Chipotle Announces Second Quarter 2023 Results
Total revenue increased 13.6% to $2.5 billion - Comparable restaurant sales increased 7.4%
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 | |||||||||||
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 | |||||||||||
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, | - | - | |||
Common stock, $0.01 par value, 230,000 shares authorized, 37,459 and 37,320 shares issued as | 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, | (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 | $ | 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. | |||||
Adjusted Net Income and Adjusted Diluted Earnings per Share | |||||
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 | |||||
(2) Operating lease asset and leasehold improvements, property, plant and equipment impairment charges and other expenses for | |||||
(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 | |||||
(5) Charges for estimated settlements for distinct legal matters that exceeded or are expected to exceed typical costs for these types of | |||||
(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 | |||||
(8) Adjustments relate to the tax effect of non-GAAP adjustments, which were determined based on the nature of the underlying non- |
CHIPOTLE MEXICAN GRILL, INC. | |||||
Adjusted General and Administrative Expenses | |||||
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 | |||||
(2) Charges for estimated settlements for distinct legal matters that exceeded or are expected to exceed typical costs for these types of | |||||
(3) Charges for a COVID-19 related modification made in December 2020 to our 2018 performance shares. |
CHIPOTLE MEXICAN GRILL, INC. | |||||
Adjusted Effective Income Tax Rate | |||||
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- |
CHIPOTLE MEXICAN GRILL, INC. | |||||||||||
Restaurant Level Operating Margin | |||||||||||
Three months ended June 30, | |||||||||||
2023 | Percent of total | 2022 | Percent of total | ||||||||
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.