compared to 25.3% in the second quarter of 2022. The decrease in the effective income tax rate was primarily due to an increase in tax benefits related to option exercises and equity vesting.

Net income for the second quarter was $341.8 million, or $12.32 per diluted share, compared to $259.9 million, or $9.25 per diluted share, in the second quarter of 2022. In the second quarter of 2023, excluding the $0.33 after-tax impact from expenses related to restaurant and corporate level impairment and closure costs and corporate restructuring, adjusted diluted earnings per share was $12.65.

During the second quarter, our Board of Directors approved the investment of up to an additional $100 million, exclusive of commissions, to repurchase shares of our common stock, subject to market conditions. Including this repurchase authorization, $294.7 million was available as of June 30, 2023. The repurchase authorization may be modified, suspended, or discontinued at any time. We repurchased $87.6 million of stock at an average price per share of $1,937.35 during the second quarter.

More information will be available in our Quarterly Report on Form 10-Q, which will be filed with the SEC by the end of July.

Outlook

For 2023, management is anticipating the following:

  • Third quarter comparable restaurant sales growth in the low to mid-single digit range
  • Full year comparable restaurant sales growth in the mid to high-single digit range
  • 255 to 285 new restaurant openings (including 10 to 15 relocations to add a Chipotlane), which assumes utility, construction, permit and material supply delays do not worsen
  • An estimated underlying effective full year tax rate between 25% and 27% before discrete items

Definitions

The following definitions apply to these terms as used throughout this release:

  • Comparable restaurant sales, or sales comps, and comparable restaurant transactions, represent the change in period-over-period total revenue or transactions for restaurants in operation for at least 13 full calendar months.
  • 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.
  • Restaurant level operating margin represents total revenue less direct restaurant operating costs, expressed as a percent of total revenue.
  • Digital sales represent food and beverage revenue generated through the Chipotle website, Chipotle app or third-party delivery aggregators. Digital sales include revenue deferrals associated with Chipotle Rewards.
  • In-restaurant sales represent food and beverage revenue generated on-premise. In-restaurant sales includes revenue deferrals associated with Chipotle Rewards.

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)




Three months ended June 30,


2023


2022

Food and beverage revenue

$

2,497,509


99.3

%


$

2,192,802


99.1

%

Delivery service revenue


17,292


0.7




20,537


0.9


Total revenue


2,514,801


100.0




2,213,339


100.0


Restaurant operating costs (exclusive of depreciation and
amortization shown separately below):












Food, beverage and packaging


738,664


29.4




673,928


30.4


Labor


611,678


24.3




549,926


24.8


Occupancy


123,897


4.9




113,919


5.1


Other operating costs


349,707


13.9




317,481


14.3


General and administrative expenses


156,496


6.2




140,820


6.4


Depreciation and amortization


78,771


3.1




69,733


3.2


Pre-opening costs


7,538


0.3




5,253


0.2


Impairment, closure costs, and asset disposals


16,240


0.6




4,681


0.2


Total operating expenses


2,082,991


82.8




1,875,741


84.7


Income from operations


431,810


17.2




337,598


15.3


Interest and other income, net


16,446


0.7




10,572


0.5


Income before income taxes


448,256


17.8




348,170


15.7


Provision for income taxes


(106,466)


(4.2)




(88,228)


(4.0)


Net income

$

341,790


13.6

%


$

259,942


11.7

%

Earnings per share:












Basic

$

12.38





$

9.32




Diluted

$

12.32





$

9.25




Weighted-average common shares outstanding:












Basic


27,604






27,905




Diluted


27,747






28,092




CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)














Six months ended June 30,


2023


2022

Food and beverage revenue

$

4,848,518


99.3

%


$

4,191,758


99.0

%

Delivery service revenue


34,863


0.7




42,120


1.0


Total revenue


4,883,381


100.0




4,233,878


100.0


Restaurant operating costs (exclusive of depreciation and
amortization shown separately below):












Food, beverage and packaging


1,431,223


29.3




1,300,854


30.7


Labor


1,195,472


24.5




1,081,866


25.6


Occupancy


245,828


5.0




225,951


5.3


Other operating costs


712,913


14.6




648,176


15.3


General and administrative expenses


304,836


6.2




288,222


6.8


Depreciation and amortization


155,356


3.2




141,398


3.3


Pre-opening costs


13,736


0.3




10,601


0.3


Impairment, closure costs, and asset disposals


24,601


0.5




8,991


0.2


Total operating expenses


4,083,965


83.6




3,706,059


87.5


Income from operations


799,416


16.4




527,819


12.5


Interest and other income, net


25,395


0.5




10,359


0.2


Income before income taxes


824,811


16.9




538,178


12.7


Provision for income taxes


(191,377)


(3.9)




(119,942)


(2.8)


Net income

$

633,434


13.0

%


$

418,236


9.9

%

Earnings per share:












Basic

$

22.94





$

14.95




Diluted

$

22.81





$

14.83




Weighted-average common shares outstanding:












Basic


27,614






27,974




Diluted


27,768






28,196




CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)








June 30,


December 31,


2023


2022


(unaudited)



Assets






Current assets:






Cash and cash equivalents

$

504,866


$

384,000

Accounts receivable, net


60,985



106,880

Inventory


36,004



35,668

Prepaid expenses and other current assets


103,422



86,412

Income tax receivable


-



47,741

Investments


851,142



515,136

Total current assets


1,556,419



1,175,837

Leasehold improvements, property and equipment, net


2,021,964



1,951,147

Long-term investments


430,762



388,055

Restricted cash


25,106



24,966

Operating lease assets


3,433,719



3,302,402

Other assets


62,526



63,158

Goodwill


21,939



21,939

Total assets

$

7,552,435


$

6,927,504

Liabilities and shareholders' equity






Current liabilities:






Accounts payable

$

162,041


$

184,566

Accrued payroll and benefits


177,475



170,456

Accrued liabilities


141,291



147,539

Unearned revenue


158,959



183,071

Current operating lease liabilities


244,061



236,248

Income tax payable


98,423



-

Total current liabilities


982,250



921,880

Long-term operating lease liabilities


3,643,931



3,495,162

Deferred income tax liabilities


106,440



98,623

Other liabilities


52,928



43,816

Total liabilities


4,785,549



4,559,481

Shareholders' equity:






Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of June 30,
2023 and December 31, 2022, respectively


-



-

Common stock, $0.01 par value, 230,000 shares authorized, 37,459 and 37,320 shares issued as
of June 30, 2023 and December 31, 2022, respectively


375



373

Additional paid-in capital


1,880,933



1,829,304

Treasury stock, at cost, 9,863 and 9,693 common shares as of June 30, 2023 and December 31,
2022, respectively


(4,569,152)



(4,282,014)

Accumulated other comprehensive loss


(6,952)



(7,888)

Retained earnings


5,461,682



4,828,248

Total shareholders' equity


2,766,886



2,368,023

Total liabilities and shareholders' equity

$

7,552,435


$

6,927,504

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)








Six months ended


June 30,


2023


2022

Operating activities






Net income

$

633,434


$

418,236

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization


155,356



141,398

Deferred income tax provision


7,827



(15,537)

Impairment, closure costs, and asset disposals


24,173



8,851

Provision for credit losses


312



(876)

Stock-based compensation expense


50,756



52,221

Other


(9,237)



(11,909)

Changes in operating assets and liabilities:






Accounts receivable


44,027



12,353

Inventory


(313)



3,320

Prepaid expenses and other current assets


(21,365)



948

Operating lease assets


121,363



112,505

Other assets


3,455



(3,014)

Accounts payable


(10,783)



(2,972)

Accrued payroll and benefits


7,597



(583)

Accrued liabilities


(66)



(22,293)

Unearned revenue


(19,894)



(20,062)

Income tax payable/receivable


146,177



(3,832)

Operating lease liabilities


(100,794)



(100,024)

Other long-term liabilities


5,521



958

Net cash provided by operating activities


1,037,546



569,688

Investing activities






Purchases of leasehold improvements, property and equipment


(257,601)



(196,495)

Purchases of investments


(590,656)



(195,242)

Maturities of investments


220,565



142,540

Net cash used in investing activities


(627,692)



(249,197)

Financing activities






Acquisition of treasury stock


(221,754)



(521,910)

Tax withholding on stock-based compensation awards


(67,474)



(91,905)

Other financing activities


115



(588)

Net cash used in financing activities


(289,113)



(614,403)

Effect of exchange rate changes on cash, cash equivalents and restricted cash


265



(490)

Net change in cash, cash equivalents, and restricted cash


121,006



(294,402)

Cash, cash equivalents, and restricted cash at beginning of period


408,966



846,230

Cash, cash equivalents, and restricted cash at end of period

$

529,972


$

551,828

Supplemental disclosures of cash flow information






Income taxes paid

$

33,252


$

139,177

Purchases of leasehold improvements, property and equipment accrued in accounts payable and
accrued liabilities

$

55,904


$

61,072

Acquisition of treasury stock accrued in accounts payable and accrued liabilities

$

2,406


$

6,999

CHIPOTLE MEXICAN GRILL, INC.

SUPPLEMENTAL FINANCIAL AND OTHER DATA

(dollars in thousands)

(unaudited)



















For the three months ended



Jun. 30,


Mar. 31,


Dec. 31,


Sep. 30,


Jun. 30,



2023


2023


2022


2022


2022

Number of restaurants opened



47



41



100



43



42

Restaurant closures



-



-



-



(1)



(1)

Restaurant relocations



(3)



(4)



(3)



(4)



(3)

Number of restaurants at end of period



3,268



3,224



3,187



3,090



3,052

Average restaurant sales


$

2,941


$

2,892


$

2,824


$

2,796


$

2,747

Comparable restaurant sales increase



7.4 %



10.9 %



5.6 %



7.6 %



10.1 %


CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The following tables provide a reconciliation of non-GAAP financial measures presented in the text above to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Adjusted net income is net income excluding expenses related to restaurant and corporate asset impairment, corporate restructuring, certain legal proceedings, stock-based compensation modification expense, unrealized gains on equity investments, separation costs, and certain other costs. Adjusted general and administrative expense is general and administrative expense excluding corporate restructuring, certain legal proceedings, stock-based compensation modification expense, separation costs, and certain other costs. The adjusted effective income tax rate is the effective income tax rate adjusted to reflect the after tax impact of non-GAAP adjustments. Restaurant Level Operating Margin, a non-GAAP financial measure, is equal to the revenues generated by our restaurants less their direct operating costs which consist of food, beverage and packaging, labor, occupancy and other operating costs. This performance measure primarily includes the costs that restaurant level managers can directly control and excludes other costs that are essential to conduct our business. Management uses restaurant level operating margin as a measure of restaurant performance. Management believes restaurant level operating margin is useful to investors in that it highlights trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP financial measures. We present these non-GAAP measures in order to facilitate meaningful evaluation of our operating performance across periods. These adjustments are intended to provide greater transparency of underlying performance and to allow investors to evaluate our business on the same basis as our management, which uses these non-GAAP measures in evaluating the company's performance. Our adjusted net income, adjusted diluted earnings per share, adjusted general and administrative expenses, adjusted effective income tax rate and restaurant level operating margin measures may not be comparable to other companies' adjusted measures. These adjustments are not necessarily indicative of what our actual financial performance would have been during the periods presented and should be viewed in addition to, and not as an alternative to, our results prepared in accordance with GAAP. Further details regarding these adjustments are included in the tables below.

CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES







Adjusted Net Income and Adjusted Diluted Earnings per Share
(in thousands, except per share amounts)
(unaudited)








Three months ended


June 30,


2023


2022

Net income

$

341,790


$

259,942

Non-GAAP adjustments:






Impairment and exit costs:






Restaurant asset impairment and other restaurant exit costs(1)


4,765



309

Corporate asset impairment (2)


3,735



-

Corporate Restructuring:






Duplicate rent expense(3)


-



856

Employee related and other restructuring costs(4)


3,495



-

Legal proceedings(5)


-



6,798

Stock-based compensation modification expense(6)


-



2,770

Unrealized gain on equity investments(7)


-



(10,410)

Total non-GAAP adjustments

$

11,995


$

323

Tax effect of non-GAAP adjustments above(8)


(2,891)



920

After tax impact of non-GAAP adjustments

$

9,104


$

1,243

Adjusted net income

$

350,894


$

261,185







Diluted weighted-average number of common shares outstanding


27,747



28,092

Diluted earnings per share

$

12.32


$

9.25

Adjusted diluted earnings per share

$

12.65


$

9.30







(1) Operating lease asset and leasehold improvements, property, plant and equipment impairment charges and other expenses for
restaurants due to closures, relocations, or underperformance.

(2) Operating lease asset and leasehold improvements, property, plant and equipment impairment charges and other expenses for
offices or other corporate assets. 

(3) Duplicate rent expense for the corporate headquarter relocation and office consolidation announced in May 2018.

(4) Charges for employee severance, stock modifications and third-party vendors related to the May 2023 optimization of our
organizational structure.

(5) Charges for estimated settlements for distinct legal matters that exceeded or are expected to exceed typical costs for these types of
legal proceedings.

(6) Charges for a COVID-19 related modification made in December 2020 to our 2018 performance shares.

(7) Unrealized gain on equity investments based on a subsequent investment by an unrelated party in one of our investees, which
subsequent investment represents an observable price change in an orderly transaction for a similar investment of the same issuer.

(8) Adjustments relate to the tax effect of non-GAAP adjustments, which were determined based on the nature of the underlying non-
GAAP adjustments and their relevant jurisdictional tax rates.

CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES


Adjusted General and Administrative Expenses
(in thousands)
(unaudited)








Three months ended


June 30,


2023


2022

General and administrative expenses

$

156,496


$

140,820

Non-GAAP adjustments:






Restructuring expense(1)


(3,495)



(856)

Legal proceedings(2)


-



(6,798)

Stock-based compensation modification expense(3)


-



(2,770)

Total non-GAAP adjustments

$

(3,495)


$

(10,424)

Adjusted general and administrative expenses

$

153,001


$

130,396







(1) For three months ended June 30, 2023, costs for employee severance, stock modifications and third party related to the May 2023
optimization of our organizational structure. For the three months ended June 30, 2022, duplicate rent expense for the corporate
headquarter relocation and office consolidation announced in May 2018.

(2) Charges for estimated settlements for distinct legal matters that exceeded or are expected to exceed typical costs for these types of
legal proceedings.

(3) Charges for a COVID-19 related modification made in December 2020 to our 2018 performance shares.

CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES


Adjusted Effective Income Tax Rate
(unaudited)








Three months ended


June 30,


2023


2022

Effective income tax rate

23.8

%


25.3

%

Tax impact of non-GAAP adjustments(1)

-



(0.2)


Adjusted effective income tax rate

23.8

%


25.1

%







(1) Adjustments related to the tax effect of non-GAAP adjustments, which were determined based on the nature of the underlying non-
GAAP adjustments and their relevant jurisdictional tax rates.

CHIPOTLE MEXICAN GRILL, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES


Restaurant Level Operating Margin
(in thousands)
(unaudited)














Three months ended June 30,


2023


Percent of total
revenue


2022


Percent of total
revenue

Income from operations

$

431,810


17.2

%


$

337,598


15.3

%

Non-GAAP Adjustments:












General and administrative expenses


156,496


6.2




140,820


6.4


Depreciation and amortization


78,771


3.1




69,733


3.2


Pre-opening costs


7,538


0.3




5,253


0.2


Impairment, closure costs, and asset disposals


16,240


0.6




4,681


0.2


Total non-GAAP Adjustments

$

259,045


10.3

%


$

220,487


10.0

%

Restaurant level operating margin

$

690,855


27.5

%


$

558,085


25.2

%

SOURCE Chipotle Mexican Grill, Inc.