Equity Research Retail 8 February 2023 Chipotle Mexican Grill, Inc. 4Q22 Take... Shortfall Top to Bottom; Comp Re-Accelerated in January, Similar to Peers 4Q22 fell short top to bottom, with comp slowing, while expenses were above expectation. With that said, comp re- accelerated in January, similar to peers, up low double-digit and guided to high single-digit for 1Q23. Importantly, no sign of push back to outsized pricing & inflation likely to ease in ‘23... The greatest investor push back on shares of Chipotle relates to brand affordability, with ongoing outsized menu pricing (~13.5% in 4Q22). And when comp fell short of expectations to start & end 4Q22, many prudently question whether consumer push back on such pricing is the driver. Importantly, management continues to defend their pricing actions, and while acknowledging a widening of comp performance by income level, still believes there is minimal resistance to such pricing. And a basic burrito is priced 10-30% below core items at fast casual peers. New unit performance seems to support the view, opening at 80-85% of the system average, with Chipotlelanes 80%+ of new unit openings. Importantly, despite a challenging near-term macro, the long-term growth thesis is intact. Chipotle comps remain strong, aided by new product news & a compelling value proposition (albeit debated), with menu pricing power outsized (to date), unit growth accelerating with benefit from Chipotlanes, TAM increasing, & restaurant margins protected (albeit no longer running parallel with AUVs due to outsized pricing to mitigate inflation). We believe Chipotle can generate ~20% annual EPS growth longer term. With that said, investors continue to prudently debate valuation, which is where we struggle, especially with broader investor concerns on high growth, high valuation names into a slowing macro. CMG is at ~40x 2023E EPS vs a ~46x 3-year forward average (pre-COVID). PT is $1,550. 2023 Outlook As expected, there was no formal comp or earnings guidance. With that said, 1Q23 starts with 9- 10% pricing, easing from 13.5% in 4Q22, and is expected to end ‘23 at 0%, with no further increases. And guidance remains for 1-2 new menu items / year, with the first Pollo Al Pastor (along with the current Lifestyle Bowl offering). Otherwise, unit opens are expected at 255-285, up 8-9% y-y, vs the long-term target to reach the upper end of the 8-10% y-y range, once supply chain / equipment challenges ease. Importantly, 80%+ of new units will have a Chipotlane, which has generated a ~500bp higher return, with sales 10-15% above the average, justifying the additional $75-85k initial investment. We believe this growth is justified with 85%+ new unit Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see analyst certifications and important disclosures beginning on page 8 . CORE Earnings Review U.S. Restaurants Jeffrey A. Bernstein +1 212 526 3855 jeffrey.bernstein@barclays.com BCI, US Pratik Patel +1 212 526 4438 pratik.m.patel@barclays.com BCI, US Anisha Datt +1 212 526 1880 anisha.datt@barclays.com BCI, US CMG EQUAL WEIGHT Unchanged U.S. Restaurants NEUTRAL Unchanged Price Target USD 1550.00 raised 7% from USD 1450.00 Price (07-Feb-23) USD 1722.86 Potential Upside/Downside -10.0% Market Cap (USD mn) 47760 Shares Outstanding (mn) 27.72 Free Float (%) 99.25 52 Wk Avg Daily Volume (mn) 0.3 Dividend Yield (%) N/A Return on Equity TTM (%) 34.88 Current BVPS (USD) 83.87 Source: Bloomberg Price Performance Exchange-NYSE 52 Week range USD 1754.56- 1196.28 Source: IDC Link to Barclays Live for interactive charting Completed: 08-Feb-23, 03:17 GMT Released: 08-Feb-23, 05:10 GMT Restricted - External 8 February 2023 2 Barclays | Chipotle Mexican Grill, Inc. productivity & 40-45% cash-on-cash returns. On costs, expect a reversion to more normalized commodity & labor inflation, likely mid-single-digit. 1Q23 Outlook 1Q23 comps are expected up HSD, easing from LDD in January with the latter benefiting from the lap of Omicron coupled with favorable weather. The 1Q23 comp guide includes LSD positive traffic, 9-10% menu pricing & LSD negative mix. As for costs, expect food in the high-29% range as a percent of sales with the commodity basket up MSD y-y, labor in the mid-25% range with the basket up MSD y-y, other operating costs in the low-15% range (inclusive of marketing in the mid-3%’s) & G&A at ~$155m (inclusive of SBC at ~$25m). And below the line, expect D&A to accelerate slightly with more units. 4Q22 Review Adj. EPS was $8.29, up 49% y-y, vs our $9.17 & consensus $8.91... guidance was not provided. Comp was 5.6%, vs our 8.0%, consensus 7.1% & guidance for MSD-HSD. Comp drivers include 13.5% (effective) pricing, (~4%) traffic, (~3%) mix & (~80bp) from gift card breakage. By month, MSD in October, accelerating to HSD in mid-November, & easing in December, with the steak promotion falling short of plan, while each month was directionally similar to the industry. Digital was ~37% of sales, similar to 3Q22, while in-restaurant sales are up ~26% vs ~22% in 3Q22. Restaurant margin was 24.0%, up ~375bp, vs our 25.6% & consensus 25.2%. Commodity & labor inflation both up MSD y-y. The greatest delta to EPS vs. consensus was higher than expected labor & other operating expenses (headwinds of ~$0.60 & ~$0.34, resp.), partially offset by lower than expected cost of sales & G&A (tailwinds of ~$0.33 & ~$0.34, resp.). And below the line, there was higher than expected interest and other income (tailwind of ~$0.12). Chipotle repurchased ~$199m of stock at an average ~$1,487 / sh. CMG: Quarterly and Annual EPS (USD) 2022 2023 2024 Change y/y FY Dec Actual Old New Cons Old New Cons 2023 2024 Q1 5.70A N/A 9.03E 8.73E N/A N/A 10.46E 58% N/A Q2 9.30A N/A 10.34E 11.52E N/A N/A 13.89E 11% N/A Q3 9.51A N/A 11.35E 11.45E N/A N/A 13.86E 19% N/A Q4 8.29A N/A 11.46E 10.95E N/A N/A 13.67E 38% N/A Year 32.78A 42.50E 42.15E 42.88E 52.75E 50.40E 51.96E 29% 20% P/E 52.6 40.9 34.2 Consensus numbers are from Bloomberg received on 07-Feb-2023; 13:50 GMT Source: Barclays Research 8 February 2023 3 Barclays | Chipotle Mexican Grill, Inc. Valuation Our revised price target is $1,550, or ~19x our 2024E EBITDA of $2.2B. Our prior price target was $1,450, or ~17x our 2024E EBITDA of $2.2B. U.S. Restaurants NEUTRAL Chipotle Mexican Grill, Inc. (CMG) EQUAL WEIGHT Income statement ($mn) 2022A 2023E 2024E 2025E CAGR Price (07-Feb-2023) USD 1,722.86 Price Target USD 1,550.00 Why EQUAL WEIGHT? With recent underlying momentum strong, we believe Chipotle shares once again justify a premium valuation on what should be outsized top and bottom-line growth going forward. However, we struggle to forecast additional upside, with expectations already elevated and high-growth concepts vulnerable to a slowing macro. Upside case USD 1,727.00 Upside comes primarily from comp acceleration and multiple or margin expansion. On an annual basis, we estimate an incremental of 1pp to comp along with 100bps of margin increase (and the subsequent multiple expansion) would lead us to our upside scenario. Downside case USD 1,307.00 Downside comes primarily from comp deceleration and multiple or margin contraction. On an annual basis, we estimate a shortfall of 1pp to comp along with 100bps of margin decline (and the subsequent multiple contraction) would lead us to our downside scenario. Upside/Downside scenarios Revenue 8,635 9,707 10,838 11,977 11.5% EBITDA (adj) 1,474 1,864 2,163 2,450 18.4% EBIT (adj) 1,188 1,547 1,814 2,063 20.2% Pre-tax income (adj) 1,198 1,559 1,826 2,075 20.1% Net income (adj) 920 1,162 1,361 1,551 19.0% EPS (adj) ($) 32.78 42.15 50.40 58.80 21.5% Diluted shares (mn) 28 28 27 26 -2.0% DPS ($) 0.00 0.00 0.00 0.00 N/A Margin and return data 2022A 2023E 2024E 2025E Average EBITDA (adj) margin (%) 17.1 19.2 20.0 20.5 19.2 EBIT (adj) margin (%) 13.8 15.9 16.7 17.2 15.9 Pre-tax (adj) margin (%) 13.9 16.1 16.8 17.3 16.0 Net (adj) margin (%) 10.7 12.0 12.6 12.9 12.0 ROIC (%) 52.6 54.7 56.3 55.7 54.8 ROA (%) 13.2 15.9 17.9 19.6 16.6 ROE (%) 38.8 42.0 43.3 44.0 42.0 Balance sheet and cash flow ($mn) 2022A 2023E 2024E 2025E CAGR Tangible fixed assets 1,951 2,184 2,436 2,699 11.4% Intangible fixed assets 3,302 3,073 2,842 2,611 -7.5% Cash and equivalents 384 538 573 562 13.5% Total assets 6,928 7,267 7,554 7,857 4.3% Short and long-term debt 0 0 0 0 N/A Other long-term liabilities 3,495 3,288 3,081 2,874 -6.3% Total liabilities 4,559 4,500 4,408 4,333 -1.7% Net debt/(funds) -384 -538 -573 -562 N/A Shareholders’ equity 2,368 2,767 3,146 3,524 14.2% Change in working capital -254 159 37 -8 N/A Cash flow from operations 1,323 1,754 1,936 2,189 18.3% Capital expenditure -479 -550 -600 -650 N/A Free cash flow 844 1,204 1,336 1,539 22.2% Valuation and leverage metrics 2022A 2023E 2024E 2025E Average P/E (adj) (x) 52.6 40.9 34.2 29.3 39.3 EV/EBITDA (adj) (x) 32.0 25.2 21.7 19.2 24.6 Equity FCF yield (%) 1.7 2.5 2.9 3.4 2.6 P/Sales (x) 5.5 4.9 4.4 4.0 4.7 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Total debt/capital (%) 0.0 0.0 0.0 0.0 0.0 Net debt/EBITDA (adj) (x) -0.3 -0.3 -0.3 -0.2 -0.3 Selected operating metrics 2022A 2023E 2024E 2025E Average Comp growth (%) 8.0 5.7 4.5 3.0 5.3 Unit growth (%) 7.5 8.3 8.8 9.3 8.5 Average store volume ($mn) 2.8 2.9 3.0 3.0 2.9 Store-level margins (%) 23.9 26.1 26.7 27.1 25.9 Note: FY End Dec Source: Company data, Bloomberg, Barclays Research 8 February 2023 4 Barclays | Chipotle Mexican Grill, Inc. Chipotle Mexican Grill Company Snapshot FIGURE 1. CMG vs. S&P 500 NTM P/E Multiple FIGURE 2. CMG NTM EV/EBITDA Multiple 0x 10x 20x 30x 40x 50x 60x 70x 80x 90x 100x 110x 120x P/E SPX Average 0x 5x 10x 15x 20x 25x 30x 35x 40x 45x 50x 55x EV/EBITDA Average Source: Bloomberg, Barclays Research Source: Bloomberg, Barclays Research FIGURE 3. One & Two Year Quarterly Comps (‘12-’22A) FIGURE 4. Unit Count & Growth (‘17A – ‘24E) (30%) (25%) (20%) (15%) (10%) (5%) - 5% 10% 15% 20% 25% 30% 35% 1-Year 2-Year 2% 3% 4% 5% 6% 7% 8% 9% 10% 1000 1500 2000 2500 3000 3500 4000 Absolute Units y-y Growth Source: Company Reports, Barclays Research Source: Company Reports, Barclays Research FIGURE 5. Chipotle Key Metrics Dashboard 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 January 1Q22 2Q22 July 3Q22 October 4Q22A January 1Q23 Guidance Comparable Sales Growth Chipotle system +8.3% +5.7% +17.2% (includes 1.5% headwind from winter weather in February) +31.2% +15.1% +15.2% ~5% +9.0% +10.1% MSD range +7.6% Expect to end in mid-single- digits, followed by re- acceleration +5.6% Low double digits High single digit Digital Sales Y-Y growth 202.5% 177.2% 133.9% 10.5% 8.6% 3.8% as % of sales 48.8% 49.0% 50.1% 48.5% 42.8% 41.6% 41.9% 39.0% 37.2% 37.4% order ahead / pick up ~50% ~50% 50%+ 50%+ 50%+ ~52% sub-80% delivery ~50% ~50% sub-50% sub-50% sub-50% ~48% low-20% Miscellaneous Sales Metrics rewards program membership ~17m ~19.5m 21m+ 23m+ 24.5m+ 26.5m+ ~28m 29m+ 30m 31.6m in-store ordering growth y- y 33.1% 35.9% 22.1% 20.0% Source: Company Reports, Barclays Research Barclays | Chipotle Mexican Grill, Inc. 8 February 2023 5 Guidance FIGURE 6. CMG 1Q23, 2023 and Long-Term Guidance 1Q23 Guidance 2023 Guidance Long-Term Guidance 2/7/2023 10/25/2022 2/7/2023 2/6/18 & 6/27/18 & 10/25/18 & 10/21/20 2/8/2022 Revenue Growth Confident in expanding AUV’s to prior $2.5m+ Expect to achieve AUVs “well beyond” $3m Comp Growth Based on January comp in low double digits, anticipate 1Q23 comp in high single digits; transaction trends turned positive entering 2023 and expected to be LSD for the quarter, while mix down 2-3% Expect comp to moderate due to lapping menu price increases in early 2Q23 and mid of 3Q23 Comp to benefit from 2-3 new menu items / year Unit Growth 255-285 new openings, +8-9% y-y; pipeline remains strong and as construction delays and equipment availability challenges ease, confident they can get to the top-end of the targeted 8-10% range Reiterated; with over 80% including Chipotlanes; new restaurant growth in Canada (~10), open a few locations in UK Confident in ultimately reaching 6,000+ US units; specific to 2021, “a very robust new unit pipeline, which under normal circumstances would lead to openings ~200 restaurants” annually Believe there can be 7,000+ North America units; “building a real estate pipeline that will allow us to accelerate unit growth to be in the range of 8-10% per year, with 80%+ of new units having a Chipotlane”; confidence stems from small-town locations that are delivering unit economics “at or better” than traditional locations Menu Pricing 9-10% range on net basis or ~11% gross Expect mid-single-digit, with 4Q23 at 0%, with current assumption for additional pricing in 2023 Cost of Sales Expect to be in the high 29% range, with mid-single-digit inflation due to higher prices for queso, salsa, spices, & oils Labor Expense Expect to improve slightly but remain in the mid 25% range, with mid-single-digit inflation due to seasonally higher employee taxes & elevated level due to resetting of wage caps Other Operating Expense Low 15% range Barclays | Chipotle Mexican Grill, Inc. 8 February 2023 6 1Q23 Guidance 2023 Guidance Long-Term Guidance 2/7/2023 10/25/2022 2/7/2023 2/6/18 & 6/27/18 & 10/25/18 & 10/21/20 2/8/2022 Restaurant Margin & Sensitivity Confident in restaurant margin returning to prior 25%+; need MSD transaction growth to offset MSD labor inflation; labor line would delever but other lines would lever; restaurant margin driven by AUV’s; ~21% at a $2.1m AUV, ~22% at a $2.2m AUV, etc. Advertising & Promo Expense Mid-3% range ~3% G&A Expense ~$155 in total; ~$121 in underlying G&A; ~$25m in stock-based comp; ~$7m related to employer taxes associated with shares that vest during the quarter; $2m for costs related to field leader conference in February Underlying G&A to increase each quarter, though 2Q23 slightly below 1Q23 Underlying (i.e. ex stock comp) in the 5.0-5.5% of sales range; Expect to leverage with increases in unit volumes D&A Expect to inch up slightly each quarter as they open more restaurants Expect to inch up slightly each quarter as they open more restaurants Tax Rate Effective full year tax rate at 25- 27% before discrete items 27-28% Balance Sheet / Liquidity Entered 1Q23 with $1.3b in cash, restricted cash & investments, with no debt along with a $500m untapped revolver Entered 1Q23 with $1.3b in cash, restricted cash & investments, with no debt along with a $500m untapped revolver Share Repurchase $413.9m available entering 1Q23 $413.9m available entering 1Q23 EPS Not provided Not provided Not provided Not provided Not provided Source: Company Reports Barclays | Chipotle Mexican Grill, Inc. 8 February 2023 7 Barclays | Chipotle Mexican Grill, Inc. 8 February 2023 8 Analyst(s) Certification(s): I, Jeffrey A. 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Below is the list of companies that constitute the “industry coverage universe”: U.S. Restaurants BJ’s Restaurants Inc (BJRI) Bloomin’ Brands, Inc. (BLMN) Brinker International (EAT) Chipotle Mexican Grill, Inc. (CMG) Darden Restaurants (DRI) Dine Brands Global (DIN) Domino’s Pizza (DPZ) Dutch Bros Inc. (BROS) First Watch Restaurant Group, Inc. 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Disclosure of other investment recommendations produced by Barclays Equity Research: Barclays Equity Research may have published other investment recommendations in respect of the same securities/instruments recommended in this research report during the preceding 12 months. To view all investment recommendations published by Barclays Equity Research in the preceding 12 months please refer to https://live.barcap.com/go/research/Recommendations. Legal entities involved in producing Barclays Research: Barclays Bank PLC (Barclays, UK) Barclays Capital Inc. (BCI, US) Barclays Bank Ireland PLC, Frankfurt Branch (BBI, Frankfurt) Barclays Bank Ireland PLC, Paris Branch (BBI, Paris) Barclays Bank Ireland PLC, Milan Branch (BBI, Milan) Barclays Securities Japan Limited (BSJL, Japan) Barclays Bank PLC, Hong Kong Branch (Barclays Bank, Hong Kong) Barclays Capital Canada Inc. (BCCI, Canada) Barclays Bank Mexico, S.A. (BBMX, Mexico) Barclays Capital Casa de Bolsa, S.A. de C.V. (BCCB, Mexico) Barclays Securities (India) Private Limited (BSIPL, India) Barclays Bank PLC, India Branch (Barclays Bank, India) Barclays Bank PLC, Singapore Branch (Barclays Bank, Singapore) Barclays Bank PLC, DIFC Branch (Barclays Bank, DIFC) Jack in the Box Inc. (JACK) McDonald’s Corp. (MCD) Performance Food Group Co. (PFGC) Restaurant Brands International (QSR) Shake Shack Inc. (SHAK) Starbucks Corp. (SBUX) SYSCO Corp. (SYY) Texas Roadhouse, Inc. (TXRH) The Cheesecake Factory (CAKE) The Wendy’s Company (WEN) US Foods Holdings Corp (USFD) Wingstop Inc. (WING) Yum! Brands Inc. (YUM) Barclays | Chipotle Mexican Grill, Inc. 8 February 2023 11 Chipotle Mexican Grill, Inc. (CMG / CMG) Stock Rating: EQUAL WEIGHT Industry View: NEUTRAL USD 1722.86 (07-Feb-2023) Rating and Price Target Chart - USD (as of 07-Feb-2023) Currency=USD Closing Price Target Price Jul-2020 Jan-2021 Jul-2021 Jan-2022 Jul-2022 Jan-2023 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Source: IDC, Barclays Research Link to Barclays Live for interactive charting Publication Date Closing Price* Rating Adjusted Price Target 05-Jan-2023 1376.05 1450.00 25-Oct-2022 1584.02 1510.00 20-Oct-2022 1527.21 1500.00 26-Jul-2022 1316.43 1400.00 09-Jun-2022 1373.35 1335.00 26-Apr-2022 1438.21 1585.00 08-Feb-2022 1460.35 1630.00 15-Dec-2021 1677.20 1845.00 21-Oct-2021 1841.14 1715.00 20-Jul-2021 1574.35 1600.00 21-Apr-2021 1507.62 1530.00 03-Feb-2021 1499.99 1450.00 06-Jan-2021 1343.41 1344.00 22-Oct-2020 1300.29 1100.00 19-Oct-2020 1335.59 1075.00 23-Jul-2020 1121.03 890.00 22-Apr-2020 882.26 800.00 On 07-Feb-2020, prior to any intra-day change that may have been published, the rating for this security was Equal Weight, and the adjusted price target was 855.00. Source: Bloomberg, Barclays Research Barclays | Chipotle Mexican Grill, Inc. 8 February 2023 12 CE: Barclays Bank PLC and/or an affiliate is a market-maker in equity securities issued by Chipotle Mexican Grill, Inc.. J: Barclays Bank PLC and/or an affiliate is a liquidity provider and/or trades regularly in the securities by Chipotle Mexican Grill, Inc. and/or in any related derivatives. K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation (including compensation for brokerage services, if applicable) from Chipotle Mexican Grill, Inc. within the past 12 months. N: Chipotle Mexican Grill, Inc. is, or during the past 12 months has been, a non-investment banking client (non-securities related services) of Barclays Bank PLC and/or an affiliate. Valuation Methodology: Our price target is $1,550, or ~19x our CY 2024 EBITDA forecast of ~$2.2B. CMG has historically traded within a 3-year EV/EBITDA range of 21-49x with an average of ~32x. Risks which May Impede the Achievement of the Barclays Research Valuation and Price Target: Competition, specifically related to price, service, location, personnel, and quality of food, is the most significant risk faced by companies in the restaurant industry. If there were a significant change in the competitive landscape from current levels, our earnings forecasts, stock rating, and price target would have to be reconsidered. Other risks that would require us to review our investment thesis are food safety, including the effects of food-borne illness; changes in economic, market, and other conditions; government regulation related to the restaurant industry; growth plans; international operations; disposition of restaurants; and fluctuations in interest rates, foreign currency exchange rates, and commodity prices. 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The information provided does not constitute a financial benchmark and should not be used as a submission or contribution of input data for the purposes of determining a financial benchmark. *This is the closing price referenced in the publication, which may not be the last available closing price at the time of publication. Historical stock prices and price targets may have been adjusted for stock splits and dividends. Barclays | Chipotle Mexican Grill, Inc. 8 February 2023 13 Third Party Distribution: Any views expressed in this communication are solely those of Barclays and have not been adopted or endorsed by any third party distributor. United Kingdom: This document is being distributed (1) only by or with the approval of an authorised person (Barclays Bank PLC) or (2) to, and is directed at (a) persons in the United Kingdom having professional experience in mat