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SEC Filings

S-1/A
CHIPOTLE MEXICAN GRILL INC filed this Form S-1/A on 12/05/2005
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion together with "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. The discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from expectations. Factors that might cause such differences include those described under "Risk Factors," "Special Note Regarding Forward-Looking Statements" and elsewhere in this prospectus.

Overview

        Our revenue was $470.7 million in 2004, a 130% increase from 2002 and a 49% increase from 2003, driven by new store openings and increased average store sales. During that three-year period, we opened a total of 237 stores. Increases in average store sales have occurred partly because the time it takes for our new stores to ramp up has consistently shortened as we've grown and customers have learned about our brand, enabling new stores to open with higher average store sales. We've also historically had strong growth in comp store sales, due mainly to an increase in the number of transactions processed at our registers.

        As our revenue has increased, our expenses have increased as well. The most important factor affecting our food, beverage and packaging costs and other restaurant operating costs is the price of ingredients critical to our menu, especially beef, chicken, cheese, avocados and beans. These five ingredients have historically accounted for a substantial portion of our food, beverage and packaging costs. Other important ingredients that we use include tomatoes and pork. The absolute increase in our expenses mostly reflected our growth, but other factors also contributed, such as changes in commodity costs driven by export / import restrictions affecting meat supplies and weather conditions that affected growing seasons and drove some prices higher.

        Since we became a subsidiary of McDonald's and began substantially expanding our operations in 1998, McDonald's has provided a significant portion of the capital needed to operate our business and open new stores. Generally McDonald's has done this through direct equity investments, although it has also in some cases provided us with short-term borrowings that we repaid through private placements of our equity securities. After we become a public company, we expect that McDonald's will stop financing us, and we'll fund our growth with cash flow from operations and other sources. We also currently benefit from our McDonald's relationship in other ways, such as pricing benefits for some products and services. If McDonald's ownership interest declines significantly, we'll lose an increasing amount of these benefits. That will further increase our costs significantly. See "Risk Factors—Risks Related to Our Business and Industry—As we increase our independence from McDonald's, we may face difficulties replacing services it currently provides to us and entering into new or modified arrangements with existing or new suppliers or service providers."

How We Make Money: Restaurant Sales

        Restaurant sales represent sales of food and drinks in stores operated by Chipotle, and does not include revenue from stores operated by franchisees (which represented less than 1% of our revenue in each of the last three years). Restaurant sales increased considerably in the last three years, from $203.9 million in 2002, to $314.0 million in 2003 and $468.6 million in 2004. For the first nine months of 2005, they were $452.6 million, 32.4% higher than the same period in 2004. Several factors affect our restaurant sales in any period, including mainly the number of stores in operation and average store sales. Various factors influence sales at a given store or group of stores, including increased customer recognition of our brand, our operational effectiveness, pricing, marketing and promotional efforts, local competition and trade area demographics.

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