Dear Shareholders,
When I first opened Chipotle Mexican Grill some 13 years ago, my vision was simple—I wanted to show that food that was served fast did not have to be a typical fast-food experience. I built the first Chipotle around this vision, and served food that I liked—food that was made to order, using only fresh ingredients and served in an environment that was sympathetic to the food. More than 500 stores later, I’m more convinced than ever that our best days still lie ahead. Chipotle’s core focus has always been running great restaurants, and that begins with serving great food. Our menu is decidedly simple—focusing on just a few menu items, and preparing them exceptionally well using high-quality ingredients and classic cooking techniques. And with a selection of meats, two types of beans as well as salsas, guacamole, cheese and lettuce, there’s enough choice to extend to literally thousands of choices, making our version of variety not dependent on adding a new menu item which has traditionally been the case in the restaurant industry. Surprisingly, most of our customers will probably tell you that they do not think of us as a Mexican restaurant. They think of us as a place that serves great food that just happens to come in a tortilla. And more importantly, they tell their friends about us—as word-of-mouth has been the most effective means to educate new customers about our brand. But we also believe that people want to do business with companies that share their values, and that the more people understand and share our vision of Food With Integrity—understanding how animals are raised and how vegetables are grown so we can source the best ingredients we can—the more they’ll want to eat our food. The most important accomplishments we’ve made in our journey toward providing Food With Integrity is in our naturally raised meat—meat that comes from animals raised on a pure vegetarian diet and not given hormones or antibiotics. Today, 100% of the pork we serve is naturally raised, as is nearly half of our chicken and a third of our beef. And we’re continuing to pursue new sources of naturally raised meat, and exploring similar alternatives for all of the ingredients we use. As Chipotle continues to grow and strengthen its critical mass, we hope to remain at the forefront of creating a larger market for Food With Integrity. By doing this, we really believe we are beginning to change the way people eat and think about fast food and even food in general. At the same time, we will also balance our interest in advancing Food With Integrity with our desire to provide great food at reasonable prices and generating healthy profit margins for our shareholders. So how does all of this affect our business? Quite simply, better raw ingredients mean better quality food, more customers, and better business. And I think we’ve proven that. In 2005, revenues increased 33.3% to $627.7 million and comparable restaurant sales increased 10.2%, representing the eighth consecutive year of double-digit comparable sales increases. We delivered 18.5% in restaurant-level operating margins and net income of $37.7 million, including a one-time tax benefit of $20.3 million from tax net operating losses. We also added 80 restaurants to our portfolio during the year. We believe we’re well-positioned to continue to grow in existing and new markets. We plan on bringing the Chipotle experience to more and more people through a measured and disciplined growth plan that emphasizes quality over quantity, opting to build new restaurants only as quickly as we can find great sites and outstanding managers to run our restaurants. In 2006, we plan to open 80 to 90 new restaurants. Like our food, our people and operating philosophy are distinct. We hire employees who share a passion for food, and who are eager to contribute to our success by sharing their own strengths and individual personalities with us. We are committed to enhancing long-term value for our shareholders while making a cultural impact on how Americans think about and eat food.
Sincerely,
Steve Ells Founder, Chairman & CEO Issaquah – Store #501 – Seattle, WA
Evans – Store #1 – Denver, CO
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-K