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COVID-19 Initial Impact Report​

Chipotle Mexican Grill Inc.



Analyst Note
Updated Nov 12, 2020

COVID-19 Net Benefit Score: -1.46

Financial Stress Test Ratings:

Free Cash Flow: D-

Interest Coverage: A


Chipotle is a chain of well over 2,000 fast casual restaurants specializing in tacos and Mission-style burritos that are located primarily in the U.S. and also Canada and Europe (namely the U.K., Germany and France). Founded in 1993 by Steve Ells, he was a line cook in San Francisco and it was there that he observed the popularity of taco stands and burritos in the Mission District (hence the name Mission-style). The first restaurant opened near the campus of the University of Denver and a further 15 more opened in that state within 5 years before eventually expanding across the country, aided in no small part by McDonald’s making an initial minority investment in the Company in 1998 (and by 2005 the burger giant’s investment had grown to 90%, basically meaning that it owned Chipotle). Yet, just one year later in 2006, McDonald’s decided to get out of the Chipotle business and sell all its shares of Chipotle back to the chain for reasons including wanting to focus on its core business. Since then Chipotle has had to endure various challenges such as facing strong competition from other fast casual chains trying to replicate the Chipotle model, but more harmfully dealing with the fallout of data breaches in which customer credit card payment information was stolen, as well as multiple issues with food safety that involved E. Coli, norovirus, salmonella, and even hepatitis outbreaks. However, despite these tribulations, today Chipotle ranks 12th on the Restaurant Business and Technomic report (which McDonalds tops), only falling behind Taco Bell in the Mexican food category.

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Chipotle has the Pandemic all Wrapped Up

Chipotle Mexican Grill Inc. (“Chipotle” or “the Company”) restaurants traditionally have aimed to provide an atmosphere of a casual, sit-down dining experience, and that’s something that’s been greatly affected by the Covid-19 pandemic where dining rooms across the globe have been forced to close and only reopen again but under tighter government controls and restrictions. However, Chipotle has invested digitally over the last several years, allowing it to pivot its business to greater effect, namely in taking advantage of the increasing WFH/SAH trends, especially when their typical target demographic of 18 – 29 year olds are arguably the most tech-savvy and online-oriented, so turning to technology first and foremost in order to satisfy their hunger pangs with popular, cheap and quick food offerings that Chipotle provides in abundance.

The Company’s balance sheet is solid, with several ratios pointing to its ability to service debt obligations quite comfortably, even though it has little to no debt to even speak of. This bodes well for Chipotle in its ability to research and develop other avenues that aim to regain its lost revenue but without compromising on paying for key operating expenses along the way. Ultimately, Chipotle is able to service its hungry consumers now and into the future, embracing the ‘new normal’ a lot better than many of its food service competitors and peers.


➤ Key Factors: Chipotle’s digital presence is strong and is looking to grow ever stronger, which marks it out as a minor example of a bricks-and-mortar restaurant chain that has successfully navigated the varying impacts to its dining-in locations via closure and/or restricted access. Yet being in the food service sector means unavoidable additional costs associated with increased health and safety regulations.


➤ Financial Stress Test: The Company is in a reasonably good position financially, having focused on reducing non-essential controllable costs and judiciously spending on return generating projects to preserve its liquidity (having added hundreds of millions of dollars worth of liquidity from tax deferrals in the first quarter of 2020 as well as untapped credit facility in the second quarter).

Chipotle Pandemic Impact Factors Review

NXTanalytic considers 7 factors and 30 specific indications that we believe will impact companies during and after the Covid-19 pandemic. These factors include: Online Business Profiles; Dealing with Consumers In Person; Effect of Increased Health Regulations; Supply Chain Risks; Changes and Disruption in Tourism, Travel and Hospitality; Increased Demand for Health Care and Health Safety; WFH and SAH.

COVID-19 Factor Analysis




Total Regression




Risk Rate



Benefit Rate


Pandemic Impact Factor Analysis

Chipotle is traditionally not an online company but has nonetheless succeeded in being profitable via its digital presence, such that in continuing to invest in technology the Company can only benefit further from the ever-growing WFH/SAH trends that prefer the fast-casual (yet still quality) food options that Chipotle offers (aided by establishing key partnerships with companies such as Grubhub and Uber Eats to help deliver its product to more and more people).


The Company is also finding new ways to connect with customers through initiatives like its rewards programs and modernizing drive-thru lanes using mobile order service (called “Chipotlanes”), thus growing its bottom line with lean margins and well-run operations in the process.

Relevant Factors

➤ In Person Businesses, Crowds & Groups: Chipotle has a significant number of brick-and-mortar assets spread throughout North America and Western Europe and so the pandemic has inevitably impacted its operating expenses, notably in the form of closure costs. Despite advancements made to their online presence it is still going to have to work hard and prove itself beyond its sit-down and dine-out traditional business model label. Certainly, it will be a long time before revenues rebound to levels they once were (especially as the expected 2nd and even 3rd pandemic waves serve to repeatedly disrupt restaurant operations overall).


➤ Increased Health Regulations: With radical changes happening and continuing to happen in the food industry in order to protect the integrity of the supply in response to increasing health safety regulations the costs involved will have to be carried by companies like Chipotle, which will undoubtedly disrupt its cash flows by way of suppressing them. Also, until a vaccine is broadly distributed and global restrictions are greatly eased, the industry as a whole will not be able to return to full normal, and that particular time frame is going to be counted in terms of years, not months.


➤ Online Presence: Chipotle has made great strides in developing its digital business (way before the pandemic first hit) and continuing to grow it (for instance, it announced that its Complete Customization Chipotle app feature will allow users to make any ingredient light, standard or extra), and with the added benefits of having its targeted Gen Y and Z generation consumers be the ones leading the way in the delivery marketplace, plus, being a QSR in terms of providing cheap and cheerful menu items that this demographic likes and demands, it all equates to an uptick in digital sales.


➤ Supply Chain: The Company’s restaurants are found both nationally and internationally, namely the U.S., Canada, U.K., Germany and France. Although all of these countries have relatively strong healthcare systems and high food standards, nonetheless there is added global supply chain risk pressure with the further possibility of needing to reorganize supply chains at some point, thus increasing operating costs. Adding more complexity is the Company’s achievement of moving to only non-GMO ingredients for its U.S. restaurants; while a ‘good thing’ from a ESG perspective, it still serves to potentially create more roadblocks (for instance, there were supply problems in early 2020 when a pork supplier wasn’t complying with its animal welfare standards).

Pandemic Factor Screening and Scoring

NXTanalytic research is based on the thesis that consumer and business behaviour and practices will be changed significantly as a result of the pandemic and its aftermath. We have developed a group of seven major factors that we believe indicate whether a company has an increased risk or reward profile.


We approach our analysis in the context of three time periods:


1. Near term effect of the pandemic

2. A Resulting Recession/Bear Market

3. Longer Term Psychological Effects: Changes in consumer and business behavior and practices as a result of the pandemic.

Scoring and Rating for Factor Exposure

We objectively score businesses based on positive and negative factors and how significantly they may be affected by each applicable factor. Our model generates a total regression score by generating a coefficient of the risk and reward scores given to the company by an experienced analyst.


We generate a Total Regression Score, a Covid-19 Risk Rate and a Covid-19 Benefit Rate.

➤ Online Businesses: Due to social distancing and lockdowns and Work From Home, businesses that operate online, or produce the tools for companies to adapt to more demand for online services should experience a surge in demand due to the coronavirus, Covid-19 outbreak. Consumers will more rapidly move online across many categories. Trends already in place will accelerate. Companies whose businesses are online or are rapidly moving online are better prepared to serve the market while those based on bricks and mortar are more likely to be challenged. 

➤ Dealing with Consumers In Person: Businesses that deal with large numbers of people in close proximity to each other will be negatively affected long term. Regardless of how long the pandemic will continue, its psychological, economic and financial effects, have inevitably altered the perception of risk from exposure to large group settings. Consumers are going to avoid gathering in large groups – particularly individuals over 60. We believe consumers will be fearful of the virus and we are assuming that even when the rate of infection has slowed through social distancing and other “curve flattening” efforts, the virus will be a threat for more than a year or until widespread vaccination has taken place. Even after vaccination efforts minimize the immediate threat consumer behavior will be changed long term and concern over future pandemics will be heightened for many years.

➤ Increased Health Regulations and Restrictions: Restrictions on travel and trade as a result of the pandemic are likely to remain in place for months or years and public health regulations will become stricter and more widespread. It’s highly probable that enhanced screening, permit and visa requirements, reductions in ease of travel and transport of goods will be impacted or implemented. Governments, in an effort to restore consumer confidence, will enforce new regulations designed to protect consumers from the current pandemic and future pandemics will overshoot and result in impairing businesses who rely on international supply chains, movement of large numbers of people, or are otherwise perceived as presenting a high risk of infection to consumers.

➤ Supply Chain and Cross Border Risks: The fact the virus can remain alive for many days on inanimate objects and surfaces is a good example of a pending supply chain issue. Perishable product supply chains designed to move items from producer to consumer in days could be significantly impacted. Overall we believe that businesses that ship goods internationally or rely on global supply chains are at risk of business interruption as the pandemic circulates globally. Further, companies with long international supply chains in countries with poor healthcare systems will likely be pressured to replace suppliers and build new supply chains closer to home markets in order to avoid new border restrictions and the potential of localized lockdowns put in place to handle future outbreaks.

➤ Travel, Tourism, Hospitality and Entertainment: The most obviously impacted sectors are businesses on the front line of day to day consumer interaction. Restaurants, coffee shops, event venues, bars, pubs, hotels, resorts, etc could experience a prolonged or permanent change in consumer demand or be required to spend significantly on technologies and services designed to mitigate consumer concerns over health risks. Consumers will likely continue to avoid contact with crowds or reduce visits to brick and mortar hospitality and entertainment focused businesses. Companies in these sectors will need to change business practices and deploy technologies and systems designed to protect customers – many of these do not exist yet or are expensive.

➤ Work From Home and Stay At Home: The most obvious winners are companies who enable consumer cocooning or Work From Home (WFH) and Stay at Home (SAH) behaviour. As these social and business trends become entrenched, demand for a range of new solutions for managing a distributed workforce will provide existing platform companies and new entrants with opportunities to grow market share and fill demand. Companies not offering WFH opportunities will suffer, compromising their ability to attract the best employees. The delivery economy, pioneered by the likes of and any company that focuses on in home exercise, consumer electronics, home entertainment and ecommerce are well positioned to profit from a long term trend towards SAH behaviour. The trend towards non-brick and mortar retail, will accelerate.

➤ Health, Medicine & Safety: Companies focused on the health and safety of consumers and crowds will be positioned to assist businesses who will require new and robust health security solutions in order to attract customers. Heightened focus on health and virus risks will likely spur expenditures on antiviral medications and treatments, vaccines, screening systems and devices, rapid testing, containment and quarantine solutions and services, and telemedicine. Demand for antimicrobial or antiviral materials or other “bio tech materials” and products is likely to be strong in a post pandemic world.

Financial Stress Test


Low Quality
High Risk

Free Cash Flow: C


Low Quality
High Risk

Interest Coverage: C+

Financial Ratios


Dec. 31st

2020 Q2



3.15 X



0.64 X



0.56 X



1.76 X


7.93 X


268.29 X

NXTanalytic reviews a series of financial measures designed to provide a snapshot of the company’s financial health and ability to deal with the challenges or opportunities created by the pandemic, the recession and post pandemic economic environment.

EV/FCF Ratio (when CFFO is 90% of actual): D-
EV/FCF Ratio (when CFFO is 80% of actual): D-
EV/FCF Ratio (when CFFO is 70% of actual): D-

NXTanalytic completes a simple cash flow stress test by reducing Cash Flow From Operations by three levels: a 10%, 20% and 30% reduction. We then rate the EV/FCF ratio. We use the EV/FCF ratio to assess the total valuation of the company in relation to its ability to generate cash flows as a measure of a company’s ability to service its debts from cash flow.

Our opinion

Chipotle entered the first quarter of 2020 in a strong financial position (with $909.2 million in cash, restricted cash, and short-term investments as of March 31, 2020), with other notable highlights including revenue increasing to $1.4 billion (an increase of 7.8% compared with the same quarter in 2019), driven by a 3.3% increase in comparable restaurant sales, and digital sales growing 80.8% year over year to $371.8 million (the Company’s highest ever quarterly level), representing 26.3% of sales. This indicates Chipotle had effectively moved swiftly towards driving investments into digital and delivery, designed to reduce friction while increasing convenient access. This included reprioritizing marketing efforts by offering free delivery from March 15 til at least early May, shifting media spend from live sports to more online and streaming platforms and announcing a national delivery partnership with Uber Eats. As a result, digital sales for the month of March grew 102.6% year over year and represented 37.6% of sales.


Into the second quarter and Chipotle continued to maintain its strong financial position (with an increased $934.6 million in cash, short-term investments and restricted cash, along with a $600 million untapped credit facility). Digital sales continued to grow 216.3% year over year to $829.3 million (breaking the Company’s highest ever quarterly level from the previous quarter), representing 60.7% of sales. Chipotle stated that it had raised its digital awareness further via advertising, new delivery partnerships with Uber Eats and Grubhub, as well as expanding its digital capabilities into Canada to attract new customers. Notably, partnering with all the major third-party delivery aggregators had led to an increase in orders, a reduction in delivery time and cancellations and an improvement in overall customer ratings. While its revenue remained at $1.4 billion (though was a decrease of 4.8% compared to the same quarter of 2019 and included a decline of 9.8% in comparable restaurant sales), cadence of monthly comparable restaurant sales during the quarter had markedly improved month-to-month (i.e. April at -24.4%, May at -7.0% and June at +2.0%). Also, comparable restaurant sales in July had continued to improve and were up 6.4% month to date including about a 1.4% positive impact from the July 4th weekend and about a 2.7% negative impact due to under-performing restaurants in the Northeast and international markets, as well as restaurant closures due to Covid-19.


In having reasonable enough financials overall, Chipotle is worthy of investment interest but with the caveat that its current stock price is well over 2.5 times that of its mid-March pandemic low, meaning there is a need to question its valuation. Furthermore, as of mid-September, shares were up 53% year to date, extending the rally that has seen the stock gain over 300% in the past three years. The trailing price-to-earnings ratio was also a very high 141, which would be considered excessive by most traditional measures. However, that premium also shows great confidence in the company’s future, of there being confidence in building new locations, of developing new order fulfillment methods and in finding new ways to connect with diners. In attesting that it has enough cash to sustain itself if the recovery takes longer than expected, making additional adjustments as needed, in the long-term Chipotle is indicative of a relatively safe bet of an investment despite the somewhat volatile nature of the industry it operates in.

Stress Test Highlights

➤ Debt-to-Assets: Chipotle has a good debt-to-assets ratio at 0.56 X to show it has a solid balance sheet along with the rest of its leverage ratios at suitably low values (arguably, the debt-to-equity ratio at 1.76 X is suggestive of the Company being slightly more leveraged by debt than is ideal).

➤ Interest Coverage: An interest coverage ratio at 7.93 X translates to the Company having very stable revenues from which it can comfortably continue to pay its interest expenses on outstanding debt.

➤ EV/FCF: Chipotle has a very high Enterprise Value-to-Free Cash Flow ratio at 268.29 X, strongly suggesting it is a company that is overvalued (and its current share price is reflective of the stock not being at any discernible discount). Also, a theoretical decrease in the Company’s Cash Flow From Operations (CFFO), from actual down to 70% of actual, doesn’t change/worsen the D- grading, so while still ‘poor’, nonetheless, the Company expects to generate positive cash flow for the rest of the year based on the trend of comparable restaurant sales continuing to improve.

Financial Stress Test Analysis

NXTanalytic completes a financial analysis of each company using data taken from the most recently audited financial statements. Our goal is to provide a snapshot of a company’s financial condition and ability to survive a prolonged period of reduced growth, and/or finance growth or restructuring to take advantage of new opportunities.

Cash Flows as a Focus of Screening

Debt Servicing

➤ Interest Coverage Ratio = EBIT / Interest Expense: A powerful measurement of the ‘survivability’ of a corporation. It reflects the ability of a company to pay interest on the outstanding debt and is thus an important assessment of short-term solvency. If the ratio is underneath 1.0 X, this means that the company cannot currently cover interest charges on its debt from current operational income. This could mean that the company is funding itself through the sale of assets or further financing; which are unsustainable. The higher the ratio, the higher probability to survive in the future financial hardship.

Free Cash Flow Valuation

➤ Interest Coverage Ratio = EBIT / Interest Expense: A powerful measurement of the ‘survivability’ of a corporation. It reflects the ability of a company to pay interest on its outstanding debt and is thus an important assessment of short-term solvency. If the ratio is underneath 1.0 X, it indicates the company cannot currently cover interest charges on its debt from operational income. This could mean that the company is funding itself through the sale of assets or further financing; which are unsustainable measures. The higher the ratio, the higher the company’s ability to survive financial hardship.

➤ EV/FCF Ratio = Enterprise Value / Free Cash Flow: Based on our debt servicing thesis we primarily value companies based on their cash flows. We rely on the EV/FCF ratio to assess the total valuation of the company in relation to its ability to generate cash flows. Enterprise Value is the value of the entire company, both its debt and traded equity. When this is divided by its Free Cash Flow we see how much we are paying to buy that cash flow. The lower the ratio the cheaper it is to “buy” the cash flows of the company.

Leverage Ratios

Debt ratios are classic balance sheet health measuring tools used to indicate potential risks to future financing ability (ie. violating debt covenants) or as a barometer of the defensive position of the company if cash flows are ever an issue. They are long-term solvency metrics and reflect the degree to which the company is financing its operation through debt versus equity. If a company has poor leverage ratios (too much debt), it might need to aggressively finance its growth through debt and as a result require more and more cash flow from operations to adequately service its debt. Our view is that companies with less debt are more likely to be able to withstand challenges or fund opportunities created by the pandemic.

➤ Financial Leverage Ratio = Total Debt / Total Equity: The Financial Leverage Ratio is a measure of the degree to which a company is financing its operations through debt. More specifically, it reflects the ability of shareholder equity to cover all outstanding debts in the event of a business downturn.

➤ Debt-to-Capital Ratio = Total Debt / (Total Debt + Total Shareholder’s Equity): The Debt-to-Capital ratio measures the amount of financial leverage in a company. This tells us whether a company is prone to using debt financing or equity financing. A company with a high Debt-to-Capital ratio, compared to a general or industry average, may be impared due to the cost of servicing debt and therefore increasing its default risk.

➤ Debt-to-Equity Ratio = Total Debt / Total Shareholder’s Equity: A high Debt-to-Equity ratio generally indicates that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of additional interest expense. If the company’s interest expense grows too high, it may increase the company’s chances of a default or bankruptcy.

➤ Debt-to-Assets Ratio = Total Debt / Total Assets: The Debt-to-Assets ratio shows the degree to which a company has used debt to finance its assets. This ratio can be used to evaluate whether a company has enough assets to meet its debt obligations. A ratio greater than 1 indicates that the entire company’s assets are worth less than its debt.


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