Chili's VS Chipotle: Financial Showdown

Chili’s vs Chipotle—who’s actually winning the profit game? In this video, we dig into the numbers behind both restaurant chains to see which one is running the smarter, more profitable business.

You’ll get a side-by-side look at revenue, profit margins, and business models—plus what those numbers really say about growth potential and efficiency. Whether you’re into business strategy, investing, or just curious about what drives success in the food industry, this breakdown has some eye-opening insights.

TRANSCRIPT:

Chilis or Chipotle, who's more profitable? In this video, we're gonna do a side-by-side comparison and we're gonna evaluate their revenue, their profitability, their return on invested capital, their free cash flow, and their growth. And all these things combined together to drive value. So let's see who performs better, Chilis or Chipotle.

Now, unfortunately, we can't necessarily disaggregate the numbers for Chilis because they're owned by Brinker International and Brinker International owns other restaurants such as Maggiano's, et cetera. But it's kind of fun to say, so just go with me here for this example. And I'll just call it Chilis, but just know it's the combination of all these restaurants.

But it'll be interesting, who's more profitable? A restaurant or a fast casual place like Chipotle? Now, there's a time in my life where I ate Chipotle like almost every single day. I don't know if that's good or bad, but I do love Chipotle. All right, so we're gonna walk through the financials of these companies.

Ticker symbol EAT for Chilis, and the Brinker International, and for Brinker International, and we have CMG, and we have CMG, the ticker symbol for Chipotle. I pulled the financials for both of these publicly traded companies on a trailing 12-month basis as of their last reporting period. This video was created in July of 2024, just for reference, and we're gonna be exploring things in millions of U.S. dollars.

All right, let's go ahead and jump in. The first line item we want to evaluate when comparing these companies side-by-side is revenue, and this represents all the income that these two restaurant chains generate from selling their food to customers. All right, so we have revenue here for Chilis, and it's 4282.4 million dollars.

All right, sorry for the long numbers here. When I tried to put it in billions and I got further down the line, the decimal points were killing me, so I just decided to express it like this instead. So let's keep going here.

We have revenue. Then once we account for all the food cost, the labor that's paid for the wait staff and the cooks and everything else, all the direct and indirect costs, in other words, to generate the revenue, the food, and we net those two together, revenue and cost of goods sold, we end up with gross margin, also known as gross profit. And Chilis, in this organization, they're able to earn 586.8 million dollars of gross profit on their revenue.

Now, I like to express gross margin as a percentage of revenue, so when we do that, we end up with 13.7%.

All right, there we go. This, by the way, is really low, okay? This is really low. When I had my landscape company, our gross margin was about 35 to 45%.

For our high-end jobs, we were earning upwards to 50%. When you compare this to Google and Apple, it puts it to shame, because those companies earn about four or five times this amount. Even Home Depot and Lowe's, the beloved home improvement stores, they earn almost 3x this, all right? So you can see here, the margins are pretty low for the Brinker International Group.

But we're not done, because gross margin doesn't represent the bottom line. We have to subtract out operating expenses. This is the overhead of the company, which includes items such as general and administrative payroll, professional fees, sales and marketing expenses, occupancy expenses, so on and so forth.

All the costs associated with running the business are deducted from gross margin to arrive at EBITDA. Now, EBITDA is just one variation of profit that we'll look at. It's a nerdy way of saying profits.

It stands for earnings before interest, taxes, depreciation, and amortization. But the good thing about EBITDA is that we are excluding interest and depreciation and amortization. In other words, we are ignoring the capital structure of the business, because we're not accounting for interest, and we are excluding depreciation and amortization and the decisions that the company is making related to its investments in property, plant, and equipment, all right? So EBITDA is just a good way to compare companies apples to apples by ignoring their capital structure and their decisions related to capital expenditures.

So for the Chili's group, they're able to generate $384.2 million in EBITDA on their revenue, which when we look at it, EBITDA as a percentage of revenue, it is 9.0%.

Now, I'm gonna go through all these numbers really quick for Chili's, and then I'm gonna show you Chipotle, and then I'm gonna tell you the story behind the numbers. We're gonna do the analysis, and what I'm gonna reveal at the very end is gonna surprise you. So you're definitely gonna wanna stick around for that conversation.

Let's keep going. Underneath EBITDA, we have operating income. This represents the amount of profit a company makes from its normal operations.

It's just some variation of profit, just like with EBITDA. But we're looking at operating income, and they're able to earn $244.5 million on their operations, but really what we wanna get down to is the net operating profit after tax. So to do that, since tax is so nuanced from company to company, because there's deferred taxes, there's tax credits, there's tax losses that may be in this number, I just took a 21% corporate tax rate, applied it to operating income, and that's how I'm arriving at net operating profit after tax.

$193.2 million, and then NOPAT as a percentage of revenue is 4.5%.

All right? But guess what? We're not done yet. Yes, it's fun to look at the income statement, but the income statement is so incomplete. All the magic happens below this line, and we're gonna get into that right now.

This is what you need to pay attention to. This is what most leaders don't pay attention to. So you can be different.

Invested capital. This represents net property, plant, and equipment plus working capital of a business. The amount of capital that is put into the business in order to generate all this up above.

And for this Chili's group, $767.9 million is required in order to operate this business and all the chains. Then, if we take the returns, the net operating profit after tax right here, and we divide it by the invested capital, we end up with return on invested capital, and they earn 25.1%.

Which actually isn't too bad, because there's some industries out there, like construction, for example, which is around 10 to 12%, so it's much lower than this. But for the restaurant industry compared to others, it is, you know, it's okay, but it's nothing super great to write home about, and I'll show you that, especially when we get into Chipotle.

But return on invested capital is a great metric that I use for a lot of companies. Sometimes it doesn't work, especially when a business has a lot of lumpy investments up front, or when they're asset light, but it is a great metric to use.

Free cash flow.

This represents the amount of cash that's available to pay down debt, to return to equity providers, or to reinvest in the business. It's calculated by going to the statement of cash flows, taking cash from operating activities, and then deducting out CapEx, capital expenditures. That's free cash flow.

Free cash flow is so important, because when you think about intrinsic value, intrinsic value is the present value of all the future cash of the business, right, that the business is gonna generate. So free cash flow is a huge driver of value. You'll also notice that profit is not the same thing as cash flow, right? A lot of businesses, they focus so heavily on profit, but they ignore free cash flow, because they don't calculate it, or they don't understand the story behind the numbers, so they're just like, yeah, it's easier to just look at profit.

But look at the discrepancy here. I mean, it's pretty big. It's what, about 45-ish million dollars? And that could definitely bankrupt the company.

So you definitely want to compare these two numbers. But let's keep going. Free cash flow, as a percentage of revenue, is 3.4%. And then we have price to earnings.

And this doesn't always do a good job of indicating the value, the true value of the business, because the stock market has different expectations compared to the true value of a business. It does indicate how much an investor is willing to pay compared to $1 in earnings. And for this group, investors are paying 19.1X for every $1 of earnings in the business.

And this also relates to future expectations. Which gets us down to our last thing, which is growth for the next five years. And we have growth over the last five years.

So we're just comparing the next five years to the last five years. Growth over the next five years is expected to be 20.1%. Growth over the last five years has been 1.6%. Wah, wah, wah, kind of depressing. Especially when you consider that GDP in the United States, the total gross domestic product, the economy, in other words, is growing at a two to 3% rate, typically, right, on average.

So they were far below what the U.S. economy was even growing at, right? So that's a dismal performance from a growth perspective.

All right, we just got done walking through Chili's. Let's look at Chipotle here.

I'm gonna go through these a lot faster. I'm gonna put everything up on the board. And then we're gonna do a little analysis, all right? So hold onto your pants here, or your shorts, or whatever you're wearing right now.

And let's go through these numbers. $10,204,000,000 is what they generated in revenue. So double that of the Brinker International Group.

Gross margin on that was $2.7 billion, or $2,720.9 million, right? I'm expressing these right here in millions. As a percentage of gross margin, 26.7%. So double that of this entire group. So this is really good, this is super pathetic.

EBITDA right here is $2,031.0 million. As a percentage of revenue, that's 19.9%. Like I said, I'm going through all these numbers quickly. And then we're gonna do a little analysis together.

Operating income, $1,704.9 of operating income. Take out the corporate tax, 21%. We end up with $1,346.9 million, which is 13.2% of revenue.

Okay, we're almost done. Let's keep going here. This is gonna be really good, though.

Invested capital, $3,062.2. Return on invested capital, 44.0%. Free cash flow, 1324.6, which is great. They're generating $1.3 billion of cash, which is 13% of their revenue. Their P-E ratio is 49.4X, wowzers.

And their growth rate over the next five years is expected to be 21.2%, compared to 38.4% over the last five years.

Okay, that's kind of a lot, right? It's kind of a lot. If it's a lot for you, trust me, it's a lot for me.

I'm the one writing on the board. But this stuff is really important. I love this stuff.

If you could do this in your business, you're gonna be a value creator, a powerhouse in your company. Now, if you want to take your skills to the next level, if you're like, Steve, I love this stuff. Like, I need to understand the story behind the numbers.

I need to build better financial skills. You can go to byfiq.com. We have programs there that will walk you through the mechanics of this. You can start with Fundamentals of Finance.

That's the starter course. And then you can take things to the next level through our Financial Pro course. So be sure to check those programs out if you want to take things to the next level.

All right, and be a nerd here like me. Okay, so here are all the numbers. Let me walk you through from a CFO's perspective, like what I'd be looking at here, or as an investor in any of these businesses.

First, sure, Chipotle has much greater scale compared to the Brinker Group, right? They generate more than double in sales. Okay, so that's great, but revenue isn't everything. I do like the scale of Chipotle, but what's more important is the gross margin.

So check this out. Chipotle has nearly double the gross margin compared to Chili's. So Chili's, they're out there, they're just grinding.

They're working so hard, they're preparing food, they're serving customers, they're doing all this stuff for a measly 13% margin. I mean, that's terrible, right? You go down the line here, look at their EBITDA. So obviously this is gonna flow through.

Their EBITDA is nearly 20%, so they run a pretty lean ship as it relates to operating expenses, their cost structure, because a lot of their costs are up here in the delivery of their revenue. So pretty healthy EBITDA as a percentage revenue for Chipotle, which trickles down here to 13.2% net operating profit after tax compared to 4.5%. So the reason why the Brinker Group right here is not worse off is because look at their spread right here. Their OPEX is what, like 4.7% of their revenue compared to Chipotle, which is about 6.8% of their revenue.

So Chipotle has higher OPEX as a percentage revenue compared to Chili's in this group, and that's why they're able to make up some lost ground here. But when you get down below, the story doesn't look super great. Invested capital, like I said, this is the amount of money that is required to be invested in a business in order to produce what's up top here.

So Chipotle, they're killing it. 44% return on their invested capital compared to 25%. Look at their free cash flow, though.

It's 13% compared to 3.4%. And when we look at the price-to-earnings ratio, remember, this doesn't always represent the value of the business. This just represents what the market is willing to pay for this stock right now based on the recording today. So investors are willing to pay a higher price for Chipotle stock, and you may wonder why.

Well, if you just stay focused on these three drivers, return on invested capital, free cash flow, and growth, you'll understand why this multiple is what it is, at least why it's priced this way in the market. It doesn't mean this is a fair price. I'm not saying that at all.

In fact, this is a pretty high P-E ratio, but it just depends on these three things. So let's just look at it. Return on invested capital, yes, it's almost double that of the Chili's group.

Look at their cash flow. It's almost 4X greater right here for Chipotle compared to Brinker, to Chili's. So 4X the amount of cash flow as a percentage revenue.

And then if you look at growth over the next five years, imagine Chili's in this group is sitting in front of investors and like, look, okay, we're gonna grow 20% over the next five years, which means we're gonna double every three and a half years. And the investors are like, okay, yeah, that's great. I hear you, but historically, you've only been able to grow at a 1.6% rate.

So now you're almost gonna like what, 15, 17X that. Versus Chipotle, if they said to investors, hey, we've been growing like crazy over the last five years. We're gonna slow growth a little bit, but we're still gonna grow at 20%.

Who's gonna be more believable? Well, Chipotle has this proven track record. And therefore, I'd be more willing to believe Chipotle and their leadership team and their strategy compared to Chili's over here. So that's how I evaluate a company.

But the biggest thing is it's just bridging the gap between a company's strategy and their numbers. If you were to dig into the strategy of Chili's compared to the strategy of Chipotle, you'll see also why the performance is so much better from one company to the next. But isn't that fun? Now, when you're eating dinner with your friends or your family, you can say, hey, yeah, look it, I know about Chipotle.

I know that Chipotle is like twice the size of all the Chili's, all the Maggiano's, and all the other restaurants that are held by the Brinker Group. You can even say, hey, look, did you know, fun fact, that Chili's is owned by the Brinker Group, right? So there's just so many things you can talk about Also, when you go into Chipotle, you'll know that they earn a 26 or 27% margin on the burritos that they're selling, all right? So that's always fun to know. But just evaluating a business and understanding the mechanics behind the numbers, and then being able to apply this to your business will make all the difference in the world.

Trust me, if you can build these financial skills, your life and your business will radically change.

All right, that's all I have for you. Be sure to share this so we can spread the word out there.

And until next episode, and until next episode, take care of yourself. Cheers.