Q4 2019 Earnings Call
This brings me to the most foundational ingredient of having a successful restaurant company operational excellence which comes from great leaders building great teens who create equally great guest experiences. We continue to focus on outstanding execution by being brilliant at the basics. This requires a significant investment in our more than 83,000 employees with regard to Career Development as well as offering industry-leading benefits off recent enhancements such as debt-free degrees crew bonuses and mental health benefits help differentiate the Chipotle bran nowadays employees want more than just wages from a potential employer. They are seeking the right page in the right skills to help them grow both professionally and personally additionally our purpose around food with integrity and cultivating a better world also provides us a competitive advantage in this tight labor market.
within our restaurants, we believe the general manager is the most important position to improving operational health and ensuring a great
Customer experience during 2019 this emphasis on our general managers resulted in exceptional food that is being prepared more consistently better stability with turnover being reduce around 35% and nearly a 10% improvement in our Max 15-minute throughput kpi aided by training and a laser focus on the five pillars of through put this 6,000 forces that continue to develop grow. And invest in our GM's is the right approach to creating an environment that allows our employees to be in a position to win not only today but also in the future we've made good progress this year on our operational goals, but still have plenty of opportunity as we strive to be better today than we were yesterday a message. We will reinforce at our all manager conference in March.
In closing, I believe our strong performance this year highlights that are strategies are working and the Chipotle brand is thriving. I'm really proud of what we accomplished in 2019 and want to thank all of our employees for winning today and creating a bright future. We're building a successful durable model and by staying focused on our priorities and executing flawlessly while providing customers with the unique Chipotle experience home. I'm confident we will be successful for many years to come with that hears Jack to walk you through the financials.
Thanks, Brian and good.
Afternoon, everyone. Once again, we delivered outstanding financial performance and 1/4 quarter is comps and margins continue to expand highlighting are strong economic model sales were one point four billion dollars in the fourth quarter of increase of 17.6% from last year, sales grew 13.4% in the quarter which includes no net impact from our Rewards program differed revenue from our Rewards program was essentially offset a refined breakage rate assumption for chips and guacamole as we gather more historical data moving forward as we begin to lap the launch of our loyalty program. We expect quarterly deferrals to have a modest impact on our Copper Dock Restaurant level margins of 19.2% expanded 220 basis points over last year and earnings-per-share adjusted for unusual item was $2.86 representing 66% year-over-year growth. The fourth quarter had unusual expenses related to our transformation as well as legal reserves at negatively impacted our earnings per share by 31 cents leading to a gaap earnings per share of $2 and Fifty Dead.
Your sales increased 14.8% to 5.6 billion dollars on a copy increase of 11.1% restaurant level margins were 20.5% and increase of 180 basis points and we generate a phone number share adjusted for unusual expenses of $14.05 an increase of 55% over last year unusual expenses, mostly related to transformation and legal reserves negatively impacted earnings per share by a dollar sixty seven said leading to gaap earnings of $12.38. We're pleased that our economic strength in in 2019 with average volumes now, exceeds point two million dollars and restaurant margin reaching 20.5% this margin included temporary pressure from Carne Asada and avocado pricing without which our restaurant level margins would have been just over twenty one month, which is within Striking Distance of the 22% margin potential at a 2.2 million-dollar a u v
They're both in a u visa and Merchants of 2019 is evidence that are strong economic model remains intact and we expect continued growth in both of these metrics during 2020 and Beyond.
But 13.4% was driven by an acceleration and transaction has 8% of the cop came from greater gets visits. We we also saw an increase in check up roughly 5.4% driven by price and not the latter being driven by carne asada and digital orders, which have a higher average Jack.
Looking to fiscal 2020 or comparisons will no doubt be tougher. We're optimistic that based on the healthy sales Trends Us in q1 plus the 2% price increase taken in December and bind with our future growth initiative that a mid-single-digit cop is achievable for the full year.
Turn the fourth quarter. We open 8 in the restaurants a record number of openings for a quarter bringing total new restaurant openings for the year 240 productivity of these units is in the high eighty percent range the highest in the company's history, and I'm really proud of the hard work put in by our development teams and our operations teams, especially given a significant back end loading that occurred in 2019.
We open forty six people Lanes in the quarter resulting in sixty-six Chipotle know that you're at and is Brian mentioned we're excited by the early success of the East pole Lane and will continue to aggressively open more moving forward off for 2020. We anticipate opening a hundred and fifty 265 new restaurants with more than half including a Chipotle, but he's openings will once again be weighted towards the second half of the year. We expect a modest wage balance in comparison to last year about 35% of these openings are expected to occur in the first half of 2020 versus only 25% the first half of last year.
Would cost for the quarter.
For 33.1% decrease of 10 basis-point from last year due primarily to a menu price increase and lower avocado pricing that was partially offset by the higher cost of several other ingredients including about his serve basis point headwind from Carne Asada as it was available for the entire quarter on a sequential basis avocado pricing continue to moderate given greater Supply coming from Mexico as we as we begin the morgue to pull Harvest hear Ricky one, we expect ongoing moderation and avocado pricing as a result of increasing Supply, but we believe this will be partially offset by higher carne asada costs resulting in cost of Samsung being in the mid 32% range.
Fast food cost for the full year to be in the low-to-mid 32% range based on better avocado pricing and further supply-chain efficiencies being partially offset by what appears does fire to be a normal cycle approved application.
Labor cost for the quarter. We're 26.5% a decrease of sixty basis points for last year is decreased with driven primarily by sales leverage partially offset by labor inflation, which continues to be an odd for the 5% range including the cost of benefits such as debt free tuition expect you one labor cost to be in the mid 26% range with sales leverage and wage inflation seeing the biggest factors.
other operating cost
For the quarter were 14.8% of decrease of 70 basis points from Q4 last year due to sales leverage Market promo code for 4.1% the quarter similar to Q4 of last year, but a 2010 basis-point increase sequentially to support carne asada and our free delivery Bowl promotion for the full year. Our marketing a decimal is 3 percent of sales as expected looking at 2020. We washed anticipate spending around 3% of sales over all for the year with you on being in the low-to-mid 3% range compared to the 2.5% We spent in q1 of last year in order to in order to support Bush going menu innovation.
Rent a quarter. We book ten million dollars for legal reserves related to the US attorney's investigation that began in January 2016. This brings the total reserve two twenty-five million dollars. We believe this page is a reasonable estimate of what we made the expected to pay to settle this matter, but there could be no assurance that a settlement will be reached. We have been cooperating with the investigation and we're in active discussions to possibly resolve this matter.
Quarter was a hundred twelve million dollars on a gaap basis or $106 on a non-gaap basis, excluding nearly four million dollars net related to several legal matters, including the ten million dollar Reserve. I just mentioned off about 2 million dollars related to transformation expenses.
I also include approximately 75 million dollars and underlying Gina expenses twenty-five million dollars related to non-cash. Four point five million dollars related to higher bonus accruals from our strong perfect and related payroll taxes and 1.5 million dollars related to our upcoming all manager conference.
Underlying DNA was in line with our expectations as we grew headcount responsibly to support our growth looking to q1. We expect to continue hiring people to support future growth and invest in our emerging digital platforms. This will be the q1 underlying GNA support and the range of seventy-seven to eighty million dollars and total GNA is expected to be around $120. We expect to be around $23,000 per quarter. Although this amount could move up or down based on our actual performance. This is slightly lower than q 4 as the 2017 Equity bonuses roll off post housing and a replace with new age twenty twenty branches which are valued at Target without any performance adjustment. We also expect to recognize between three to four million dollars of employer taxes associated with shares that vest at the beginning of our fiscal year.
lastly it works back need to
About thirteen million dollars of expenses and key one related to our upcoming all manager conference.
Our effective tax rate for two for was 28.3% on a gaap basis and 27% on a non-gaap basis. The difference was due primarily to tax implications related to transformation costs for Faith 20/20. We expect our underlying effective tax rate to be in a 26% to 29% range. So it may vary based on discrete items as well. As any stock option exercises our balance sheet remains strong cash and Investments totaling $909. As of December Thirty One and silver to Q3. We repurchased about 38 million dollars of our stock an average price of $773 per share during the quarter month for the full year. We repurchased a hundred eighty eight million dollars an average price of $684 per share.
And closing we're pleased to report a strong ending to fiscal 2019 including 8% transaction growth which highlights that are strategies are resonating not only with high-frequency customers, but also with medium wage and new customers continuing to enhance convenience and access while optimizing our digital marketing menu and operations will help ensure that you put your brand remains healthy moving forward. Thank you to all of our employees for their hard work and their dedication this year and let's keep it going in twenty-twenty with that. We're happy to take your questions.
Thank you.
We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys off to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.
And the first question will come from David Tarantino with bared please go ahead.
Hi, good afternoon, and congratulations on a a strong Year. My question Jack is about the margin performance at the Restaurant level wage. I'm just wondering if you could comment on the flow through that you saw in in Q4 and and throughout the year and I think you mentioned that at a two point two million a UV. The expectation would be that you would have margins in the 22% range and and you're a bit below that so can you reconcile some of the factors that are driving that and what the algorithm might life going forward as you grow the unit volumes and things first of all, we we still think that the market potential and 2.2 is right around 22% or a couple of things that we're heading back during the year one. We we saw some really really high avocado costs during the summer and had an impact and then we also had carne asada which I think you know for most of the quarter we priced car news.
I just fifty cents above steak and
Talking about thirty-five to forty cents or so and we did that intentionally as a transaction Builder, but it did have a a temporary negative impact, you know on our margin now during the quarter we did take res we create carne asada another $0.25. We got a $0.75 up charge and we didn't see any degradation in demand at all. So we think there is there's room when we do additional premium offerings like that that we can we can price them at full margin the other things going on David that also have what I would call temporary headwinds is you know, we just started our loyalty program last year. We did a great job of acquiring well over eight million customers into the program with that acquisition comes the discounts and yet we haven't really monetized that outside yet. So that has a little bit of impact impact none of our team as well. And then our delivery business is growing. Well also, so all these things are what I would call temporary or cyclical, you know headwinds that we can overcome all of them. We still dead.
Confident that when we get to two point two million.
We can generate a 22 margin we get to 3 we can generate a twenty three March and we think that potential still exists within the model.
Thank you.
And the next question will come from Nicole Miller with Piper Sandler, please go ahead.
Please go ahead and cold perhaps your line is muted on your end.
All right. We'll move to our next question. That's Katie Fogarty with Goldman Sachs, please go ahead great. Thank you. I have a couple of questions here. So first of all, you know with the, you know, bring the super Greens on to the menu and January and kind of you know, expanding the lifestyle bull offerings that you did and pork you. Can you give us a sense of how your Bull vs. Burrito mix is changing here and how that is evolving in any kind of color that you can give us on labor and margin efficiencies As you move to the Bowl away from the burrito and I have a follow-up
Sure, so.
The the reality is our business continues to show a slight migration two bowls the thing that's great about that is that's our fastest home product on the Chipotle menu and it's also you know provides I think the customer the greatest value proposition because of all the customization that they see right in front of them with all of our ingredients right in front of it. So the good news is the supergreens propositions been well received from you know, it's performing in line with expectations and the customer feedback on it is all been very positive. So, you know, it's it's perfectly in sync and I think we talked about this earlier one of the things we heard early on from our customer was it was like us to improve our salad and that's what we're doing with the supergreens chef salad mix
Great, that's helpful. And any do you have a a sense of the mix of the Bulls vs burritos?
2/3 bowls is the way you think about it. And then the next piece is burritos followed by tacos tacos are supposed. Okay, and then on the the delivery cost side, you know, we're we're seeing more and more restaurants, you know pass on the delivery cost to the customer and not seeing, you know, really any kind of impact to demand and you know, you kind of talked about having some some room to move on a carne asada and not seeing the the customer, you know, you know, not seeing any traffic hit their you know, is that a a potential opportunity for this year for you guys to pass on some of those delivery cost to the customer?
Yeah, look, I think the good news is our value equation is really strong at Chipotle. So we have room if we find that, you know, the economic proposition requires us to pass along some of these costs and the delivery Channel or you know, if I'm going to bring out some elevated ingredients. The good news is our value proposition is really strong and the elasticity would allow us to do it, you know currently we like the economics that we have and we're more in the acquisition mode of using delivery as a tool to get people into our digital ecosystem so long, you know, the good news is we've got the right value proposition that if we wanted to flex his we could
Okay.
Thank you so much. Yes. Next question will move back and Nicole Miller with Piper Sandler, please. Go ahead. Thank you. Good afternoon. Can you hear me? Okay now.
Yeah, I apologize for that earlier. I wanted to ask about how you think about directing the balance sheet. So when we look back on last year clearly was better at every corner every quarter choices, you know where you started guiding the year what the street expected, so maybe some of the things that you didn't do so not necessarily an acceleration in development. How do you view that as a use of cash off the share repurchase hasn't necessarily increased and would you use leverage and then one when might have dividend the appropriate? Thank you.
Yeah, yeah, it'll let me start with with BuyBacks. You know, we bought it was like a hundred and sixty-eight billion dollars during during the year and $38 billion dollars during the quarter off our cash balance did did grow during the fourth quarter. We actually suspended our buys during the quarter for a while as we got into serious negotiations with the government our counsel advised us to understand that for a while with this release will be able to get back in the market. So I think what you'll see is we will be opportunistic as we look at this year price and we look at our balance sheet, you know to to Thursday to do BuyBacks and appropriate level in terms of investing in return generating, you know assets the best investment we can make is into our Chipotle restaurants and I would not have access to see you know to do a stair-step increase, you know in the openings, but you will see an increase over time. Our pipeline is building very very nicely dead.
And that's going to be a great return.
You know for us we're also going to dabble in remodel this year as well. So we've got you know, several hundred restaurants that that need a refresh so that they are more digital forward. So we're off with that and if that goes well which are optimistic about that will be another opportunity for us. And how do we expect that would be a return generating asset as well. We from time to time too cold to talk about divination, but it's not really on the radar screen right now. We think that we're more in robot mode and opportunistic buyback of our stock and not dividend generating that might change in the future. But right now we're not home is the only thing I would add is, you know, we have a billion-dollar digital business that continues to grow nicely and where we see opportunities to invest in continuing to push the digital access in our business. We're going to do that because it makes a lot of sense for both performance today and performance in the future.
And just a follow-up any what's the practice on Leverage? How do you
Feel about it. Would you deploy it?
No, Nicole that's that's Financial engineering. You know, that's that's something that I think is more appropriate for a more mature slow growing company. So I would not expect us to put leverage on the bath. Excellent. Thank you. And our next question comes from Sarah with Bernstein, please go ahead.
I thank you. I have a one question and then follow up, please first one just menu Innovation, you know, you talked about the supergreens performing in line with expectations. But if I think about carne asada age, you know, I I think it's probably exceeded expectations, which is why you're bringing back permanently and maybe was we'd estimate maybe as much of a mid-single-digit in the x or lift. So, how should we talk about menu Innovation going forward was that sort of a one, you know a a unique experience and we wouldn't expect to see these kinds of big hits or or do you anticipate you could have more opportunities that would be meaningful and then I I have a follow-up, please.
Yes, so obviously we're really delighted with.
Carne asada performance, um, you know, it's it's evidence that are stage-gate process towards Innovation really is working. And the thing that was great about carne asada is we seem true to our principles around, you know food with integrity and bringing out great quality, you know meats and when the customers got to try it they loved it and they came back from home. So, you know, we're working right now to figure out can we get a supply so that we could make it permanent and if we can secure that Supply then we probably make it permanent, but we haven't been able to finalize that point yet. So customers loved it. The performance was grade, you know as we figure out our supplies scenario on this Thursday at the right time to bring it back and if if we can we'll figure out a way to make it permanent, but regarding the Innovation going forward, you know what I love about this Brand, New Jersey.
Is we have the ability? I think give people access to food that they don't get access.
To anywhere else and I think that's why we got the response that we did on our lifestyle Bowls the response that we've got on carne asada super greens and that's we're going to continue to push against and you know, uh off of Blanco is the most recent product that's gone through our state get processed and now we're ready to bring this to Market and replace your existing case though. I think we've mentioned we've been working on a quesadillas and some beverages. So the thing that's great is I think we've got a Cadence that's building and as I mentioned before we're not going to be moving to a place where you're doing something every four to six weeks, that's not our business. That's not who we are, you know, you can expect us to do one or two of these initiatives on the menu because you know, it's the right Cadence phone operators that you really well and it's also the right teams. I think they give our customers the variety that they're looking for in our business. So I love what's happening in our menu, and I love what's happening in our Pub.
Why um, and I think this stage gate process is proving to be a very effective tool.
Okay, great. Thank you. And then my follow-up is just you know, I think in terms.
The guidance mid-single-digit, I think Jack historically you've kind of guided to whatever the current run-rate of volume is and not assuming much of an acceleration. But is it safe to say that quarter the date? You're still seeing a low double-digit, something. That would be the implication. I think if I would say that, you know that that the the dollar sales that we saw in the fourth quarter wage continued into the first quarter, but the comparison so yeah, the the cops are strong to keep in mind. Well that's compared to what 13.4% in the fourth quarter of next year. And then when we run through the carne asada lose them check as well, you know, the the carne asada added about a hundred fifty basis points to the average check. So see that as well, we're optimistic. We'll keep all those transactions, but that will have a a bit of an impact.
And the only thing I would add to that is we mentioned that the brand has got I think really excellent momentum and I tried to highlight that in the script by talking about how we've seen a trust and paid her brand metrics really move forward. And so I I just want to make sure people understand I think the reason why we had the quarter that we had is not because we had carne asada and it's just one thing that drove this business. I really do believe our operations are running better than they ever have been we saw an opportunity to be even better. But you know, our operations are running better off running faster. The food is more consistent. We have lower turnover and I think we've got better execution you think about all the progress on digital and then I think the progress we've made on allocating our marketing dollars so that it is, you know driving purchases without using discounting as the Crunch and then obviously layered on top. We had a nice menu Innovation. I just want to make sure yep.
I understand. It's not it's not a it's not a one-trick here on why I believe we got eight points a transaction growth and a you know.
13.4 as a result of it.
The next question will come from Andrew Charles with Cowen and Company, please go ahead.
Great. Thank you Brian. You mentioned during the quarter and openness to work with other third-party delivery providers be on the National Partnership you have with doordash and also the agreement you have in place with Postmates, and I'm sure it's what will lead you to push to working with other delivery providers as well as does your agreement with doordash indicate. You would see higher commissions if you were to onboard and other delivery partner, and then also a follow-up for Jack
Okay. Yeah, look I think the reason why I said we're going to be open to it is at the end of the day. We got to give access to our customers where they want Chipotle when they want Chipotle and how they want you dead. And I think the delivery channel is proving to be one of those access points the relationship with doordash has been great working with Postmates has been great. We'll see how things unfold going forward. But you know, I do think ultimately the delivery Marketplace is not going to be an exclusive proposition. I think there's a living Marketplace. It's going to be about giving customers access off accordingly. So we're continuing to talk to all the players and when the opportunity presents itself, we'll figure out whether or not we bring on additional players or not. That's so but yeah, we're open to it and the real driver of it is we want to deliver on the needs of our customers.
Sure.
And then Jack Beyond if you would see a higher commission from doordash, if you were to onboard a another provider you looking at Labor looks like labor dollars per store growth accelerated quite a bit. You know, our models just about 10% growth wage is well in excess the 45% labor inflation, you called out despite the accelerated digital growth, which is obviously more favorable for labor. What do you attribute this acceleration to is it the incremental benefits? Is it the greater number of phone numbers to handle the greater traffic just curious, you know from online purposes. We should think about Labor and twenty20s it's traffic for him. So if you just take a standard 10% increase in labor and we have you know, 8% and keep in mind we have 8% in terms of transactions, but we also had mix which means we're cooking more food as well. So, you know, we only had a 2% price increase wage rest is more food more customers that we're serving. It does take more labor. And so our labor is more, you know, personally fixed parsley variable frankly during the quarter our our labor performed the wage.
I should have you know, we saw six.
Basis points of Leverage even though we had about 140 basis points of inflation and then and then benefit headwind so we had to come up with a couple hundred basis points of had a couple of hundred basis points of Leverage based on the price increase in based on the higher transaction. We also are the fourth quarter keep in mind. We opened up a record number of restaurants. And so that's another piece where it's just that alone. You're going to add labor notches to staff the the Eddy restaurant, but we also have to train those folks before the restaurant is open and we we tend to have you know, and an allocation or allowance money or labor hours early on in the first week or the first several weeks because people are learning and we don't know exactly what the sales are. So there's a number of things while you see higher labor in the fourth quarter.
Thanks.
And the next question is from David Palmer with evercore is I please go ahead.
Thanks and congrats on a great year interesting that your digital mix increased by seven seven points and that fourth-quarter. Your same-store sales growth was obviously a lot higher over thirteen. So you can see how the new product news is letting you not lean as hard on delivery and digital order growth to drive the comp, you know looking into this year. How long how do you see your growth contribution going forward you mentioned a new product. But then again, you're also talking about ways to engage that loyalty member and I have a quick follow-up.
Yes.
So the way we're thinking about it is marketing combined with our CRM is real opportunity to grow the business with both with new users and existing users. And then as we think about our digital business flow things that I'm really excited about is our order ahead business as we continue to get people into our digital system. They really see the benefits of one joining the rewards program, but to just the convenience the ease of access by using whether it's the website or the app, we believe there's going to be continued growth there. Um, and then obviously I continue to believe that there's more growth out of our just running our restaurants better, you know, as we continue to improve on our throughput thumb that's just basically continues to be a x affect right? It's like carne asada the digital business. None of it would be nearly as effective if we don't have strong.
Execution on the basics with our restaurant. So, you know, I know I feel like every
One of these calls people always like well, what was the one thing and what's the one thing to drive, going forward? I really continue to leave the strategies that we've outlined all contribute to our ongoing growth model and Thursday, you know.
We've got lease on some will provide more certain times of the year and others will provide more other times of the year, but in the end that's why we had the year that we had and that's why I believe will continue, you know life, you know, they the the quick follow-up on that is related to I think a conception that you know going into this year. You're going to be laughing free delivery windows and you know, you've done those days margin dilutive ways to onboard consumers and I guess the question I would have is once you have them on board you I think you said eight million strong. How do you convert them into a digital users? And are you feel like you can maybe have your cake and eat it too with margins and sales as you grow that digital user base and I'll pass it on.
Yeah. Yeah Luke David obviously would you just articulated is how we want this to play out?
We continue to invest to grow the database. The good news is I think going forward it's going to be more balanced between in that in acquisition as well as kind of driving behavioral changes and you know, as our digital business continues to grow as Chipotle names become more prevalent, you know, we think there's opportunity for us to become even more efficient and now we provide people that gray Chipotle experience, you know, and the one thing I would mention is said this is the very beginning like the bottom line is we have ourselves accountable to make the economic model consistent with what we've been talking about. You know, you get 2251 25% margins and we think we see a clear sight of path on how that all happens through a combination of initiatives and then just being really I think smart about how we manage the p&l accordingly. So it's a great it's a great situation to be in where birth
You know we've invested and now we are going to be able to take.
advantage of those investments in the digital space, but I think it also plays out in you know, a lot of different ways that people access the Chipotle. So obviously we're very proud of where we are really excited about where we're going is kind of a summary
Thank you. The next question will come from Lauren Silverman with credit Swiss, please go ahead thanks. I want to ask about the Loyalty program. So now at the 8 and 1/2 million members less than a year after launching wage. What do you think makes Chipotle different than maybe some of its competitors as it relates to customer acquisition and thinking about the trajectory of membership growth going forward any color on kind of when you start to turn on off the personalized marketing.
Yeah, look, I think Chipotle's a unique restaurant company. And you know anytime we have found that we provide people the ability to wage more engagement or more access. They want to be a part of that and I think that's why the rewards program has had such quick adoption. I think it's a testament to the fact that we are committed to food with Integrity. We've got a great value proposition all the reasons. Why you love Chipotle. Okay. Now the thing is great is we have eight and a half million customers and the personalization a really is just getting started. So I'm already seeing some of our tactics go into the marketplace and what's great to see is we're seeing it have an effect on just about every cohort that we're targeting and you know, we Define those cohorts both on purchase frequency as well as I would call it lifestyle and wage.
So I think it's going to be continued to be something. We're going to want to invest to continue to grow.
But at the same time we're now taking that universe and really using it as a smart way to grow the business and you know, it's a hugely valuable asset and it's an Asus really drive going forward.
Green just to follow up to the digital sales growth. I think there's a perception of the majority is coming from delivery. So for customers going through the third-party platforms other opportunities to convert them to the Chipotle digital ecosystem.
Yeah, I would tell you that that's a little bit of a misconception. You know, the thing is gray is as we see people come into the digital system would be really nice gains in Order ahead business. Um, so, you know on the early days obviously delivery was on a percent growth rate was one of the biggest parts of our digital but one of the things I'm really excited about is the progress we're making on the Order ahead business and deliveries proving to be just a great experience for people that maybe didn't have that Caucasian which holding the past now, they believe it's convenient so they can't have those occasions with Chipotle both Order ahead as well as delivery. So it's working nicely as a system wage between rewards Order ahead delivery and now the Chipotle
Great. Thank you. Sure.
Question is from Peter Sala with btig, please go ahead great. Thanks for taking the question. I want to ask about the second make line off, you know, second base line of digitized. I can make lines down all the stores digital sales are now approaching 20% So are you starting to see some leverage on that second decline. Is there still a noticeable any which way that you guys can you know break out the contribution that you're seeing from that second decline now.
You know, look, I think we're going to be very smart about how we take advantage of that efficiency are most important thing right now is want to give people a great digital experience wage. That's why we've invested in those digital make lines. We've invested in the you know work on another digital portal pick up. The thing is greatest. We know the efficiencies there and we're going to be smarter about how we Implement that efficiency into the business so that we don't affect our growth and who are the experience of the customer has so we're delighted that we're posting it on 20% off but you know, that's not the end of this journey. That's just, you know, one of the stops on our journey to I think a much bigger business than where we are today.
All right. Thank you very much.
The next question is from Jake Bartlett with SunTrust. Great. Thanks for taking the questions. My first one is on throughput you mentioned an improvement in in the peak hour throughput I think you said June sent or or maybe 10 seconds to maybe misheard. But if you could if you could just remind us what that was and and where you are in terms of throughput versus the kind of the the low of your throughput trying to see how much you've you've improved since that low and maybe when that low was yeah. So, uh, it was the 10% Improvement is what I said, but yeah, I think we talked about this month as at our Peak we were doing you know, low thirties mid-thirties in the max 15 and they you know, unfortunately that drops to kind of a low twenties mid-twenties and which what I'm happy to say is, you know, Scott and the team have really put a lot of folks.
Guess on how do we get back to?
To grapefruit foot and you know the more we have stability in the restaurants the more we have consistency in our kpi is what we're going to hold our teams accountable for I think we'll continue to see this metric improved which just provides a better experience for a customer. But yeah the way you think about it is we had about a 10% Improvement and what I'm happy to say is as we moved into twenty-twenty we continue to see improvements. So this is one of those things that builds on top of itself and you know, if you were to talk to any of our team members, they would all know throughput is a key pillar as long as having great food great teams and having those restaurant staff to correctly. So I'm really optimistic about where operations are going to take this metrical and forward great any of you I think of through put as a as a sales driver, but it also, you know could be a a cost savings is throughput part of what you talked about in your prepared script around just flow through a better flow through a profit in in two thousand wage.
Is that going to contribute to kind of keep?
labor and check
Yeah, I mean it's part of it, you know, the the floater I'm referring to is kind of where Jack started this conversation in regard to look for every incremental dollar. We expect X percent to flow to the bottom back on and then that's how we hold the model consistent so that when we do get to 25 will have 25% margins, um or better, you know, so it's not just one thing but see that's a key indicator that we're running the restaurants correctly. You're not running the restaurants correctly if we're not going fast. And so one thing we do know is a busy restaurant a restaurant that's real quick is a well-run restaurant cuz he numbers prefer working in that environment and the customers prefer getting their food in that environment. So I'll really good stuff great. And then in the same question on G&A, you mentioned this kind of the underlying GNA and the guidance for the first quarter. I think you said 77 2-2 280. Yep.
Is that right? But?
That to me is is up. I mean, it looks versus the first quarter of last year up about, you know, ninety 10% Is that the right run-rate just in terms of the underlying GNA that underlying GNA should grow that wage at that quickly. I was I was going to warn the impression that you could kind of keep a mid-single-digit G&A growth a longer-term. I think that's right over the long-term. I think that's about right. Yeah, you know we met you started a transformation. I just move about a year-and-half ago. And so there's a few gaps that we need to fill and so that's why we want to make sure you guys saw what we were doing into the first quarter, but I think more of a mid-single-digit ish, you know in terms of under underlying DNA so we will grow our G&A at a at a less than less than the sales right so we can leverage it. I think that's correct to think about it long term but keep a guy mentioned, you know, we're in the early days of digital. So some of these resources a lot of these resources. In fact are making sure that we've got the right skill gaps, you know, what weather comes to digital weather come to the club?
ski around things like that and
Make sure we get ahead of those, but I think over a longer period of time I think something more in that kind of, you know, mid single-digit as opposed to a high single-digit is probably a good way to make about it. But it just to be clear that the firm owner should be higher than the rest of the year should be more in line with the long-term or the whole the whole year is going to be your of investment is going to be we're going to hire people and then they're going to be into the base. Got it. Thank you.
The next question is from Dennis Geiger with UBS great. Thanks and you talked about employee benefits and initiative, you know kind of how that's been translating into operational excellence. Just kind of wondering if you took a bit more about building the talent pool what that's meant for the quality of restaurants looking ahead in particular as you don't know if you still frame it as far as restaurants et cetera, just the progress that you've made there and on on on with the restaurant pool and then just going one step further thinking a little longer term around restaurant development, you know, it feels like that. This is always kind of been the you know, what the the the limiting factor from an employer perspective just how you're thinking about, you know, those benchmarks from a talent perspective to where you can kind of see a step-change looking ahead from a from a store growth perspective. Thanks. Sure. Sure. Look I'll give you a little bit of example to bring to life the progress. I think we're making a restaurant. I I was actually in Denver just a couple of weeks ago and Denver's one of our older markets and
I was visiting with our team director there Alfredo pop.
And he's got just terrific restaurant general managers. And this one young lady who was running one of our restaurants, you know, she's had three consecutive quarters wage where she's hit all the KP eyes and her and her entire crew of all gotten bonuses and she is on her way in the 4th for it. So the the first quarter but she I mean as soon as I walked in there she was like she wanted to show me your thoughts are it was all green it was, you know lays everywhere. And the first thing she told me is like we're going to get our fourth quarter in a row a crew bonus and you know what every one of those employees had a smile on her face truly energize truly engaged and and I give that just as one example of what I see as I now travel more and more across the country whether you know, you're in Arizona in Boston New York. Um, we're seeing our team members, I think just be more energized more engaged and just super proud of, you know, making a difference and Ed.
You know, it's hard to put a value on that as part of this process though. You know, we asked them. What would what does more support look like for you to be successful at Chipotle and what they came back with it is and what we should be versus great, but I actually need a debt for you a program. Like I need a program where I I don't put myself in a place where I'm behind the eight-ball and that's why we came up with the same degree program. We also heard loud and clear from a lot of young people mental health is top of mind for not only them but their family and so we brought forward those benefits, you know, so English as a second language is something also to where people like hey, it's great that have benefit for me, but it'd be great if I could have my whole family and the reason why this is important is we want the employee to feel great about working there. But we want those around them to feel great about working at Chipotle as well. And I think we're seeing the impact of that and you know, we're going to continue to fine-tune the benefits we're going to continue to fine-tuning the employee value proposition but dead.
Michael and our team's goal is we want people.
To believe and experience that when they work at you pull away. They get to be themselves. They will get to grow professionally and they will get to grow personally and uh, you know, I think if we do that we'll continue to attract the right. And we'll get much better outcomes than if we didn't have all these things in place to attract these types of people, so it's one of the places. I'm usually passionate about and it makes you it makes you get really excited when you see it happening in our restaurants. Thank you.
The next question comes from John glass with Morgan Stanley.
Thanks very much first just on the loyalty and program enhancements Bryan that you're planning. How much work has been done. Are you ready to do sort of phase two and do more bespoke offers or more work behind the scenes that you need to do before you can do that. I know it's easier said than done and and when should we expect those more bespoke or personalized offers to start appearing?
Yeah, John great question be bespoke or more personalized offers that had begun. You know, we're kind of rolling right now with it so long it's going to be happening all year long and I think as every week goes by we're only going to get better at it. So and I'm really it's nice to see the work that's been done over the last year's start to come to fruition in 2020.
and then
Jack just to margin questions one is you didn't mention in the labor commentary, you know the cost of the bonus program. Can you just quantify what that may have been in I assume that's entirely variable, right? So Thursday, if concert a moderate that some of the bonus goes away so we shouldn't worry about Labor dollars per growth, you know, it's it's going to be relative to comp growth. Is that fair? Basically, is it really the bonus Thursday's? Yeah. Well, we're not breaking out the dollar amount. I would put that into the category of the 45% inflation. You know, that's the piece where I mentioned we have about 140 basis points of headwind Labor normal wage inflation include deadlifts degrees and includes the bonus program. All these things are Brian mentioned of those are all in that and I and I know that doesn't technically, you know qualify as wage inflation a way you might think about it but these are all things we're doing to make sure that we have the best Workforce we can and that we engage them and and then we keep them so that's all included, you know in in that and that number and I wouldn't yep.
It as a hundred percent variables.
You have because there's qualitative figures in there as well. Sure. When sales are good. That means our bars is going to be good until they they'll be hitting those metrics. There's other metrics as well that aren't as direct so I wouldn't call it off my variable. So generally yes going to be tougher to earn the bonus. We don't have very strong sales very strong Hearts, but it's not it's not a hundred percent variable to sales. Okay, and then just just finally you mentioned there may be a modest impact the comp on the on the Loyalty program deferred, you know benefits. How what is modest mean how how big would that be dragged be? We had seen Thirty and forty days of points early last year June and as we've seen the program material little bit and people have earned their reward their redeeming them and the redemptions are you know, now offsetting the deferrals and so it'll be dead. We think in most quarters it's going to be less than it was, you know, early last year when it was in the thirty forty basis points. So like this past quarter because we may also need a little adjustment on our break which wage
There was noted in that and so I think the future is either going to be very little to no net impact that it. Thank you.
Recent openings, and I think they were described as the highest and Company history. I know you mentioned earlier in the context of investment that we shouldn't expect a large accelerations and openings, but given these really strong productivity results. Does this potentially potentially shift your thinking incrementally at all on development in the near to medium-term?
Yeah, so, you know, I think the way we've been sharing this with you guys is the economic model and the availability of sites for Chipotle continues to be a huge opportunity wage. Um, and you know, we increased obviously what we're going to build in 2020 and I think we're going to continue you're going to continue to see us. I think you accelerate Back to the Future years of for two reasons one the economic supported the customers wanted and then the second key pieces. I think we now have our operation to place where we're developing leaders to be ready to take over those restaurants. So, you know, we're we want to be smart about how we continue to move forward on adding a unit's dead a good news is that returns continue to degrade? Our operations are running better. Our people development is in a much better place, and I think it sets the stage for as nicely to continue to grow dead.
And the next question will come from Chris Carl with RBC, please go ahead. All right. Thanks for taking the question. So, you know to the very strong productivity.
from where we are right now, so
You know, I see a future where we could get back to the 200, you know plus restaurants. It's just not going to happen. You know this year great. Thanks.
Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Brian niccol for any closing remarks.
All right. Thanks and thanks for everybody for taking the time. Obviously very proud of Chipotle for delivering which is a great 2019 wage. You know, I think we touched on each of our key strategies the thing I just want to emphasize everybody is I believe you don't get these results without developing the right culture and the right people and I think is happening in all facets of our business whether it's operations marketing digital HR, um public affairs. I I do believe we are building out a track team that has world-class leaders in all aspects of this company and those leaders are building a strong culture that's focused on cultivating a better world and developing Future Leaders wage. So that be strategies that I believe a tremendous Runway of growth can be executed flawlessly. So I do want to say thank you to everybody for terrific.
in 2019, but as we
Mentioned earlier these strategies are not just about 2019 there about 2020 and we'll be on and we're confident Chipotle is going to continue to be a unique brand that page unique experience that will continue to derive and attract great people and a great culture. So thanks for listening and we'll talk to you in a quarter. Thanks.
The conference has now concluded thank you for attending today's presentation. You may now disconnect.
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