# How Chipotle makes money

CXProWealth Business Lens · Chipotle (CMG) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-10-29 with the SEC (accession 0001058090-26-000104): https://www.sec.gov/Archives/edgar/data/1058090/000105809026000104/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $3.3B (+14.5% on the year)
- Operating income: $452.0M (operating margin 13.7%)
- Net income: $339.9M (net margin 10.3%)
- Gross margin: not reported (the company reports expenses by nature: no cost of revenue or gross profit line exists)
- Free cash flow: $347.1M (10.5% of revenue)
- Cash conversion (operating cash flow / net income): 1.74x
- Capital expenditure: 7.4% of revenue

## Where the money goes (Q3 FY2026)

- Food and beverage revenue → Total revenue: $3.3B
- Delivery service revenue → Total revenue: $15.2M
- Total revenue → Total operating expenses: $2.8B
- Total operating expenses → Food, beverage and packaging: $972.4M
- Total operating expenses → Labor: $847.5M
- Total operating expenses → Occupancy: $179.4M
- Total operating expenses → Other operating costs: $525.7M
- Total operating expenses → General and administrative expenses: $185.2M
- Total operating expenses → Depreciation and amortization: $102.6M
- Total operating expenses → Pre-opening costs: $15.1M
- Total operating expenses → Impairment, closure costs, and asset disposals: $13.3M
- Total revenue → Income from operations: $452.0M
- Income from operations → Income before income taxes: $452.0M
- Interest and other income, net → Income before income taxes: $5.2M
- Income before income taxes → Provision for income taxes: $117.3M
- Income before income taxes → Net income: $339.9M

## Where the revenue comes from

### Products and services (CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME)

| Member | Value | Share |
|---|---:|---:|
| Food and beverage revenue | $3.3B | 99.5% |
| Delivery service revenue | $15.2M | 0.5% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Total revenue | $3.3B | 100% |
|   Food and beverage revenue | $3.3B | 99.5% |
|   Delivery service revenue | $15.2M | 0.5% |
| Food, beverage and packaging | $972.4M | 29.5% |
| Labor | $847.5M | 25.7% |
| Occupancy | $179.4M | 5.4% |
| Other operating costs | $525.7M | 16.0% |
| General and administrative expenses | $185.2M | 5.6% |
| Depreciation and amortization | $102.6M | 3.1% |
| Pre-opening costs | $15.1M | 0.5% |
| Impairment, closure costs, and asset disposals | (-$13.3M) | 0.4% |
| **Total operating expenses** | $2.8B | 86.3% |
| **Income from operations** | $452.0M | 13.7% |
| Interest and other income, net | $5.2M | 0.2% |
| **Income before income taxes** | $457.1M | 13.9% |
| Provision for income taxes | $117.3M | 3.6% |
| **Net income** | $339.9M | 10.3% |
| Basic (in usd per share) | $0 | 0.0% |
| Diluted (in usd per share) | $0 | 0.0% |
| Basic (in shares) | 1,265,427,000 |  |
| Diluted (in shares) | 1,267,703,000 |  |
| Foreign currency translation adjustments | -$78.0K | 0.0% |
| **Comprehensive income** | $339.8M | 10.3% |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2008 | — | $124.0M | $78.2M | $198.5M | $152.1M | $46.4M |
| FY2009 | — | $203.7M | $126.8M | $260.7M | $117.2M | $143.5M |
| FY2010 | — | $287.8M | $179.0M | $289.2M | $113.2M | $176.0M |
| FY2011 | — | $350.6M | $214.9M | $411.1M | $151.1M | $259.9M |
| FY2012 | — | $455.9M | $278.0M | $420.0M | $197.0M | $222.9M |
| FY2013 | — | $532.7M | $327.4M | $528.8M | $199.9M | $328.9M |
| FY2014 | — | $710.8M | $445.4M | $682.1M | $252.6M | $429.5M |
| FY2015 | — | $763.6M | $475.6M | $683.3M | $257.4M | $425.9M |
| FY2016 | $3.9B | $34.6M | $22.9M | $355.2M | $258.8M | $96.3M |
| FY2017 | $4.5B | $270.8M | $176.3M | $468.2M | $216.8M | $251.4M |
| FY2018 | $4.9B | $258.4M | $176.6M | $621.6M | $287.4M | $334.2M |
| FY2019 | $5.6B | $444.0M | $350.2M | $721.6M | $333.9M | $387.7M |
| FY2020 | $6.0B | $290.2M | $355.8M | $663.8M | $373.4M | $290.5M |
| FY2021 | $7.5B | $804.9M | $653.0M | $1.3B | $442.5M | $839.6M |
| FY2022 | $8.6B | $1.2B | $899.1M | $1.3B | $479.2M | $844.0M |
| FY2023 | $9.9B | $1.6B | $1.2B | $1.8B | $560.7M | $1.2B |
| FY2024 | $11.3B | $1.9B | $1.5B | $2.1B | $593.6M | $1.5B |
| FY2025 | $11.9B | $1.9B | $1.5B | $2.1B | $666.3M | $1.4B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +5.4% (year before +14.6%): slowing
- Operating income: +1.0% (year before +23.0%): slowing
- Net income: +0.1% (year before +24.9%): slowing
- Free cash flow: -4.2% (year before +23.6%): slowing

## Operating figures stated in the filing

- Company-owned restaurants: 4,267 restaurants (as of 2026-09-30). "As of September 30, 2026, we owned 4,267 restaurants, including 4,146 Chipotle restaurants within the United States and 121 international Chipotle restaurants." (Item 1. FINANCIAL STATEMENTS)
- Company-owned restaurants: 3,916 restaurants (as of 2025-09-30). "Total at end of period 4,267 3,916 4,267 3,916" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- U.S. restaurants: 4,146 restaurants (as of 2026-09-30). "As of September 30, 2026, we owned 4,146 Chipotle restaurants throughout the United States and 121 international Chipotle restaurants." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- International company-owned restaurants: 121 restaurants (as of 2026-09-30). "As of September 30, 2026, we owned 4,146 Chipotle restaurants throughout the United States and 121 international Chipotle restaurants." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Partner-operated restaurants: 20 restaurants (as of 2026-09-30). "Additionally, we had 20 international partner-operated restaurants." (Item 1. FINANCIAL STATEMENTS)
- Partner-operated restaurants: 7 restaurants (as of 2025-09-30). "Total at end of period 20 7 20 7" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Comparable restaurant sales growth: 2.1% (as of 2026-09-30). "Comparable restaurant sales increased 2.1% for the three months ended September 30, 2026." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Comparable restaurant sales growth: 0.3% (as of 2025-09-30). "Comparable restaurant sales increase/(decrease) 2.1% 0.3% 1.6 % (1.4 %)" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Average check growth: 1.3% (as of 2026-09-30). "The increase is attributable to a 1.3% increase in average check and a 0.8% increase in transactions." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Comparable transactions growth: 0.8% (as of 2026-09-30). "The increase is attributable to a 1.3% increase in average check and a 0.8% increase in transactions." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Digital sales share of food and beverage revenue: 38.8% (as of 2026-09-30). "Digital sales represented 38.8% of total food and beverage revenue for the three months ended September 30, 2026, an increase from 36.7% for the three months ended September 30, 2025." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Digital sales share of food and beverage revenue: 36.7% (as of 2025-09-30). "Digital sales represented 38.8% of total food and beverage revenue for the three months ended September 30, 2026, an increase from 36.7% for the three months ended September 30, 2025." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Company-owned restaurant openings in the quarter: 84 restaurants (as of 2026-09-30). "During the three months ended September 30, 2026, we opened 84 company-owned restaurants, which included 53 restaurants with a Chipotlane." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Openings with a Chipotlane in the quarter: 53 restaurants (as of 2026-09-30). "During the three months ended September 30, 2026, we opened 84 company-owned restaurants, which included 53 restaurants with a Chipotlane." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)

## Key insights

### Restaurant overheads, not food, cut the margin

Food costs fell 0.52 points as a share of revenue, while other operating costs rose 0.97 and labor 0.54, taking the operating margin to 13.72%.

Total operating expenses rose 12.47% against revenue growth of 9.65%, reaching 86.28% of revenue. Food, beverage and packaging was the exception, down 0.52 points to 29.53% of revenue. The filing credits menu price increases, tariff relief and a favorable limited-time offer mix, partly offset by inflation primarily from beef and freight and by higher protein usage. _(from the filing)_
The rise sat in costs a restaurant carries whatever it sells. Other operating costs grew 16.72% to 15.96% of revenue, led by marketing and promotional activities, then delivery, maintenance and utilities. Labor grew 12.0% to 25.74% of revenue; the filing names lower average restaurant sales volumes, wage inflation and performance bonuses, and extra restaurant labor including for promotional activity. Occupancy grew 13.32%. _(from the filing)_
Other operating costs alone account for 0.97 of the 2.16-point fall in the operating margin, 44.9% of it. Income from operations fell 5.28% to $452.0M from $477.2M, even though total revenue grew to $3.29B from $3.00B. _(from the filing)_
Analysis: comparable restaurant sales rose 2.1%, better than 0.3% a year earlier, but not by enough to spread costs that do not shrink when a restaurant sells less. The margin depends on sales per restaurant, and part of this quarter's extra spending went on the promotion meant to raise them. _(analysis)_

### Net income fell twice as fast as operating profit

Operating income fell 5.28%, but lower interest income and a higher tax rate turned that into an 11.05% fall in net income.

Interest and other income fell 73.92% to $5.2M from $19.8M, which the filing attributes to lower balances of interest-bearing securities. As a result, income before income taxes fell 8.02%, more than the 5.28% fall in income from operations. _(from the filing)_
The tax provision rose 2.08% to $117.3M even as pre-tax income fell, an effective rate of 25.65% against 23.11% a year earlier. The filing attributes the increase mainly to higher nondeductible expenses and a reduction in tax credits. Net income fell to $339.9M from $382.1M. _(from the filing)_
A smaller share count softened the per-share result. Diluted shares averaged 1.27B against 1.34B a year earlier, so diluted earnings per share were $0.27 against $0.29, a smaller fall than in net income. _(from the filing)_
Analysis: the interest line and the share count are two sides of one choice. Cash once held in interest-earning securities went into share repurchases, which lowers income and the number of shares at the same time. That is why the decline shows more in net income than in earnings per share. _(analysis)_

### Capital spending took 41.2% of operating cash, up from 28.7%

Operating cash flow rose to $590.1M, but capital spending of $243.0M left free cash flow of $347.1M, below $406.2M a year earlier.

Operating cash flow was 1.74 times net income, $590.1M against $339.9M, and rose from $569.7M a year earlier even as net income fell. The filing explains that the business has not required significant working capital because guests generally pay using cash or cards, inventories are small, and suppliers are paid after delivery. _(from the filing)_
Capital expenditure rose to $243.0M from $163.5M, 7.38% of revenue, and took 41.18% of operating cash flow against 28.70% a year earlier. The filing ties the year-to-date increase mainly to new restaurant development and new equipment for existing restaurants, and expects elevated equipment costs to continue through next year. _(from the filing)_
Free cash flow was 10.54% of revenue, against 13.52% a year earlier. _(from the filing)_
Analysis: new equipment in existing restaurants pays back only if it lowers labor per order or lifts capacity at peak hours. Labor grew faster than revenue this quarter, so that payoff is not yet visible in the numbers; the labor line is where it would appear first. _(analysis)_

### Competitive edge

- **Every restaurant owned, every opening funded from cash** Chipotle owned 4,267 restaurants against 3,916 a year earlier, built from operating cash with no borrowings outstanding, so it keeps each restaurant's full profit.
- **Digital orders now 38.8% of food sales** Digital sales rose to 38.8% of food and beverage revenue from 36.7%, and 53 of 84 new restaurants include a Chipotlane pick-up lane.

### What to watch

- **Slow comparable growth leaves restaurant costs uncovered** Comparable sales rose 2.1%, while labor grew 12.0% and other operating costs 16.72%, so the margin hinges on each restaurant selling more.
- **Food safety concerns can dent sales within weeks** The filing reports comparable sales headwinds in July that it links to U.S. food safety concerns and geopolitical developments, easing by the end of August.
- **Corporate costs rose 26.23% while revenue grew 9.65%** General and administrative expenses rose 26.23% to $185.2M against revenue growth of 9.65%, led by stock-based compensation, performance bonuses and outside services.

## Investor view

**New restaurants drove the growth, but costs rose faster than sales and the operating margin fell to 13.72%**

### How it makes money

Chipotle sells food in restaurants it owns and runs itself. Food and beverage revenue was $3.28B of $3.29B in total revenue this quarter, 99.54% of the total, and delivery service revenue was $15.2M, or 0.46%. At quarter end it owned 4,267 restaurants, 4,146 in the United States and 121 abroad, plus 20 international partner-operated restaurants that it does not run day to day. _(from the filing)_
The company reports costs by type rather than a cost of sales, so there is no gross margin. Of revenue, food, beverage and packaging took 29.53%, labor 25.74%, other operating costs 15.96% and occupancy 5.45%. General and administrative expenses took 5.62% and depreciation 3.12%. What remained was an operating margin of 13.72%, and a net margin of 10.32% after interest and tax. _(from the filing)_
Growth comes mostly from adding restaurants. Total revenue rose 9.65% while comparable restaurant sales rose 2.1%, against 0.3% a year earlier, made of a 1.3% higher average check and 0.8% more transactions. The filing's sales bridge puts most of the remaining increase on restaurants not yet in the comparable base. The company opened 84 restaurants in the quarter. _(from the filing)_
The business turns profit into cash. Operating cash flow was $590.1M against net income of $339.9M, 1.74 times. The filing explains that it has "not required significant working capital because guests generally pay using cash or credit and debit cards" and it pays suppliers after receiving goods. Capital expenditure of $243.0M, 7.38% of revenue, left free cash flow of $347.1M. _(from the filing)_

### What shifted

Costs grew faster than sales. Total operating expenses rose 12.47% against revenue growth of 9.65%, taking them to 86.28% of revenue, up 2.16 points. Income from operations fell to $452.0M from $477.2M, and the operating margin fell 2.16 points to 13.72%. _(from the filing)_
The squeeze predates this quarter. In the last full year, operating income was $1.94B against $1.92B the year before, on revenue of $11.93B against $11.31B: an operating margin of 16.23% against 16.94%. Revenue kept growing while operating profit stood almost still. _(from the filing)_
Food, beverage and packaging was the one large cost that improved, falling 0.52 points to 29.53% of revenue. The filing credits menu price increases, tariff relief and a favorable limited-time offer mix, partly offset by inflation "primarily from beef and freight" and higher protein usage. _(from the filing)_
Restaurant costs that do not move with each order rose fastest. Labor grew 12.0% to 25.74% of revenue, up 0.54 points; the filing names "lower average restaurant sales volumes", wage inflation and performance bonuses, and extra restaurant labor including for promotions. Other operating costs grew 16.72% to 15.96% of revenue, up 0.97 points, led by marketing and promotions, then delivery, maintenance and utilities. _(from the filing)_
Below the restaurants, general and administrative expenses rose 26.23% to $185.2M from $146.7M, mainly stock-based compensation, performance bonuses and outside services for corporate initiatives. Interest and other income fell 73.92% to $5.2M from $19.8M, which the filing ties to lower balances of interest-bearing securities. The tax rate rose to 25.6% from 23.1%. Net income fell 11.05% to $339.9M. _(from the filing)_

### Risks in the filing

The quarterly report says its risk factors have not changed materially from the annual report, and points to consumer sentiment and changes in discretionary spending, the cost of ingredients and restaurant equipment "including from tariffs, trade sanctions or taxes", competition, and macroeconomic and geopolitical conditions. _(from the filing)_
Labor is a named risk on several fronts: wage inflation and local minimum-wage rules, a competitive labor market that affects hiring and retention, and union organizing efforts. The company also names rising ingredient costs, and intermittent supply shortages linked to its Food with Integrity sourcing, rapid expansion and limited-time offers. _(from the filing)_
Food safety incidents and the brand damage that can follow, including from social media, are named directly. So are reliance on information technology, cybersecurity and privacy breaches, investments in new technology that may not earn a return, dependence on third-party delivery services, and the costs of international expansion through partner-operated restaurants in the Middle East, South Korea and Mexico. _(from the filing)_
Legal exposure: a shareholder class action over statements about portion sizes was dismissed with prejudice by the district court, and the plaintiffs have appealed. A related derivative suit is stayed pending that case. The company also names activist shareholder actions and failing to meet market expectations or its own guidance among its risks. _(from the filing)_
Two of these risks already show in the numbers. Labor costs rose faster than sales, which is the wage and volume risk at work. The filing describes "low-single-digit headwinds" to comparable sales in July that it links to "recent U.S. food safety concerns and geopolitical developments", which faded by the end of August: the consumer-sentiment and food-safety risks, felt indirectly. _(analysis)_

## Founder view: mechanisms

### Owned restaurants, replicated from cash

Chipotle grows by building more of the same restaurant and running every one itself instead of franchising. Each opening is paid for from operating cash and keeps the full restaurant profit inside the company. The price of that control is that the company carries the build-out capital, the lease and the operating risk of every unit, so it can grow only as fast as its cash and its site pipeline allow. _(analysis)_

### Sales per restaurant carry the fixed crew

A restaurant needs a minimum crew, a lease, utilities and maintenance whatever it sells on a given day. Margin therefore depends on sales per restaurant, not on total sales. When each restaurant sells a little less, those costs take a larger share of every dollar; when volumes rise, the same costs spread thinner and margin widens quickly. _(analysis)_

### Digital orders on their own line

Orders placed ahead online or in the app can be made away from the walk-in queue and collected without waiting, including at restaurants built with a Chipotlane for pick-up. That lets a restaurant serve more orders at the busiest hours without a bigger dining room, and it gives the company a direct record of what each customer orders, which feeds its rewards program and marketing. _(analysis)_

### Paid at the counter, suppliers paid later

Customers pay when they order, fresh ingredients keep inventory small, and suppliers are paid after delivery. Growth therefore ties up little working capital, and reported profit arrives as cash. That cash funds new restaurants and returns to shareholders without debt, which is what lets a company-owned model expand at all. _(analysis)_

## Member research

Signed-in members read, on the page: what Chipotle's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Chipotle 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/1058090/000105809026000104/ (2026-10-29)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-01 · as of 2026-11-01