Chipotle 2012 Annual Report Download - page 12

Risks Related to our Growth Strategy and Future Expansion
Our sales and profit growth could be adversely affected if comparable restaurant sales increases are less
than we expect, and we may not successfully increase comparable restaurant sales or they may decrease.
While future sales growth will depend substantially on our opening new restaurants, changes in comparable
restaurant sales (which represent the change in period-over-period sales for restaurants beginning in their 13th
full month of operations) will also affect our sales growth and will continue to be a critical factor affecting profit
growth. This is because the profit margin on comparable restaurant sales is generally higher, as comparable
restaurant sales increases enable fixed costs to be spread over a higher sales base. Conversely, declines in
comparable restaurant sales can have a significant adverse effect on profitability due to the loss of the positive
impact on profit margins associated with comparable restaurant sales increases. We expect comparable restaurant
sales increases in 2013 to be flat or low single digit increases due to difficult comparisons and ongoing consumer
and economic uncertainty.
Our ability to increase comparable restaurant sales depends on many factors, including:
• changes in consumer preferences and discretionary spending, including weaker consumer spending
during periods of economic difficulty or uncertainty;
• consumer understanding and acceptance of the Chipotle experience and perceptions of the Chipotle
brand;
• our ability to increase menu prices without adversely impacting transaction counts to such a degree that
the impact from lower transactions equals or exceeds the benefit of the menu price increase;
• any “trade down” by customers or other reduction in average check in response to price increases,
which could reduce or eliminate the benefit of the price increase on comparable restaurant sales;
• competition, either from our competitors in the restaurant industry, or from our own restaurants in the
event customers who frequent one of our restaurants begin to visit one of our new restaurants instead;
• executing our strategies effectively, including our development strategy, our marketing and branding
strategies, our initiatives to increase the speed at which our crew serves each customer, expanded use
of fax service lines and online and other electronic ordering, and introductions of catering options and
new menu items, each of which we may not be able to accomplish or which may not have the impact
we expect;
• initial sales performance of new restaurants, which is subject to the risks described below under “Our
new restaurants, once opened, may not be profitable, and may adversely impact the sales of our
existing restaurants”;
• weather, road construction and other factors limiting access to our restaurants; and
• changes in government regulation.
As a result of these factors it is possible that we will not achieve our targeted comparable restaurant sales or
that the change in comparable restaurant sales could be negative. A number of these factors are beyond our
control, and therefore we cannot assure that we will be able to sustain comparable restaurant sales increases.
Beginning in the second quarter of 2012 our comparable restaurant sales increases decelerated, which we
attribute in part to decreased consumer spending and economic uncertainty, and the price of our stock declined
significantly in the wake of this deceleration, including a decline of nearly 22% on the trading day following our
second quarter 2012 earnings release. Any future deceleration in or failure to meet market expectations for our
comparable restaurant sales increases would likely result in another decline in the price of our common stock.
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Annual Report