Chipotle 2005 Annual Report Download - page 35

Sourcing
Our focus on ‘‘food with integrity’’ has constrained our sourcing flexibility to some extent. We’ve
attempted to be careful in expanding that initiative so that we don’t outpace available supply. Some of
our ingredients come from small farms that have facilities that must comply with federal or industry
standards for classification as natural, and they may face economic or other limits on their growth. We
believe that consumers’ increasing concern about where and how food is raised, environmental
management and animal husbandry will foster demand for these foods, which will in turn attract the
interest and capital investment of larger farms and suppliers. That said, we understand that we’ll
continue to be at the forefront of this trend and must balance our interest in advancing ‘‘food with
integrity’’ with our desire to provide great food at reasonable prices. If our focus resonates with
consumers, it should improve our sourcing flexibility, although we’d expect that these kinds of
ingredients and other raw materials will remain more expensive than commodity-priced equivalents for
some time to come.
How We Did: Results of Operations
As our business grows, as we open more stores and hire more people, our food, beverage,
packaging costs, labor and other restaurant operating costs increase. Our operating results for 2005,
2004 and 2003 are expressed as a percentage of total revenue below:
Year Ended December 31,
2005 2004 2003
Restaurant sales ................................. 99.6% 99.5% 99.5%
Franchise royalties and fees ......................... 0.4 0.5 0.5
Total revenue .................................. 100.0 100.0 100.0
Food, beverage and packaging costs ................... 32.2 32.7 33.3
Labor costs ..................................... 28.5 29.6 29.8
Occupancy costs ................................. 7.6 7.7 8.1
Other operating costs ............................. 13.2 13.7 13.8
General and administrative expenses ................... 8.3 9.5 10.8
Depreciation and amortization ....................... 4.5 4.6 4.8
Pre-opening costs ................................ 0.3 0.5 0.5
Loss on disposal of assets .......................... 0.5 0.4 1.4
Total costs and expenses .......................... 95.1 98.7 102.5
Income (loss) from operations ....................... 4.9 1.3 (2.5)
Interest income .................................. — — 0.1
Interest expense ................................. (0.1) — —
Income (loss) before income taxes .................... 4.8 1.3 (2.4)
Benefit for income taxes ........................... 1.2 — —
Net income (loss) ................................ 6.0% 1.3% (2.4)%
29