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    CMG
    Earnings call· Mar 2025(Q1 FY25)

    CHIPOTLE MEXICAN GRILL Q1 FY25 earnings call CMG

    Apr 23, 2025 Source

    Executive summary

    Chipotle Mexican Grill Q1 FY25 — Consumer Headwinds Impact Comps, Strategic Investments Continue

    Chipotle navigated Q1 FY25 amidst significant consumer spending headwinds and challenging comparisons, resulting in a slight comparable sales decline. The company is actively countering these pressures through strategic investments in operational efficiency, marketing, and menu innovation, including the successful Honey Chicken LTO. Management remains confident in its long-term growth targets, focusing on enhancing the value proposition and expanding its restaurant footprint, while acknowledging the need for macro relief to fully return to historical growth rates.

    Highlights

    5

    • Chipotle Honey Chicken LTO is off to a strong start, driving incremental transactions and achieving a higher mix than any other LTO.

    • Opened 57 new restaurants in Q1, with 48 including Chipotlanes, contributing to strong unit growth.

    • New restaurant economics remain robust with year 2 cash-on-cash returns around 60% and overall cash-on-cash returns in the low 80% range.

    • Balance sheet remains strong with $2.1 billion in cash, restricted cash, and investments, and no debt.

    • The Board authorized an additional $400 million for share repurchases, with $875 million remaining in authorization.

    Concerns

    5

    • Sales grew over 6% to $2.9 billion, but comparable sales declined 0.4% year-over-year.

    • Restaurant-level margin decreased by 130 basis points year-over-year to 26.2%.

    • Consumer spending slowdown and economic uncertainty began impacting transaction trends in February and continued into April.

    • Q2 cost of sales is expected to be in the high 29% range, impacted by inflation, avocado normalization, and new tariffs (50 bps ongoing impact, 20 bps in Q2).

    • Labor costs increased by 60 basis points to 25% of sales, primarily driven by lower volumes.

    Guidance & targets

    21
    CategoryTargetConfidence
    Full-year comparable sales
    low single-digit
    high materiality
    Medium
    Transaction growth
    return to positive
    high materiality
    Medium
    Q2 Cost of Sales
    high 29% range
    medium materiality
    High
    Tariff impact (ongoing)
    about 50 basis points
    medium materiality
    High
    Tariff impact (Q2)
    20 basis point impact
    medium materiality
    High
    Full-year underlying cost of sales inflation
    low single-digit range
    medium materiality
    High
    Q2 Labor Cost
    mid-24% range
    medium materiality
    High
    Q2 Wage Inflation
    low single-digit range
    low materiality
    High
    Q2 Marketing Costs
    mid-2% range
    medium materiality
    High
    Full-year Marketing Costs
    high 2% range
    medium materiality
    High
    Q2 Other Operating Costs
    high 13% range
    low materiality
    High
    Depreciation (as % of sales)
    around 3% of sales
    low materiality
    High
    Underlying Effective Tax Rate
    25% to 27% range
    medium materiality
    High
    Q2 Underlying G&A
    around $135 million
    medium materiality
    High
    Q2 Total G&A
    around $168 million
    medium materiality
    High
    New restaurant openings
    between 315 and 345
    high materiality
    High
    New restaurant openings in Canada
    15 to 20
    medium materiality
    High
    First restaurant opening in Mexico
    early 2026
    medium materiality
    High
    Long-term restaurant goal (North America)
    7,000 restaurants
    high materiality
    High
    Long-term Average Unit Volumes (AUVs)
    over $4 million
    high materiality
    High
    LTO cadence
    up to 3 LTOs
    medium materiality
    Medium

    Operational metrics

    23
    Digital sales mix
    35.4%
    Q1 FY25

    Digital sales represented 35.4% of total sales in Q1.

    Average cost of popular entree
    under $10
    Q1 FY25

    The average cost of the most popular entree (Chicken Bowl or Burrito) is still under $10, offering significant value compared to competitors.

    Year 2 cash-on-cash returns (new restaurants)
    around 60%
    Q1 FY25

    New restaurant economics remain strong with year 2 cash-on-cash returns around 60%.

    Overall cash-on-cash return
    low 80% range
    Q1 FY25

    Overall cash-on-cash return is in the low 80% range as restaurants continue to grow their economics over time.

    Stock repurchases executed
    $554 million
    Q1 FY25

    The company purchased $554 million of its stock at an average price of $54.15 during the quarter.

    Share repurchase authorization remaining
    $875 million
    Q1 FY25

    At the end of the quarter, $875 million remained in the share repurchase authorization.

    Additional share repurchase authorization
    $400 million
    Q1 FY25

    The Board authorized an additional $400 million to the share repurchase authorization during the quarter.

    Portion investment offset
    more than half
    Q1 FY25

    More than half of the 60 basis point investment made in 2024 for consistent portions has been offset, with full offset anticipated by H2 FY25.

    G&A (GAAP)
    $173 million
    Q1 FY25

    GAAP G&A for the quarter was $173 million.

    G&A (non-GAAP)
    $161 million
    Q1 FY25

    Non-GAAP G&A for the quarter was $161 million, excluding $12 million related to equity awards.

    Underlying G&A
    $133 million
    Q1 FY25

    Underlying G&A for the quarter was $133 million.

    Noncash stock compensation
    $23 million
    Q1 FY25

    Noncash stock compensation included $23 million, which included a reduction in performance share accruals.

    Payroll taxes on equity vesting
    $2 million
    Q1 FY25

    Payroll taxes on equity vesting and exercises amounted to $2 million.

    Field leadership conference cost
    $3 million
    Q1 FY25

    Costs related to the field leadership conference held in March amounted to $3 million.

    Effective tax rate (GAAP)
    22.9%
    Q1 FY25

    GAAP effective tax rate benefited from option exercises and equity vesting above grant values.

    Effective tax rate (non-GAAP)
    22.7%
    Q1 FY25

    Non-GAAP effective tax rate benefited from option exercises and equity vesting above grant values.

    Depreciation
    $87 million
    Q1 FY25

    Depreciation for the quarter was $87 million.

    Refunds as percentage of sales
    drop
    Q1 FY25

    The company is seeing refunds drop as a percentage of sales due to operational improvements.

    Cost of care
    drop
    Q1 FY25

    The company is seeing cost of care drop due to operational improvements.

    Honey Chicken LTO mix
    higher than any other LTO
    Q1 FY25

    Chipotle Honey Chicken has had a higher mix than any other limited time offer, even surpassing its pilot test.

    Honey Chicken LTO transaction impact
    100 to 200 basis point range
    Q1 FY25

    The Honey Chicken LTO is estimated to be driving transactions in the 100 to 200 basis point range.

    Cannibalization impact on comps
    80 to 100 basis point range
    Q1 FY25

    The impact of new store openings on overall comparable sales has been consistently in the 80 to 100 basis point range.

    Dinner vs. Lunch sales performance
    Dinner holding up better than lunch
    Q1 FY25

    Dinner sales have been holding up better than lunch sales recently, a trend observed in Q1 FY25 and last year.

    Industry KPIs

    2
    MetricValueDetails
    Comparable sales comps-0.4%%
    Net unit growth development pipeline57restaurants

    Product announcements

    6
    ProductTypeDetails
    Chipotle Honey Chickenlaunch
    Produce Slicerexpansion
    Equipment Package (dual-sided plancha, 3-pan rice cooker, high-capacity fryer)expansion
    Avocadoupdate
    Augmented Digital Make Lineupdate
    Catering Business Testlaunch

    Deals & partnerships

    2
    Alshaya GroupInternational expansion in the Middle East

    Opened 2 more restaurants in February, bringing the total to 5 (3 in Kuwait, 2 in Dubai). Results continue to be very strong.

    Alshaya GroupInternational expansion into Mexico and potentially other Latin American markets

    Signed a new partnership agreement to open restaurants in Mexico, with the first anticipated in early 2026. Will also explore possible expansion into additional markets in the region.

    Risks & headwinds

    6
    Consumer spending slowdownQ1 FY25, Q2 FY25, potentially longer

    Comparable sales decline of 0.4% in Q1; underlying transaction trends slowed in February and continued into April.

    Mitigation: Focus on value proposition, guest obsession, operational improvements, increased marketing spend, and menu innovation.

    Weather impactQ1 FY25

    Impacted Q1 results.

    Easter timing shiftQ2 FY25

    100 basis point headwind in Q2.

    Inflation on cost of salesQ1 FY25, FY25

    Higher usage across avocados, dairy, and chicken; underlying cost of sales inflation expected in low single-digit range for FY25 (excluding specific items).

    Mitigation: Supply chain savings, improved in-restaurant execution, produce slicer rollout.

    New tariffsQ2 FY25 and ongoing

    Ongoing impact of about 50 basis points; 20 basis point impact in Q2.

    Mitigation: Mitigation efforts are ongoing, but specific actions not detailed beyond understanding the impact.

    Difficult comparisonsQ2 FY25

    Lapping an 11.2% comp from last year in Q2, including a high teens comp in April.

    Mitigation: Focus on internal initiatives to drive performance, expecting comps to turn positive exiting Q2 as comparisons ease.

    What to watch in Q2 FY25

    5

    Consumer spending trends

    next quarter
    CurrentSlowdown impacting transaction trends, continued into April.
    TargetImprovement or stabilization of transaction trends.

    Why it matters

    Consumer spending is a primary driver of comparable sales and overall revenue growth.

    While we can't predict how long these consumer headwinds🌐 will last, what I do know is that the Chipotle brand has never been stronger, that we have an extraordinary value proposition that is more important than ever to focus on being guest obsessed to earn every transaction.

    Q&A highlights

    6

    Given increased competition from fast casual concepts replicating Chipotle's playbook, what gives confidence in achieving positive traffic in H2 FY25?

    Management is confident due to Chipotle's strong value proposition, unmatched speed, and brand strength. New competitors opening nearby do not materially impact business, often increasing traffic to the area, with Chipotle capturing more than its fair share. The fast casual market is still small with significant room for growth.

    “What gives me a lot of confidence is we have competition, as you can imagine, that opens up near or in close proximity to Chipotle's today. And we don't see any material impact to our business. As a matter of fact, in most cases, we see an increase in traffic to the area, and we garner more than our fair share.”

    asked by Andrew Charles · answered by Scott Boatwright

    2 min read5 chapters

    Detailed Narrative

    01

    Consumer Headwinds and Strategic Response

    Chipotle observed a significant slowdown in consumer spending and transaction trends starting in February, attributed to economic uncertainty and a desire to save money. Despite these macro headwinds🌐, the company emphasizes the strength of its brand, value proposition, and operational execution. Management believes its focus on 'guest obsession' and continued investment in core strategies will position the brand for stronger performance when economic conditions improve.

    02

    Operational Improvements and Innovation

    The company is actively implementing back-of-house innovations to enhance efficiency and consistency. The produce slicer is on track for rollout to all restaurants by summer, expected to improve prep speed and culinary consistency. An equipment package, including a dual-sided plancha, 3-pan rice cooker, and high-capacity fryer, is being rolled out to 100 existing restaurants, with potential for broader deployment over several years. Progress continues on customized equipment like Avocado and the augmented digital make line, with further in-restaurant testing planned.

    03

    Marketing and Menu Innovation

    The Chipotle Honey Chicken limited-time offer, launched in March, has been highly successful, driving incremental transactions and achieving a higher mix than previous LTOs. The marketing team plans to significantly ramp up spend from May through summer, utilizing digital and social channels and the rewards platform to target specific customer cohorts. Additionally, Chipotle is rethinking its catering business, which currently represents only 1.5% of sales, with a test planned for fall to scale the business without impacting core operations.

    04

    People and Culture Development

    Chipotle highlights its commitment to its employees, citing industry-leading benefits, culinary focus, and internal growth opportunities. The company aims to promote 90% internally, with inspiring stories of career progression within the organization. This focus on people and culture has led to recognition as one of Fortune's most admired companies, contributing to stability and consistency in restaurant operations and guest experience.

    05

    Expansion and International Growth

    In Q1, Chipotle opened 57 new restaurants, including 48 Chipotlanes, and remains on track to open 315 to 345 new restaurants in North America this year. International expansion is also progressing, with 5 restaurants now open in the Middle East through the Alshaya Group, and accelerated growth planned for the region. A new partnership with Alshaya has been signed to open restaurants in Mexico, with the first anticipated in early 2026, exploring further expansion in Latin America.

    AI-generated summary of the company’s earnings call. Not investment advice.