Q4 2020 Chipotle Mexican Grill Inc Earnings Call
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In 2020, our full year performance showed good progress with sales growing seven 1% to reach $6 billion driven by a good afternoon. This at the operator was speaking privately may of your first and last name.
Yes, it's on Bianca B I E.
And some Bianca V I a N C a.
Last name is S for Sierra a wild and November.
Company of which.
Of error of that a I E R E.
For joining of the call Bianca. Thank you you are now rejoining the main conference of when not if.
Let me now provide a brief update on each of these strategies, which I believe still have plenty of runway. These are number one making the brand visible relevant and loved number two utilizing a disciplined approach to creativity and innovation number three leveraging digital capabilities to drive productivity and expand access convenience and engagement.
Number for engaging with customers through our loyalty program and number five running successful restaurants with a strong culture that provides great food with integrity, while delivering exceptional in restaurant and digital experiences.
Beginning with our marketing programs, which are generating attractive returns by driving culture driving of difference and ultimately driving purchase our creative marketing initiatives across both traditional and digital channels continue to be successful in attracting new users to chipotle as well as motivating existing customers to come more often.
Whether it was switching our Halloween celebration to an entirely digital offering for the first time unveiling a new line of Chipotle merchandise ahead of the holiday season for launching real food prep of sustainability impact tracker that shows how chipotle ingredients are better for the planet. The marketing team did a terrific job consistently enhancing our brand and purpose using the right message.
With the right vehicle.
Traditional advertising also remains an important marketing tool for Chipotle, we connected and engaged with guests store behind the foil TV campaign in of new avocado journey spot highlighting real ingredients real cooking techniques and real employees. We also featured our making an order spot the highlights of the ease of customizing your order on our App to continue to drive awareness of digital ordering.
And last week, we announced our first ever Super Bowl commercial that will air during the second quarter at the Big game. This Sunday. Despite his title can of Brito change the world and highlights Chipotle commitment to cultivating a better world through its real food sustainable sourcing and commitment to the farming industry.
Supplementing these efforts are a steady flow of new menu innovation that is validated by our stage gate process, which gives new and existing customers even more reasons to visit chipotle.
Since our initial offering of Carneous at ended last year. We continued hearing from our guests that they wanted to back. So we found a way to source more tender cuts of steak that met our food with integrity standards and brought it back for limited time across the U S and Canada as well as in France for the first time.
At the relaunch, which we expect to last through early March is going well and we're encouraged at the incidence mix of similar to what we saw last year.
In addition in January launched lots of relying cauliflower rice for limited time across the U S and Canada. We're excited to introduce this plant powered better for you option that aligns with the latest health trends and emphasize of the benefits of real food with only four grams of net cars per serving it puts a delicious twist on Chipotle classic rice recipe by using the same fresh.
Real ingredients and culinary techniques for.
Early feedback has been outstanding Cauliflower Rice is definitely on trend of great reason for new guests to try chipotle for the first time or entice existing guests to visit more often and it keeps our lifestyle bowls platform top of mind.
We have two other menu items currently being tested the first is case at is which is available as of digital only menu option in a few test markets. We continue to make operational progress and remain optimistic about the potential for case of D has to be available nationwide in the near future.
The second item is our smoked brisket, which is currently being tested and showing encouraging results I personally love the richness of our smoked brisket recipe as it delivers of flavor. Unlike anything else at Chipotle, we are gaining valuable feedback on both of these items and we'll update you on their progress as well as other menu items that are in early development as they move through our stage gate process.
Moving to the next strategic driver of our digital platform, which continues to be of big beneficiary from guests adopting the digital off premise occasion Q for digital sales grew 177% year over year to $781 million and represented 49% of sales. This was consistent with Q3 digital sales and mix higher.
Lighting, our ongoing momentum in the fact that Chipotle is top of mind for a lot more eating and dining occasions than we were in the past we're not stopping there we've made our digital channel even more convenient with easy ordering in the Chipotle App and website enhancements such as unlimited customization contactless delivery and group ordering.
As a result, and I mentioned this earlier full year digital sales for $2 $8 billion, representing 46% of total sales and growing a 174% year over year, what an amazing accomplishment at this sales rate our average restaurant delivers of digital <unk> of $1 $1 million.
With this success, we will not allow complacency to set in rather we will continue to look for ways to further enhance our digital ecosystem. For example, we just announced of car side pickup pilot and in San Jose as an additional access point for our guests. In addition, we are opening up more and more Chipotle, Inc. And are in the early stages of testing alternate formats like our per.
First ever digital only restaurants outside of West point. This new prototype allows us to enter more trade areas that wouldn't support of full size restaurant and allows for greater flexibility with future locations. It's early days, but this location has outperformed our expectations thus far.
During the quarter about half of the digital net sales came via order ahead and pickup transactions or digital pickup orders as we refer to them with the remainder coming from the delivery channel. However, our overall digital mix moved up above 50% of late in the quarter as Covid restrictions toughened largely driven by an increase in digital pickup orders I am pleased to report that the strong digital.
Momentum has continued into January with our digital mix remaining in the low 50 per cent range.
Another area, where we saw a big benefit in 2020 is our rewards program, which added over 10 million members in the last year and currently has nearly 19 of half million enrolled members. This gives us the ability to communicate organically with a large and passionate community of Chipotle fans. We are focused on strengthening our creative and analytical capabilities.
Cities by using predictive modeling to ensure that our members feel known and valued as we elevate their relationship with Chipotle.
We strategically share brand and promotional messages with personalized content weekly. In addition, we reach customers with dedicated journeys focus on welcoming new members growing frequency and minimizing lapsing behavior.
There are pre program touch points in place of drive customer value of across their life cycle, including a keen focus on retaining digital customers, who have experienced the brand in new ways over the last year.
Although at Chipotle words, and at CRM capability have been active for less than two years, we have already made significant progress and have further enhancements planned in the coming months that we expect will continue to drive frequency increases across our customer segments.
Finally, I want to spend some time on our restaurant operations, where the team stayed focused on safety reliability and excellent culinary as at seamlessly adapted to abrupt changes in guest needs and ordering patterns.
At this hasn't been easy, especially at the number of Covid cases began to spike and at times impacted our staffing capabilities, but they have been up to the challenge and I'm. So proud of our operational leaders and team members. They have been unwavering in their desire and execution of the right things for each other our customers our community and our business.
And as I mentioned at the beginning my remarks, Chipotle has continued to reward and invest in our team members to ensure we are creating an environment that allows our employees to develop and thrive in their career not only today, but also in the future. We offer best in class benefits, coupled with training development and promotional opportunities that foster of learning culture for continual growth.
Turnover continues to be relatively stable and we are seeing plenty of great applicants for open positions to staff, our expected growth in AAV and new restaurant openings. In fact, we held our first national hiring event of the year called coast to coast career day in mid January with a goal of employing 15000, new restaurant team members across the U S.
At an overwhelming response and feel fortunate to have a reputation for attracting and developing great talent.
In closing I believe our performance in 2020 was in some ways, even more impressive than what we achieved in 2019 and highlights of the Chipotle brand is remain visible and flexible in order to stay relevant our ability to pivot and adapt to the rapidly changing needs of our guests is a testament to the durability of our model and the strength of our team members.
My sincere thanks to our employees for their passion to make chipotle of welcoming place for all and a special place to work as we look ahead of the rollout of vaccines gives us hope at the world can return to a more normal environment at some point during 2021, and I am and I'm optimistic that resiliency will prevail as people want to get back together to share of meal.
And share some stories in the meantime, we're ready to navigate through any potential challenges with world class talent and inclusive culture strong business fundamentals and deep financial strength, we feel well prepared to emerge even stronger post COVID-19 and continuing to serve and delight our guests.
With that here's Jack to walk you through the financials.
Thanks, Brian and good afternoon, everyone. Despite ongoing challenges related to Covid. We're pleased to report solid fourth quarter results with sales growing 11, 6% year over year to $1 $6 billion at comp sales grew five 7%.
Restaurant level margin of 19, 5% was 30 basis points higher than last year and earnings per share adjusted for unusual items was $3 48.
Representing at 21, 7% year over year increase for fourth quarter had of nonrecurring tax benefit was partially offset by expenses related to legal reserves restaurant asset impairments and closure costs transformation expenses and other adjustments, which netted to positively impact earnings per share by $3 21.
Moving to GAAP earnings per share of $6 69 times for.
For the full year sales increased seven 1% to $6 billion on a comp increase of one 8%.
Restaurant level margins were 17, 4% of decrease of 310 basis points, we generated earnings per share adjusted for unusual expenses of $10 73.
A decrease of 23, 6% over last year.
We have nonrecurring tax benefit that was partially offset by expenses related to legal reserves restaurant asset impairments and closure costs as well as our transformation that positively impacted our earnings per share by one dollar and 79, leading to GAAP earnings per share of $12.52.
While the uncertainty from Covid makes it difficult to provide comp guidance for full year 2021.
We remain optimistic about our future prospects as evidenced by a great start to Q1 with January comps accelerating to roughly 11% despite a very difficult comparison.
Sales in last week of January we're in the high single digits with winter weather across the country of contributing to lower comp.
Assuming the pandemic doesn't worsen we expect our Q1 comp to be at the mid to high teens range given an easier comparison during the second half of March.
Food costs were 31% in Q4, a decrease of 210 day point basis points from last year and this was due primarily to menu price increases along with better waste control, partially offset by fewer sales of high margin beverages and higher dairy pricing.
In Q1 weeks.
Food costs of remain right around 31% at the benefit from a full quarter of menu price increases will be offset by higher cost menu items, such as cauliflower rice as well at slightly higher avocado prices.
Labor costs for the quarter was 25, 4% of decrease of 110 basis points from last year.
This decrease was driven primarily by sales leverage and efficiencies related to digital orders.
They offset by Covid related expenses, including exclusion peg as well as normal labor inflation.
We expect labor copyright around 25% during Q1 at the expected benefit from sales leverage was offset by ongoing COVID-19 related expenses.
Other operating costs for the quarter was 17, 9% an increase of 310 basis points from last year, due primarily to higher delivery fees in the quarter.
Delivery of expenses were elevated year over year, given the significant growth in delivery with delivery sales now nearly 25 per cent of total sales.
To help improve the economics on its premium access point, we have implemented several delivery menu price differential with a weighted average being right around 13%.
We've seen modest resistant thus far and we'll continue to monitor and adjust pricing at the appropriate at the market level or at the restaurant level.
Marketing and promo cost for the quarter were three 9% of decrease of 20 basis points for last year.
But as expected it was 130 basis point sequential increase from Q3 to support hernia setup and latest brand messaging under our behind the foil campaign we.
Spent marketing spend to be near 4% in Q1, which would be at the highest quarterly level. During 2021 in order to support new menu items as well at the upcoming Super Bowl at.
As a result of at a higher anticipated marketing spend and ongoing momentum at our delivery business. We expect other operating cost to be right around 17% in Q1.
The Q4 of restaurant level margin was 19, 5%, while our trailing 12 month average unit volumes were roughly $2 2 million, which.
Which is back to our pre COVID-19 levels.
We expect to close much of this margin gap versus the 22% expected at this volume of 2021 at Covid related impacts and delivery economics normalized and as quarterly marketing expenses even out.
Note that some of this GAAP relates to delivery of counting is increased delivery menu prices as well at delivery and service fee had the effect of grossing up which may create the appearance at margin algorithm gap is widening there.
Therefore, we now disclose on <unk> with and without the delivery menu price increase to provide better clarity and transparency.
G&A for the quarter was $124 million on a GAAP basis of $114 million on a non-GAAP basis, excluding roughly $7 million for at settlement of several older legal matters and nearly $3 million related to transformation expenses.
G&A also includes $90 million on underlying G&A.
On a $1 million related to noncash stock comp.
And of $4 million bonus performance adjustment due to our strong performance in 2020, despite the pandemic.
We are still on the early innings of our growth lifecycle, and therefore continued to make important G&A investment in 2020, despite the COVID-19 pandemic.
We saw an uptick in Q4 underlying G&A due to technology investments customer service enhancements increased head count as well as higher medical claims.
Looking ahead to Q1, we expect underlying G&A expense.
Moving forward in the $90 million range as we continue to make tech investments the majority of which are revenue generating to bolster our expanding digital and loyalty platforms.
These include initiatives at our customer facing like App upgrades as well as behind the scenes initiatives like of new labor scheduling tool and.
In addition, we also plan to increase head count in order to support our expected accelerated growth.
Even with this elevated spend at our goal remains to deliver leverage on this line item relative to our sales growth.
Stock comp will likely be around $23 million each quarter in 2021, although this amount could move up or down based on our actual performance.
We also expect to recognize at around $4 million of employer taxes in Q1 associated with shares that vest at the beginning of our fiscal year.
Lastly, our 2018 performance shares were modified to account for unplanned effects of Covid. This.
This will result in a GAAP accounting charge of about $24 million for both Q1, and Q2 and about $8 million of Q3 and Q4.
We plan to present non-GAAP results without these unusual charges to clearly show our underlying business performance.
Our effective tax rate for Q4 was negative 62, 2% on a GAAP basis, and 24, 6% on a non-GAAP based on it.
The difference is due to recognizing a net operating loss for tax purposes in 2020, which we expect to carry back to the preceding five years.
We generated a net NOL for tax purposes, due to several factors, including the impact of Covid increased tax deduction for equity.
Vesting and exercises accelerated tax depreciation deductions and various tax planning initiatives and income tax.
Tax benefit of generated due to the difference in federal tax rates between 2020 and of years at the federal NOL at would be carried back to.
For fiscal 2021, we estimate our underlying effective tax rate to be in at $25 27 per cent range, though it may vary based on discrete items, such as stock option exercise at this.
This range assumes no change to current income tax rate.
And if corporate tax rates change as a result of tax reform under the by the administration.
We will revisit our estimated effective tax rate.
Turning now to the balance sheet, where we ended Q4 with $1 $1 billion of cash restricted cash and investments and no debt.
Along with at 600 million dollar of untapped credit facility.
We're privileged to have this financial strength with which to make ongoing strategic investments in our people our business and our communities to further differentiate the chipotle brand and support our expected growth for 2021 and beyond.
We didnt buyback any stock in Q4, but of our business continues to improve and the economy continued to stabilize you will likely began buying again in late Q1 early Q2.
One area that definitely benefited from our strong cash position as restaurant design and real estate development, where we remain diligent and aggressive while many of our peers pulled back.
I'm really impressed by the hard work of our development and operations teams as they opened 61, new restaurants in the fourth quarter with 42, including at Chipotle.
For the full year, a successfully navigated construction and permitting challenges and opened 161, new restaurant with 100, including at Chipotle.
Remarkably this was towards the high end of the $1 50 to 155 range, we provided before the onset of the pandemic.
As of yearend, we had on a total of 170 chipotle, including five conversions.
Performance for these formats continues to be stellar.
The digital GAAP versus non chipotle restaurants remains around 10%.
Driven entirely by higher margin digital pickup orders.
And sales at the Chipotle in cohort continue to outperform the non Chipotle end result from the same open period in fact, non com Chipotle sales are opening close to our existing restaurant at UV versus historical peak productivity in the mid to high 80 per cent range.
These results reaffirm our strategy of an accelerated pivot towards chipotle in sight.
Not only at will this enhance customer access and convenient but it also helps increase new restaurant sales margins and returns.
While 62% of new restaurants in 2020 had at Chipotle and our goal is to have more than 70 per cent of openings included Chipotle in 2021, but we anticipate opening around 200, new restaurants of course. This development guidance assumes no major COVID-19 related delays in 'twenty and 'twenty one.
Guidance also includes remodeling or relocating 10 to 15 restaurants this year to add at Chipotle.
This will allow us to learn and ensure we're getting a superior return on this investment of four potentially ramping up the number of remodel and of relocations in the future.
Let me end by also expressing my gratitude to all of our team members in our restaurants and in support roles as they overcame countless challenges and embrace change to safely serve and delight our guests at.
Through this collaborative effort that we've been able to achieve such an impressive performance in 2020 and continue to build momentum at the start of this year.
With that we're happy to take your questions.
Thank you and we will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble the roster.
My first question today will come from Nicole Miller with Piper Sandler. Please go ahead.
Thank you and congratulations on a great year, despite all the challenges.
I wanted to just talk about the go forward estimates and opportunity around unit growth.
If you remove the barriers to development that of Covid really like and certainly there is no financial harder hurdles from a from a cash perspective, how fast can your current team dealt with a fully formed with a fully formed bank essentially what are stretch goals at that you look at it internally.
Yes, Thanks Nicole.
Look I think what we're really excited about is we definitely see the opportunity of getting back above 200 restaurants.
And the good news is part of the reason why we're accelerating is because of our operations are running so well and we know we've got the people bench to run those restaurants.
We will continue to look.
Look for great sites on the good news is we have a lot of inbound desire for chipotle.
Coming from a lot of different places and we know we still have lots of places to build.
So we're very optimistic about how we can accelerate from where we finished this year at a 161 to getting to 200 and beyond so.
Jack I know, if you want to add anything to that.
No Brian I think you said it well.
Nicole you know R. R.
Record for for a year was right around $2 50.
We certainly can get up to that point I don't know.
I don't know it will take US a couple of years or not but I think the sites are coming to us as Brian mentioned, we've got the deep bench now, but we're doing a step at a time, where kind of go from 161 to something around this 200 level, but we certainly can go beyond that.
And Todd the cauliflower rice at outstanding I've tried it and multiple channels when I go on to the restaurant at at $2 of charge, one eight order through the marketplace for for $2.25 of charge is that how you're getting the pricing power can you give for established on for.
For us today that you're not taking 13% of across the board of right. There is there is a strategic I imagine algorithm that helps produce at pricing power.
Yes, that's exactly right Nicole were.
We're basically testing a lot of different pricing levers, but we are very strategic in where we choose to implement that pricing.
And you're right the only place that we've taken.
Of that 13 percentage in the delivery channel.
<unk>.
Effectively.
It plays out the way you just described at white on a.
Cauliflower rice add on or to your total ticket depending on what you're ordering so.
It's an ongoing process, it's a fluid process and.
We're not done working on it.
Thank you appreciate it.
Sure.
And our next question will come from David Palmer with Evercore ISI. Please go ahead.
Thanks actually had three small questions.
One you mentioned in their release that delivery added a point or so to comp in that quarter.
That.
Was that for the entire quarter were for will that be a bigger of tailwind in the first quarter and beyond I didn't catch that forgive me if you've said that.
And then Jack just the the restaurant level margins.
Just on that as well about how the 19 of half or so was short of that relationship that you would have for of $2 $2 million box.
I E. You would that should be 22%. If you get your delivery economics up to speed should we should we be thinking about what is the the buildup that in that margin through the year. How fast can you close that gap in that relationship and I guess the last thing is.
When it comes to the two year trend in comp.
So basically if you look at the street numbers people are thinking of mid teens two year.
Theyre about after we get vaccines.
And I'm wondering how you I know youre, not giving guidance, but how do you think about debt the debt net of people, having more options, but yet you having of perhaps a better daytime traffic and walk in traffic then you would sorry for the three questions.
Jack you want to take the delivery in margin and then I can touch on the last piece.
Yes, sure thing, Brian I'll start with of margin.
Cause I might I might David ask you for a little clarity on the delivery comp question, but on the margin you heard at right right now, we're being bogged down by some of the Covid related expenses of Theres.
Theres also delivery ends up being a drag right now but.
But we can see as COVID-19 began to be in the rear view mirror and as we have taken some action and we consider other action on how we're going to offset the margin impact of delivery.
I would expect by the end of the year I mean, remember COVID-19 is gonna be with us for at least a quarter or two I mean of vaccines not gonna be widely available until more of like a mid year. So it's going to be more second half of the year, but I feel good about by the second half of the year that we should be closing that gap if not all the way we'll be knocking on the door on what the.
The margin of algorithm.
It would be and then David maybe you can clarify yeah parts about delivery.
Yeah, and maybe I'm misunderstanding this but I think you talked about of 13% increase or 13% higher prices for your delivery menu.
Mind.
And you said of point I think there is in the release that it was about.
800 basis point help to your comp in the quarter, maybe that was because there was only there for part of the quarter because I would imagine that if delivery was about a quarter of your business I'm just trying to understand if that could be if delivery pricing could be a bigger lift in the coming quarters, that's basically yeah.
So here, let me, let me say what delivery actually did driver in the quarter the 13%.
Percent because deliveries of about 25 per cent of that end up being an effective like three on a quarter like call at 3%, 3.25% price increase that's the impact on the quarter end the price increase.
We had two we had one in August one in early October. So we had a full effect during the quarter. So that that's more of the impact that we had during the quarter.
Got it okay. Thanks.
<unk>.
And then David just in regards to your question about <unk>.
I think it's really our confidence in where the business goes from here.
It was kind of what you are getting at which is yeah look I think the thing that.
Really optimistic about is we have really grown a meaningful digital business. That's got access for just about every occasion, you can think of and currently we're even testing our car side access what I've seen is in the markets, where we start to open those dining rooms up you don't lose those occasions, you pick up the occasions that kind of on.
Impacted by Covid and it really is an an situation not an or.
No it's not at 100% back in the dining room and some of these regions, but we're seeing 50, 60% of of the dining room business come back and we're hanging on to 85%, 80% of our digital business and.
As you walk into 2021 of our digital system now has $19 5 million members and what we've seen is they liked the additional access the convenience that it provides and they liked our ability to communicate with them through that rewards program and.
So look I think January is a great example of the strength of Chipotle business still being impacted by Covid rolling over a year ago that didn't have COVID-19.
And I think it just shows the power of the new access points the way, we're running our restaurants the culture that we have in our restaurants.
And then you ultimately our customers believe in the food, believing the purpose. So you know.
Very optimistic about where we get to and as Jack pointed out I think as the year goes on you're going to continue to see us make progress on getting that algorithm back to where we said it will get to.
As Covid wanes and some of these expenses go away and because of delivery channel, we kind of normalize it into our business going forward.
Great. Thank you.
Yes.
And our next.
<unk> will come from Chris Carroll with RBC capital markets. Please.
Please go ahead.
Hi, Thanks for taking the question.
So I think last quarter, you quantified at about 100 basis points of direct and indirect margin drag from Covid related costs could you provide an update on how these costs impacted the margins in the for Q and then any thoughts on how we should think about these costs over the course of the year that'll be really helpful.
Yes, Chris.
Yeah.
Still in that ballpark you know there is direct and indirect like for example, we had extremely can pay during the quarter so that for employees.
Have been or may have been exposed and so they don't work, we don't want them at a restaurant, but we pay them anyway.
At all by itself.
At this point.
There is indirect items as well like for example, we're selling less of beverages.
Selling a few more of them.
Okay.
It seems a little counterintuitive why would drive that but we have a lot of new customers coming in and they've been moving into those those items of unclear whether that will totally normalized.
After that depend on it but I would say with the direct and indirect at we know about.
Hum.
One other thing at this point.
Great.
No.
Okay.
Both of those are the biggest threat.
Yeah.
Yes.
Right.
Yes.
Right.
Yeah.
Check.
Losing you I don't know if.
Sure.
Your microphone.
Oh, sorry about that okay I'll take it on speaker can you hear me a little better now.
That's a lot better you were kind of at you said Russ.
At the same and then you started to trail off.
So it's it's I would call at in that of the direct impact it's going to be on that 50 to 100 basis point impact.
And and that counts things like the exclusion pay which is very direct and then product mix shifts and then does not count delivery delivery of all by itself is.
At the kind of be a pressure on this you probably of call. It the 60 to 80 or 90 basis point impact, but I think the key to all of this is we believe as Covid is.
It's starting to move into the rearview mirror as we're starting to move out of it.
And combined with actions that we will take two to either offset some of these costs or find other efficiencies. We do think we can capture all of this margin.
Okay, great. Thanks, I'll pass it along.
And on our next question will come from David Tarantino with Baird. Please go ahead.
Hey, good afternoon, Brian I wanted to come back to the question of on the interplay between the delivery channel and your end restaurant business and I wanted to.
Get a gauge for what you think is possible in terms of the end restaurant transactions. Returning I think you said, you're recapturing 50 to 60 per cent and I think maybe 60 per cent of your dining rooms are still closed. So I guess, what do you think the upside is on the end restaurant business coming back end.
And how much.
Of the digital channel do you think has to replace those on restaurant transactions I guess at differently. So.
Yes sure.
What I would say David is we're still seeing like that lunch occasion have a real opportunity and what we've seen is in places where you have people moving around more for whatever their routine as.
You see that occasion is still happening where they want to come into the restaurant.
And look I still think the occasion of the dining room experience gives you something unique.
At another level of customization, because you get to be face to face.
With how we're making your food versus the on line occasion.
And so when we talk to customers. There is a fair amount of people that when they have the opportunity. They will want to go back to their dining occasion, the thing that I find really promising and that is they've also adopted new off premise digital occasions that theyre not going to abandon and when we look at the venn diagram of the world where it used.
To be their exclusive.
I only did online and I only do in dining and there was a few that day. Both that's changed you've got a lot more people doing both and we've got people that historically, probably would not have tried at if not for.
Unfortunately, the COVID-19, but they still really loved that in restaurant experience and now we're top of mind for that occasion, when they're not going to be in the restaurants. So.
We're seeing a scenario where digital kind of proved to be very sticky and people look forward to getting back out and going into our restaurants.
Great and then I guess the second question of you know you mentioned something about.
You know with your with your digital marketing efforts for your loyalty program, making it a priority that some of those digital customers can you just elaborate on on what Youre doing there yes.
Yeah sure. So you know.
At this what I mentioned, we've got 19, and a half million folks in this and the team has really done a terrific job of setting up I think the right cohorts understanding the frequency of how they need to communicate with those cohorts and then drive home the idea of engagement.
And or driving home frequency or purchasing behaviors and we've got various journeys taking place I mentioned it in my prepared remarks, and what we're seeing is it does have a powerful impact on people's frequency at.
And.
The good news is we believe.
We're learning more every day, but what we've learned to date I think he is going to have a powerful tailwind for us going forward and if you think about 2020, we started the year with I think it was less than $10 million.
In our system. So you've got twice the amount of people that we can influence behavior with on a pretty one to one basis. So.
That's why you hear me talking about why I see it as being a driver going forward.
Great. Thank you.
And our next question will come from John Glass with Morgan Stanley. Please go ahead.
Hi, Thanks, very much for first just a follow up on on the delivery cost. Jack you said, the 60 to 80 basis points of pressure of $69 90, or whatever it was is that inclusive is that after you've taken this price increase or was that prior end.
Is there when you think about offering it is there a way to offset at fully or are you thinking about you can recapture the margin elsewhere at delivery will always be at some dilution of the margin, but she just get it somewhere else or is there a way you think within delivery specifically that you can fully offset that those fleet delivery cost outbound.
Yes, John here at your let me, let me kind of walk through the pieces.
The price increase that we took it covers the dollar cost of delivery like there was an increase in delivery.
This year versus last year, because so many people moved into that that that channel.
And so the price increase we took so far it gets us to about a breakeven versus last year in terms of of dollar from a dollar standpoint, but if you go through the math and it's easiest to do this on an annual basis is if you.
You know, there's there's 13% on 25 per cent of the business ends up being about $80000 and so let's look at the average cost of delivery being about 80000 on average per restaurant. When you take that that price increase at ends up being about three three on a quarter. Your sales will go up by about 80000 of so you cover those dollars or cash flow on a per restaurant basis out of this.
But he can go through the math and take the same cash flow and take 25%, which ends up being $625000 of cash flow, that's $2 5 million at at 25% margin and if your costs go up at 80000 and your revenue goes up at 80000. Your margin is going to go down by 88 basis points and so we don't make any less money, but the margin.
Does end up being dilutive just because of the math now we think there are things that we can do either levers we can pull of other efficiencies. We could buy we think over time, we can offset that but that's just a math challenge that you know that we're dealing with.
Got it that's helpful and then Brian maybe just bigger picture now you've got some more chipotle <unk> under your belt, you're looking at.
Maybe it's just early days, but of digital only restaurants. When is the time to reexamine kind of of total opportunities of units in the U S and and you haven't even thought of on international in a long long time, I think France is thrown into one of the comments.
<unk> is at a moment now where you start to really think about of global opportunity and start to talk engage with either master franchisees or your own organization of how you do that or is that still at.
Two for in the future and you've got too much on your plate right now to really engage in that.
Yeah sure. So look the first part of your question around the opportunity in the U S is we're very optimistic about chipotle.
And then the various executions, we can pull off to bring chipotle to every trade area and.
In the United States debt.
We think makes sense for Chipotle and.
And I think we've talked about that as hey, we're accelerating we're gonna get back above 200, we're within striking distance of where the Max level of development, we did in the past.
And so the economics look great. The new restaurant openings are opening really strong chipotle and continues to perform and you see us experimenting with dish.
Digital only you'll see us experimenting with Chipotle is only.
But at the end of the day I mean, the whole business of Chipotle, where you've got both lines of Chipotle and is an access point with this digital system. It's just really winning economics and there are a lot of those sites available in the U S.
To your question about international.
Obviously, we believe chipotle can travel beyond the United States.
We're already seeing some success in Canada, and then obviously, we've got some plans in place for places that we already of our foot in the door. So think of the U K France.
Specifically and.
And so youre going to see of starting to.
It really use kind of our stage gate process to <unk>.
Move those markets along.
And then we will evaluate other regions. Accordingly, we have not made decisions on how we want to enter those other markets and frankly, we haven't laid out exactly.
The order of how we're going to do it for.
For now we want to deliver the U S.
And where we already have some presence we're going to start.
Leaning into to see how much more upside there is we have an idea and then obviously, we're going to evaluate where we go beyond the markets that we're currently are but.
When we've done some research at.
What is clear is people love the purpose of food with integrity. They loved the customization they love the food.
And frankly, the whole value proposition I think has legs well beyond the United States.
Okay. Thank you.
Yeah.
And our next question will come from Jared Garber with Goldman Sachs. Please go ahead.
Hi, Thank you very much for taking the question really great to see the results this year.
I wanted to ask Scott Brian.
Quickly on on the marketing side one of your goals. When he joined the company was to boost the visibility of brand and you talked about that at the top.
And so you'll be running a super Bowl AD. This year, which is the first for the company can you talk about the brands visibility now on where it stands versus maybe several years ago. When you took over in on how Youre thinking about continued opportunities going forward and I have a quick follow up on the carnitas rather of the cauliflower rice and if youre seeing new customers joined the Brian Obviously, it's only been.
A couple of weeks, but of course being new customers.
Visit on the back of that.
Yeah sure Thanks, Curt and welcome.
So look first of all I just believe our message is a strong message that differentiates our brand and it's a message that is very much on trend with how young people want to eat in the future of how people want to eat so youre going to see us continue to push the visibility of Chipotle and the idea of real food with real cooking real culinary.
John Frankly every day and what I can tell you is when I rewind the tapes when I first got here back in 2018.
<unk> spending about the same percentage of dollars and nobody.
All of the brand.
I would have asked you whats chipotle up to you would not have been able to give me a good answer frankly.
Frankly, it would've been somebody else's narrative and I think fast forward to where we are today I know our brand is stronger from an awareness standpoint for what we stand for I know the brand is stronger from a trust standpoint, I know the brand is stronger when it comes to.
Our menu innovation as well as our approach to culinary. So we've made tremendous progress of the marketing team I think has done a fabulous job of keeping the brand.
In culture, and leading culture and.
Kind of continuing to see us do that.
I'm excited about bringing our message of the Super Bowl platform.
It's going to be a very widely watched Super Bowl and a lot of customers say to US you know I feel good about eating at chipotle, but they can articulate why we're gonna tell them why they feel good about at obviously they loved the culinary aspect, but now they're going to get clarity on why they feel good about why they choose the branch of a whole day.
Youll see at in the advertising around our approach to farming animals sustainability and frankly, the communities that we support and operating.
And then your second question about Cauliflower Rice look I love. It it's really good I highly recommend at if you haven't tried it I'd recommend going 50, 50 of little Brown Rice and cauliflower rice.
But with that said the good news is about 25% of our orders are coming from newer infrequent customers.
Which is really terrific. So.
It's off to a great start and of our operators are doing a great job of making the call with all of our.
Absolutely perfect. So.
We're really happy with how that's come out of the gate.
And our next question will come from Andrew Charles with Cowen. Please go ahead.
Great. Thanks, I had two questions one on Quesadilla and one on catering so Brian you mentioned at the National launch of case of deals are in the near feature.
It's constantly on <unk> same store sales guidance given it implies a deceleration to your trends from January of two of the combined February March timeframe.
At this guidance reflect uncertainty over the course of the pandemic or more so conservatism at this case. It is our expected launch later in the quarter.
My second question on catering you know as we look towards the reopening how big of an emphasis do you plan to place on catering given the GAAP you guys historically had with 1% of your sales coming from catering before the pandemic versus fast casual peers that were typically in at 8% range.
So to answer your first question look I think there's still as much as im optimistic that the vaccine program is getting better as everyday goes by and it really is amazing to see the efficacy of these vaccines.
There still is we want to be cautious about where COVID-19 goes from here.
So we're being careful on that front.
And then obviously as we are able to lock and load on new initiatives, we will share that with you guys were still in the phase of making sure we got the equipment rolled out everywhere.
We're feeling really good about the training, we're going to do around case of DSO.
More to come on that front, but I would say more of it is just.
There's still a lot of unknown Luckily every day seems to be better with this with the whole COVID-19 issue both.
Vaccine rates seem to be going up in COVID-19 cases seem to be going down and luckily less and less people are ending up in the hospital. So I'm optimistic, but we wanted to be conservative on that front.
And then regarding catering yeah look Andrew I think it's a huge opportunity once people want to get back together.
I think it's gonna be a real big opportunity for for our business and it's.
It's one of the areas, we're thinking about and we're going to figure out the right time to start pushing that once obviously people can get back together in groups in a meaningful way so it's a big opportunity.
I wish we.
The first step will be getting back to 1% of our sales doing catering and then the next step will be.
Tracking down numbers that I think are much higher than where we were with 1%.
That's helpful. Thanks, Brian.
Yes.
And our next question will come for John Ivanka with J P. Morgan. Please go ahead.
Hi, Thank you.
As usual you kind of gave the metrics, which we could interpret it.
Revenue at over 6000 stores average volumes of at least two and a half million at least 25 per cent store margins, but at the G&A number would be obviously, a really important part.
Having a sense of what run rate operating income might be at the company and you Brian how are you.
Thinking at any way of kind of.
Thinking about Neil inappropriate at that level of G&A per store G&A is that you kind of a percentage of sales at.
If you think about longer term revenue goals and longer term operating income goals that we could perhaps on start to anchor around and I I do at that to somewhat in the in the context of what you put in your press release and I'm, sorry, if I Miss at the previous press release of forgot about at reducing non essential.
<unk> on reducing non essential controllable costs, if you could elaborate on that end.
How much focus.
That you know.
Phrases receiving within the organization. Thanks.
Yeah sure look I will tell you I don't know if you've had the opportunity to meet Scott Boatwright.
He's in charge of our operations and.
Scott and all of our leaders.
In operations their goal is to give people a great culinary experience and also give our team members of great culture, and the opportunity to grow on our organization and do it in a way where we flow the revenue to the bottom line. So wherever we see an opportunity to get rid of unnecessary costs or.
Frankly labor allocation, we go after it and we will continue to go after it and that's why I've got a high level of confidence.
Free high level of confidence at the algorithm is going to be intact as we move throughout the year because as we continue to regain sales.
We do things with our labor scheduling technology and frankly, our operators are laser focused on giving people great experiences and then flowing to the bottom line accordingly.
Of course, it's something we keep an eye on.
So.
I don't think it's necessary to pick a certain point, because theres always going to be opportunities, where if we see an investment that makes sense to grow our business, we're going to make that investment.
Way too much growth in this company to constrain us that way so check I don't know if you've got any.
Else to add to that.
Yeah, Brian the only thing on that.
Yeah.
Okay.
For rate.
We expect to grow sales at a faster rate than our G&A and so we did step up we made some investments. This year that also had kind of a new baseline for us for for this next year, but you.
You can expect to see leverage on that line in terms of where it's going to be 234 years for now at you know that don't have that great of a crystal ball, but if we make sure that sales growth faster than that line than three or four years for now the percentage of sales and at the margin you know after G&A at the operating margin, it's gonna be better much better than it is today as we approach the 25 per cent.
Target on the you know at the restaurant level and we'd love for this line.
Thanks, guys.
Net.
Okay.
And our next question will come for Crystal Cool with Stifel. Please go ahead.
Thanks, Good afternoon, guys John.
I was curious if you could frame up where the beverage mix is today versus pre pandemic and then Brian looking ahead to periods, where consumer behavior normalizes is there an opportunity to relaunch the tractor beverage program to build awareness once consumers are kind of back in the dining rooms more consistently and then I had a follow up.
Yes, that's a real quickly I'll go ahead, John Yeah. Go ahead go ahead, I'm, just gonna say real quickly just on the mix at <unk>.
For the pandemic or drinks, where in called call at the mid 30% range of transactions and that that drop more like in the mid 20 per cent range. So you know at it cut out of about one third of our beverages.
Beverages also lean more towards bottled drinks now with at the track for beverages track for beverages.
Ryan is going to talk about it but is a is more in line with our food ethos.
And those have a lower margin as well so those of the two things that had been a drag on our margins.
Yeah and look we absolutely believe there is an opportunity to.
To reintroduce tracker beverage one.
Come back for the dining room and look the good news is the feedback from those that have tried at they really liked it.
That's good and then just assuming smoked brisket can clear the remaining operational hurdles does the offering has the opportunity to be rolled out as a permanent offering or are there some.
<unk> constraints similar to carnitas sort of.
Yes no.
Smoked brisket will be one of our I would call it seasonal specials.
It doesn't it won't be of permanent items.
Okay, great. Thanks.
Sure.
On our next question will come for Brian Vaccaro with Raymond James. Please go ahead.
Thanks, and good evening of just a clarification and then a question if I could on Jack I. Appreciate the monthly comp commentary I was hoping maybe we could convert that into absolute sales volumes and it seems that evergreen free sales of stepped up more recently maybe into that 47 of week range is that correct and then does your Q.
Non comp guide in the mid to high teens debt assume any change in that absolute sales volume moving through the quarter.
Yeah, you know, we don't really look at it internally that way on a on a weekly volume, but but the volume has definitely stepped up and if you looked at the weekly volumes are at you know we all saw that Covid you know really came on pretty strong and in December we did see our sales bounce around so even though our monthly comps were.
Pretty even we softened at the end of November.
Right before Christmas, we started to pick up a little bit we surged after Christmas and then surged again in January so we're definitely at a higher level right now and in terms of the the guidance you know Brian mentioned before the first quarter is still difficult to predict you know, we don't know where COVID-19 is going next we're optimistic because of vaccines are getting traction but at it.
Essentially takes for last week trend, which you know we talked about in the script.
We we while we did overall 11 per cent for January we had moved down into the high single digits at the at the last week of January if you take that that trend and move that out over the rest of the quarter. That's that's what we use to calculate that guidance of mid to high teens.
Okay. Great. That's helpful. And then my question is on our loyalty program and I understand you're up to nearly 20 million members, but could you comment on how engagement with the program has been trending maybe you could give us a sense of how many active users you have and maybe how you define that or for.
Perhaps a comment on the percentage of sales that are generated within the loyalty program in recent months.
Yeah sure. So I would say the way we look at it is it's roughly about 60% are active.
And.
Those are the folks that obviously, we've got an ongoing program with we also have programs, though with folks that we see that arent active right to get them to reengage. So we're accessing the full database as well as other platforms on top of it so it goes well beyond that $20 million.
But like I mentioned earlier, we're seeing really good results in our ability to interact with those that are active and then we're able to also give people to be reactive or reactivated.
At the way to think about it.
So it's.
It's one of those things that we're very excited about because we continue to learn.
And so when we see somebody that is no longer active we learned from it and then we figure out of re engage them and then we're having some success in keeping of percentage of other people then becoming active as we continue to grow the total universe. So.
And the good news is we're also modifying the program as we go forward you know.
We're going to continue to keep people excited and we'd get feedback on how we can make it better and we will continue to do that.
Alright, thank you.
Sure.
At this will conclude our question and answer session I would like to turn the conference back over to Brian for any closing remarks.
Yes, Thank you and thanks, everybody for taking the time.
Taking the questions.
Just going to reiterate what I really said at the beginning of the call, which is really proud of our team members. The work that's happened in our restaurants at our support centers through a very challenging year.
It just demonstrates our purpose our values our culture on the caliber of the people that we have at Chipotle.
It really demonstrates the resiliency of the brand and the leaders that we have in.
Im very proud of where we are and obviously I'm very optimistic about where we're going on.
On the digital system is strong its growing and we have plans to continue to grow at our in store business. When it can come back I know people will want to come back because of the culinary and the food is second to none and you just put those two things together with the ability to continue to build more restaurants hire more people and grow our people. According.
I think the future is very bright and I'm optimistic that COVID-19 is hopefully more in the rearview mirror going forward. So thank you for taking the time hopefully all of you are safe and your families of whether 2020, well and I look forward to continuing to share of the story in 'twenty one all the best.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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