COGS Driving Chipotle’s Total Expenses?

Chipotle Mexican Grill (NYSE: CMG) has its expenses largely clubbed under its cost of goods sold and G&A expenses, which together accounted for about 93.5% of the company’s total expenses in 2018. However, this is a reduction from 95.9% of total expenses that these two cost heads accounted for in 2016. Over the years, along with an increase in Revenue, Chipotle has successfully been able to decrease its Cost of Goods Sold (as percentage of Revenue). This helped the Net Income margin as it went up from 0.6% in 2016 to 3.6% in 2018. Trefis expects the margin to reach 6.9% in 2019.

You can view the Trefis interactive dashboard – Chipotle: Breakdown Of Total Expenses – to better understand how the company’s total expenses have moved over the years and what is causing this change. In addition, here is more Consumer Discretionary data.

Total Expenses:

• Chipotle’s total expenses have increased from $3.9 billion in 2016 to $4.7 billion in 2018, which is an increase of 20.5% over the years.
• Most of this increase was driven by cost of goods sold (COGS) and General, and administrative cost (G&A).

Following is how each expense head has moved over the years. For more details of each expense please visit our interactive Dashboard on Chipotle’s Total Expenses

• COGS, which contributes 84% to Chipotle’s total expenses (in 2018), includes cost of Food, Beverage, Packing, Labor, occupancy Costs and other operating costs. As the company has been more efficient operationally COGS as % of Revenue has declined over the years from 87.2% of Total revenue in 2016 to 81.3% of Total revenue in 2018.
• General and Administrative expenses, which contribute 9.6% to Chipotle’s total expenses (in 2018), includes advertising and marketing cost, selling and distribution expense, pre-opening charges, and other general expenses. General and Administrative expenses as % of Revenue has increased in 2018 as the company increases its marketing effort.
• Depreciation and Amortization expenses have increased over the last couple years both in absolute terms and as % of Revenue as the company continues to add new restaurants. The metric has increased over the years from 3.7% of Total revenue in 2016 to 4.2% of Total revenue in 2018.
• Other Expenses (net) includes Net Interest Expense and other non-operating expense (net of income). The metric is just -0.21% of Total Revenue in 2018.
• Income Tax expenses saw a dip in 2018 due to the fall in the statutory rate. In 2019 we expect the statutory rate to be constant but as Revenue is expected to see a rise we expect overall Income Tax to be around 3.5% of Revenue.

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