Chipotle Mexican Grill (CMG) posted EBIT (earnings before interest and tax) of $60.03 million for 4Q17, which represents an EBIT margin of 5.4%.
The expansion was driven by lower food, beverage and packaging costs, other operating costs, and G&A (general and administrative) expenses. Food, beverage, and packaging costs declined from 35.3% of total revenue in 4Q16 to 34.2% due to an increase in menu prices, a fall in avocado prices, and better management of paper and packaging inventories. Other operating costs declined from 16.3% to 15.8% due to lower marketing and promotional expenses, which was partially offset by increased maintenance and repair expenditure. G&A expenses fell from 6.3% to 5.2%.
However, the increase in occupancy costs offset some of the expansion in EBIT margins. The occupancy cost increased from 7.4% in 4Q16 to 7.6% due to inflation from renewals and higher average rents from new restaurants. Despite wage inflation, the company’s labor costs remained flat at 27.5% due to improved labor efficiencies, lower insurance and benefit costs, and leverage from increased menu prices.
For 2018, analysts expect Chipotle to post an EBIT margin of 7.8%, compared to 6.7% in 2017. The expansion is expected to be driven by lower food, beverage and packaging costs due to increased menu prices, and lower G&A expenses.
Next in this series, we’ll look at Chipotle’s 4Q17 EPS.