cmg-20230331x10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________

FORM 10-Q

______________________________

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

¨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  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):


 Large accelerated filer	 Accelerated filer	 Non-accelerated filer	 Smaller reporting company	 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 April 24, 2023, there were 27,589,840 shares of the registrant’s common stock, par value of $0.01 per share outstanding.

PART I

ITEM 1. FINANCIAL STATEMENTS

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



	March 31,		December 31,
	2023		2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	409,727	$	384,000
Accounts receivable, net		65,869		106,880
Inventory		34,599		35,668
Prepaid expenses and other current assets		98,389		86,412
Income tax receivable		-		47,741
Investments		652,858		515,136
Total current assets		1,261,442		1,175,837
Leasehold improvements, property and equipment, net		1,981,329		1,951,147
Long-term investments		368,023		388,055
Restricted cash		25,133		24,966
Operating lease assets		3,334,277		3,302,402
Other assets		61,229		63,158
Goodwill		21,939		21,939
Total assets	$	7,053,372	$	6,927,504
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	182,606	$	184,566
Accrued payroll and benefits		116,465		170,456
Accrued liabilities		160,436		147,539
Unearned revenue		157,898		183,071
Current operating lease liabilities		239,029		236,248
Income tax payable		37,658		-
Total current liabilities		894,092		921,880
Commitments and contingencies (Note 11)
Long-term operating lease liabilities		3,532,566		3,495,162
Deferred income tax liabilities		98,137		98,623
Other liabilities		46,892		43,816
Total liabilities		4,571,687		4,559,481
Shareholders' equity:
Preferred stock, $0.01 par value, 600,000 shares authorized, no shares issued as of March 31, 2023 and December 31, 2022, respectively		-		-
Common stock, $0.01 par value, 230,000 shares authorized, 37,419 and 37,320 shares issued as of March 31, 2023 and December 31, 2022, respectively		374		373
Additional paid-in capital		1,849,683		1,829,304
Treasury stock, at cost, 9,818 and 9,693 common shares as of March 31, 2023 and December 31, 2022, respectively		(4,480,833)		(4,282,014)
Accumulated other comprehensive loss		(7,431)		(7,888)
Retained earnings		5,119,892		4,828,248
Total shareholders' equity		2,481,685		2,368,023
Total liabilities and shareholders' equity	$	7,053,372	$	6,927,504

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
	March 31,
	2023		2022
Food and beverage revenue	$	2,351,009	$	1,998,956
Delivery service revenue		17,571		21,583
Total revenue		2,368,580		2,020,539
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage and packaging		692,559		626,926
Labor		583,794		531,940
Occupancy		121,931		112,032
Other operating costs		363,206		330,695
General and administrative expenses		148,340		147,402
Depreciation and amortization		76,585		71,665
Pre-opening costs		6,198		5,348
Impairment, closure costs, and asset disposals		8,361		4,310
Total operating expenses		2,000,974		1,830,318
Income from operations		367,606		190,221
Interest and other income (expense), net		8,949		(213)
Income before income taxes		376,555		190,008
Provision for income taxes		(84,911)		(31,714)
Net income	$	291,644	$	158,294
Earnings per share:
Basic	$	10.56	$	5.64
Diluted	$	10.50	$	5.59
Weighted-average common shares outstanding:
Basic		27,624		28,043
Diluted		27,788		28,301
Other comprehensive income, net of income taxes:
Foreign currency translation adjustments	$	457	$	195
Comprehensive income	$	292,101	$	158,489

See accompanying notes to condensed consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common Stock					Treasury Stock
	Shares	Amount		Additional ‎Paid-In ‎Capital		Shares	Amount		Retained ‎Earnings		Accumulated Other Comprehensive Loss		Total
Balance, December 31, 2021	37,132	$	371	$	1,729,312	9,052	$	(3,356,102)	$	3,929,147	$	(5,354)	$	2,297,374
Stock-based compensation	-		-		24,077	-		-		-		-		24,077
Stock plan transactions and other	134		2		(61)	-		-		-		-		(59)
Acquisition of treasury stock	-		-		-	230		(345,921)		-		-		(345,921)
Net income	-		-		-	-		-		158,294		-		158,294
Other comprehensive income, net of income taxes	-		-		-	-		-		-		195		195
Balance, March 31, 2022	37,266	$	373	$	1,753,328	9,282	$	(3,702,023)	$	4,087,441	$	(5,159)	$	2,133,960

Balance, December 31, 2022	37,320	$	373	$	1,829,304	9,693	$	(4,282,014)	$	4,828,248	$	(7,888)	$	2,368,023
Stock-based compensation	-		-		20,670	-		-		-		-		20,670
Stock plan transactions and other	99		1		(291)	-		-		-		-		(290)
Acquisition of treasury stock	-		-		-	125		(198,819)		-		-		(198,819)
Net income	-		-		-	-		-		291,644		-		291,644
Other comprehensive income, net of income taxes	-		-		-	-		-		-		457		457
Balance, March 31, 2023	37,419	$	374	$	1,849,683	9,818	$	(4,480,833)	$	5,119,892	$	(7,431)	$	2,481,685

See accompanying notes to condensed consolidated financial statements.

CHIPOTLE MEXICAN GRILL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three months ended
	March 31,
	2023		2022
Operating activities
Net income	$	291,644	$	158,294
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		76,585		71,665
Deferred income tax provision		(486)		(14,024)
Impairment, closure costs, and asset disposals		8,152		4,265
Provision for credit losses		500		(918)
Stock-based compensation expense		20,084		23,590
Other		(2,810)		(998)
Changes in operating assets and liabilities:
Accounts receivable		39,659		10,394
Inventory		1,086		2,970
Prepaid expenses and other current assets		(14,569)		5,920
Operating lease assets		59,135		55,125
Other assets		3,277		(1,132)
Accounts payable		(2,732)		15,702
Accrued payroll and benefits		(53,428)		10,438
Accrued liabilities		17,009		(31,151)
Unearned revenue		(22,653)		(21,604)
Income tax payable/receivable		85,400		43,367
Operating lease liabilities		(51,584)		(49,596)
Other long-term liabilities		767		595
Net cash provided by operating activities		455,036		282,902
Investing activities
Purchases of leasehold improvements, property and equipment		(120,369)		(96,162)
Purchases of investments		(214,819)		(118,827)
Maturities of investments		99,639		81,923
Net cash used in investing activities		(235,549)		(133,066)
Financing activities
Acquisition of treasury stock		(126,709)		(263,308)
Tax withholding on stock-based compensation awards		(67,185)		(85,811)
Other financing activities		11		(359)
Net cash used in financing activities		(193,883)		(349,478)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		290		147
Net change in cash, cash equivalents, and restricted cash		25,894		(199,495)
Cash, cash equivalents, and restricted cash at beginning of period		408,966		846,230
Cash, cash equivalents, and restricted cash at end of period	$	434,860	$	646,735
Supplemental disclosures of cash flow information
Income taxes paid (refunded)	$	(245)	$	2,291
Purchases of leasehold improvements, property, and equipment accrued in accounts payable and accrued liabilities	$	63,745	$	52,802
Acquisition of treasury stock accrued in accounts payable and accrued liabilities	$	9,422	$	4,497

See accompanying notes to condensed consolidated financial statements.

‎

CHIPOTLE MEXICAN GRILL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollar and share amounts in thousands, unless otherwise specified)

(unaudited)

1. Basis of Presentation and Update to Accounting Policies

In this quarterly report on Form 10-Q, Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries, is collectively referred to as “Chipotle,” “we,” “us,” or “our.”

We develop and operate restaurants that serve a relevant menu of burritos, burrito bowls, quesadillas, tacos, and salads, made using fresh, high-quality ingredients. As of March 31, 2023, we operated 3,224 restaurants including 3,164 Chipotle restaurants within the United States, 54 international Chipotle restaurants, and six non-Chipotle restaurants. We manage our U.S. operations based on eight regions and have aggregated our operations to one reportable segment.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements, footnotes and management’s discussion and analysis included in our annual report on Form 10-K for the year ended December 31, 2022.

2. Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2024. We are evaluating the impact of the transition from LIBOR to alternative reference rates but do not expect a significant impact to our consolidated financial statements.

We reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

3. Revenue Recognition

Gift Cards

We sell gift cards, which do not have expiration dates, and we do not deduct non-usage fees from outstanding gift card balances. Gift card balances are initially recorded as unearned revenue. We recognize revenue from gift cards when the gift card is redeemed by the customer. Historically, the majority of gift cards are redeemed within one year. In addition, a portion of gift cards are not expected to be redeemed and will be recognized as breakage over time in proportion to gift card redemptions (“gift card breakage rate”). The gift card breakage rate is based on company and program specific information, including historical redemption patterns, and expected remittance to government agencies under unclaimed property laws, if applicable. We evaluate our gift card breakage rate estimate annually, or more frequently as circumstances warrant, and apply that rate to gift card redemptions. Gift card liability balances are typically highest at the end of each calendar year following increased gift card sales during the holiday season; accordingly, revenue recognized from gift card liability balances is highest in the first quarter of each calendar year.

The gift card liability included in unearned revenue on the condensed consolidated balance sheets was as follows:



	March 31,		December 31,
	2023		2022
Gift card liability	$	118,684	$	145,014

Revenue recognized from the redemption of gift cards that was included in unearned revenue at the beginning of the year was as follows:



	Three months ended
	March 31,
	2023		2022
Revenue recognized from gift card liability balance at the beginning of the year	$	38,878	$	37,435

Chipotle Rewards

We have a loyalty program called Chipotle Rewards. Eligible customers who enroll in the program generally earn points for every dollar spent. We may also periodically offer promotions, which typically provide the customer with the opportunity to earn bonus points or other rewards. Customers may redeem earned points for various rewards, which are primarily comprised of free food and beverage items. Earned rewards generally expire one month to two months after they are issued, and points generally expire if an account is inactive for a period of six months.

We defer revenue associated with the estimated selling price of points or rewards earned by customers as each point or reward is earned, net of points or rewards we do not expect to be redeemed. The estimated selling price of each point or reward earned is based on the estimated value of the product for which the reward is expected to be redeemed. Our estimate of points and rewards we expect to be redeemed is based on historical and other company specific data. The costs associated with rewards redeemed are primarily included in food, beverage, and packaging on our condensed consolidated statements of income and comprehensive income. We evaluate Chipotle Rewards point breakage annually, or more frequently as circumstances warrant.

We recognize revenue associated with Chipotle Rewards within food and beverage revenue on the condensed consolidated statements of income and comprehensive income when a customer redeems an earned reward. Deferred revenue associated with Chipotle Rewards is included in unearned revenue on our condensed consolidated balance sheets.

Changes in our Chipotle Rewards liability included in unearned revenue on the condensed consolidated balance sheets were as follows:


	Three months ended
	March 31,
	2023		2022
Chipotle Rewards liability, beginning balance	$	38,057	$	25,572
Revenue deferred		31,057



	PART I
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income and Comprehensive Income	2
	Condensed Consolidated Statements of Shareholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
	Note 1 - Basis of Presentation and Update to Accounting Policies	5
	Note 2 - Recently Issued Accounting Standards	5
	Note 3 - Revenue Recognition	5
	Note 4 - Fair Value of Financial Instruments	6
	Note 5 – Equity Investments	8
	Note 6 - Shareholders' Equity	9
	Note 7 - Stock-Based Compensation	9
	Note 8 - Income Taxes	9
	Note 9 - Leases	9
	Note 10 - Earnings Per Share	10
	Note 11 - Commitments and Contingencies	10
	Note 12 - Debt	11
	Note 13 - Related Party Transactions	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
	PART II
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3	Defaults upon Senior Securities	18
Item 4	Mine Safety Disclosures	18
Item 5	Other Information	19
Item 6.	Exhibits	20
	Signatures	21