Q4 2022 Chipotle Mexican Grill Inc Earnings Call
Speaker 2: Good day and welcome to the Chipotle, Mexican Grill, 4th quarter 2022 Results Conference Conference Conference Conference.
Speaker 3: All participants will be in listen-only mode. Should you need assistance, please sign on conference specialists by pressing the star key followed by zero.
Speaker 4: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad.
Speaker 5: To withdraw your question, please press star then two.
Speaker 6: Please note, this event is being recorded.
Speaker 7: I would now like to turn the conference over to Cindy Olson, head of investor relations and strategy. Please go ahead.
Speaker 8: Hello everyone and welcome to our fourth quarter fiscal 2022 earnings call. By now you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.pollay.com.
Speaker 9: I will begin by reminding you that firm statements and projections made in this presentation about our future business and financial results constitute or looking statements.
Speaker 10: These are based on management's current business and market expectations, and our actual results could differ materially from those projected in the forward-looking statements.
Speaker 11: Please receive the risk factors contained in our annual report on Form 10K and in our Form 10Qs for a discussion of risks that may cause our actual results to vary from these four looking statements.
Speaker 12: Our discussion today will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the presentation page within the Investor Relations section of our website.
Speaker 13: We will start today's call with prepared remarks from Brian Nicoll, Chairman and Chief Executive Officer, and Jack Hardtong, Chief Financial and Administrative Officer.
Speaker 14: After which we will take your questions. Our entire executive leadership team is available during the Q&A session. And with that, I will turn the call over to Brian .
Speaker 15: Thanks Cindy and good afternoon everyone. We delivered another year of strong results in 2022, expanding AUVs and restaurant level margin, despite facing one of the highest inflationary periods on record and an uncertain macro environment. These results demonstrate Chipotle's resiliency driven by our talented teams.
Speaker 16: delicious food made fresh daily, convenience, customization and of course our tremendous value.
Speaker 17: For the year, sales grew 14% to reach $8.6 billion driven by an 8% comp. Digital sales represented 39% of sales. Restaurant level margin was 23.9% in increase of 130 basis points year over year. Adjusted deluded EPS was $32.78.
Speaker 18: representing 29% growth over last year, and we opened 236 new restaurants, including 200 and two Chipotle lanes.
Speaker 19: Turning to the fourth quarter, while we are pleased with our overall growth, our results were impacted by a few factors that were unique to the quarter, including a lower than expected benefit from garlic guillotine state and a headwind from loyalty accounting.
Speaker 20: For the quarter, sales grew 11% to $2.2 billion, driven by a 5.6% comp. And store sales grew by 18% over last year.
Speaker 21: Digital sales continued to represent 37% of sales. Restaurant level margin was 24% and increase of 380 basis points year over year. Adjusted the LUTED EPS was $8.29 representing 49% growth over last year, and we opened 100 new restaurants including 90 chipotle lanes.
Speaker 22: Our transaction trends improved throughout the quarter as we've laughed at brisket and on police to report that our underlying trends have further improved entering 2023.
Speaker 23: with transaction trends turning positive.
Speaker 24: For the first quarter, we anticipate comps in the high single digit range.
Speaker 25: Our focus on getting back to the basics and running great restaurants is beginning to pay off and we plan to further emphasize this in 2023.
Speaker 26: Additionally, we will continue to build upon our five key strategies that will help us to win today while we create the future.
Speaker 27: Now, let me provide an update on each of these strategies, which include, number one, running successful restaurants with a people-accountable culture that provides great food with integrity while delivering exceptional in-restraint and digital experiences.
Speaker 28: Number two, sustaining world-class people leadership by developing and retaining diverse talent at every level.
Speaker 29: Number three, amplifying technology and innovation to drive growth and productivity at our restaurants and support centers.
Speaker 30: Number four, making the brand visible, relevant, and loved to improve overall guest engagement. Number five, expanding access and convenience by accelerating new restaurant openings.
Speaker 31: Beginning with our restaurants, as we discussed in the last call, to pull laser restaurant business with high standards, and it is critical that we treasure the guest and deliver an exceptional experience including great culinary and in restaurant execution.
Speaker 32: During the pandemic, there were unforeseen challenges such as supply outages, staffing challenges, and exclusions from COVID that resulted in a need to create workarounds. We have been eliminating the workarounds and reestablishing operational standards with Project Square 1, while continuing to build a culture of excellence in every aspect of our business.
This means ensuring all ingredients are in stock, that our teams are fully staffed and properly deployed during peak periods to drive throughput, that our delicious food is prepped and cooked on time, that we are improving throughput on the front line and improving on time and accuracy on the digital make line, and of course, that we are delivering exceptional customer hospitality.
Project Square One has helped to lay the foundations, including training in each of these areas. We are also bringing back more shoulder to shoulder training.
One thing that I believe everyone is learning from the pandemic is that virtual training is not the only tool needed. So we are reducing the amount of virtual training and bringing new crew members into our restaurant sooner for on the job training. This helps to accelerate onboarding and gives more confidence to our new crew members as they are learning by doing.
Shoulder to shoulder training by experienced managers is an essential process.
I'm also happy to see an improvement in turnover with December being one of our best months in the past two years for both hourly and salary turnover rates.
And our staffing levels continue to improve with 90% of our restaurants fully staffed. This, combined with better stability, leads to more experienced teams.
When you combine this with Project Square 1 training for the past two quarters, positive signs are emerging across the operation. We are focused on operational excellence and have intensity and collaboration to achieve it. Great people and great culinary drive performance.
And speaking of great people, I'm proud to share that in 2022, we promoted over 22,000 people surpassing 2021, and 90% of all restaurant management roles were internal promotions.
And we have tremendous growth ahead. In 2023, to open our new restaurants, we'll be opportunity to promote over 1800 hourly manager roles, over 255 GMs, and over 40 field leadership positions.
And these numbers will continue to grow as we expand our restaurants by our targeted range of 8% to 10% per year.
As we have said in the past, our goal is to be the employer of choice. In addition to career advancement opportunities, industry leading benefits and competitive wages, we will continue to look for ways to improve the overall experience for our teams.
We know one way is to continue to invest in technology and innovation. There are a couple of new stagegating initiatives that I'm excited to share along with an update on improvements to our app functionality.
First, we are currently testing a new grill to improve the overall cooking process for our chicken and steak. The grill is much faster and has consistent execution which lowers the learning curve significantly. The grill is much faster and has consistent execution.
Importantly, we believe it maintains our high culinary standards and can cook the chicken steak to perfection.
Look forward to further validating it through our stage gate process.
And second, you may remember that in the second quarter we announced HIF in as one of our first investments in our Cultivate Next Fund.
HIFIN is a food service platform that automates the assembly of meals on the digital make line and could help fulfill our promise to deliver on time, accurate orders for our digital guests. This would allow our restaurant teams to focus more on our in-restraint guests on the front line further improving throughput.
I'm thrilled to share that together with HIFT and we are developing our first automated digital make line prototype which we will test and learn on and we expect to have it in a cultivate center in the first half of this year.
Speaking of our digital business, it is over $3 billion in revenue and represents 39% of our sales, and we're constantly looking for ways to improve the experience for our guests. Last quarter, we started testing advanced location-based technology to enhance our app functionality.
For guests who opt in, the program can engage which PolAAP users upon arrival to our restaurants and utilize real-time data to enhance their experience with order readiness messaging.
Wrong pick-up location detection, reminders to scan the Chipotle rewards QR code at checkout, and more. The results from the Stagegate process were very encouraging, including an improvement in delivery speed, a reduction in customers going to the wrong location, and an improvement in the experience for a rewards guest, allowing them to quickly scan for their rewards points.
without impacting throughput. As a result, we rolled it out nationwide last month.
Moving on to making our brand more visible, more relevant, and more loved, our real food for real athletes platform has been a success as we partner with athletes of all levels for our fans of Chipotle and focus on helping them perform their best by providing proper nutrition through real food and real ingredients.
During the fourth quarter, we teamed up with U.S. men's national soccer team stars, Christian Pulisek and Weston McKinney.
To showcase their journey to soccer's biggest international tournament while featuring the athletes go to orders in our app We also continue to leverage social media to remain relevant with our consumers, especially Gen Z This year we surpassed 2 million tick-tech followers, which to put into context rival some of the largest brands in the world
and we were the first brand to launch on the new social media platform, B-Rio. Shifting to menu innovation, as we mentioned last quarter, 2023 will consist of one to two LTOs. I'm delighted to share that Chicken Alpastor has been validated and ready to be rolled out in the near future. This new menu item is operationally simple to execute while still providing a new, exciting flavor that drives transactions and sales.
way to show our customers that they can create balanced meals made with our existing ingredients that taste great and that they feel great eating.
Turning to our rewards program, in 2022, we increased our rewards members by 20% to 31.6 million. Our program continues to get more sophisticated as we better understand who our members are and serve them with relevant content.
Targeted offers in gamified badging to help drive transactions. In 2022, 60% of our awards program promotions were personalized and we plan to increase this going forward. To drive engagement and enroll new members, we recently introduced RepotLay, which offers each rewards member 10 personalized free rewards throughout the year.
Our fifth strategic pillar is to expand access and our development team has done an outstanding job of navigating headwinds such as material shortages and permitting and inspection delays while successfully opening 236 new restaurants in 2022.
including 200 and 2 chip old lames. In fact, we opened 100 new restaurants in the fourth quarter, which was a record for the company.
We also opened our 500th Chipotleing during the quarter, as we expanded access and convene is for a unique digital drive-through format, and the performance of Chipotleing continues to be strong. In fact, since we began opening Chipotle in 2018, our new restaurant productivity has improved by about a thousand basis points.
We planned to open 255 to 285 new restaurants in 2023 with over 80% including a chiphole thing.
Within our 2023 expansion plans, we will accelerate new restaurant growth in Canada and continue to open restaurants at a measured pace in Europe .
In Canada, we have built out a strong local field leadership team that works closely with our U.S. team to ensure best practices in a consistent culture while adapting to local needs. We are now ready for accelerated growth and plan to add around 10 new restaurants in 2023, which will be the fastest development growth rate since we entered the Canadian market.
We also remain encouraged by the performance in Europe , despite a challenging macroeconomic backdrop. In 2023, we planned down a few additional locations in the UK, and we are also rolling out our digital capabilities to further expand access.
We remain optimistic about the growth opportunity and will continue to update on your progress stage-gave process along the way.
In closing, I want to thank our restaurant and supports entertains for another terrific year. Our focus on getting back to the basics is starting to pay off. Our teams are energized and I'm excited to see further progress over the coming quarters. We have a long growth runway ahead with the ability to more than double our restaurant count, grow AUVs beyond 3 million, and expand margins.
I believe we have the right team and strategy in place, and we will remain focused on meeting the standards of excellence that make Chipotle to Chipotle. And with that, I will turn it over to Jack.
Thanks Brian and good afternoon everyone. Sales in the fourth quarter grew 11% year over year to reach $2.2 billion, as Comp Sales grew 5.6% which included about an 80 basis point headwind related to our loyalty program.
And Q4 of each year, we reevaluate the estimated loyalty breakage for points that will expire. In this year, we decreased our estimate due to higher member engagement.
Restront level margin of 24% increased about 380 base points compared to last year. In addition to loyalty program headwind, restaurant level margin was impacted by a higher level of sick pay and medical claims in the quarter compared to our expectations.
For any for sure, adjusted for unusual items with $8.29, representing 49% year-over-year growth.
The fourth quarter had unusual expenses related to legal expenses, our previously disclosed 2018 Performance Chair modification, and corporate restructuring.
Turning to our sales outlet for 2023, as Brian mentioned, we've seen a transaction trends turn positive as we remain focused on delivering a great guest experience.
January Compton and the low double digits. If you want, for Q1, factory and momentum we've seen quarter to date, as well as tougher comparisons as we move through the remainder of the quarter, we anticipate comp sales to be in the high single digit range.
Well, it's difficult to forecast COPS for the rest of the year considering economic uncertainty, including the possibility of recession. We expect COPS to moderate as we let menu price increases in an early Q2 and the middle of Q3.
I'll now go through the key P&L line items beginning with cost of sales.
Cost of sales in the quarter were 29.3% a decrease of about 230 bases points for last year.
The benefit of menu pricing prices and lower avocado prices offset elevated costs across the board, most notably in dairy tortillas, beans, rice and salsa.
In Q1, we expect our costs to be in a high 29% range due to higher prices across several items including casso, salsa, spices, and oil.
Labor costs for the quarter were 25.6%, a decrease of about 80% of the points from last year. The benefit of sales leveraged with someone offset by wage inflation in addition to higher than expected sick pay and medical claims.
For Q1, we expect our labor cost to improve slightly, but remain in the mid-25% range due to seasonally higher employee taxes as employee taxes start the year at an elevated level due to resetting of wage caps.
Other operating costs for the quarter were 15.7% a decrease of about 60 basis points from last year. This decrease was driven by decline in delivery expenses due to lower delivery sales, as well as sales leverage, partially offset by higher costs across several expenses including natural gas and maintenance and repairs.
Marketing and promo cost for the quarter were 3.4%, 20 basis points below last year.
and key one we expect marketing cost to be in the mid 3% range with a full year to command around 3%.
and key one other operating costs were expected to be in the low 15% range.
June 8 for the quarter was ordered $35 million on a gap basis or $129 million on a non-gap basis, excluding $4 million in legal expenses, $1 million related to the previously disclosed modification for a 2018 performance shares, and $1 million related to transformation expenses.
DNA also includes $19 million in underlying DNA. $18 million related to non-CADS stock compensation, which includes a reduction in the estimated pale levels of our performance-based stock awards.
and it was offset by $8 million reduction of performance based bonus accruals.
We expect our underlying GNA to be around $121 million in Q1 and continue to grow slightly thereafter as we make investments in technology and people to support ongoing growth.
We anticipate stock comp will be around $25 million in Q1, although this amount could move up or down based on our performance and its subject to the 2023 grants which are issued in Q1.
We also expect to recognize around $7 million related to employer taxes associated with shares that best during the quarter and $2 million for cost associated with our field leader conference in February , bringing our anticipated total GDA and Q1 to around $155 million.
Appreciation for the quarter was $74 million or 3.4% of sales, and for the full year of 2020-23, we expected to inshup slightly each quarter as we open more restaurants.
Our effective tax rate for Q4 was 26.3% for GAP and 25.1% for non-GAP.
And for 2023, we continued estimate our underlying effective tax rate will be in a 25% to 27% range, though it may vary based on discrete items.
Our balance sheet remains strong as we ended the quarter with $1.3 billion in cash, restricted cash and investments with no debt, along with a $500 million untapped revolver. During the fourth quarter, we repurchased $199 billion of our stock and an average price of $1,487.
and we repurchased the total of $827 million in 2022, which was the largest amount ever repurchased in a single year.
We increase our level of stock repurchases during the quarter when our share price fell with the market overall and will continue to opportunistically repurchase our stock.
During the quarter, our board authorized an additional $200 million to our share authorization program. At the end of the quarter, we had $414 million remaining.
We opened a record 100 new restaurants in the fourth quarter of which 90 had a chipotle and we remain on track to open 255 to 285 new restaurants in 2023 with at least 80% including a chipotle.
Development delays remain ahead when including utility installations, permitting and inspection delays, construction labor challenges, and component and raw material shortages. While we expect these challenges persist into 2023, our pipeline remains strong, and we expect to move toward the high end of the 8% to 10% openings range once these headwinds subside.
To conclude, we're off to a strong start in 2023 with early signs of progress from our focus on getting back to the basics of running great restaurants and treasuring our guests. Well, we cannot predict how the macroeconomic environment will play out over the next 12 months. We will continue to strengthen our operations and work hard to earn each and every customer
I want to thank our restaurant teams and our restaurant support teams for all their hard work this year and for their commitment to Chipotle.
teams and our restaurant support teams for all their hard work this year and for their commitment to Chipotle. 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 star then one on your telephone keypad. If you're using a speaker phone, please pick up your hands up before pressing the keys. And you may press star then one on your phone.
To withdraw your question, please press star, then to.
At this time we will pause momentarily to assemble our roster.
And the first question will be from David Tarantino from Baird. Please go ahead.
Hi, good afternoon. I have a couple of questions about your commentary on traffic trends. I think Brian , you mentioned that underlying traffic trends have turned positive if I heard that correctly. So I'm wondering what you meant by the word underlying if you're making some adjustments to that. And I know January .
You know, had a lot of puts and takes, you know, with respect to the comparison, you know, against the Omicron last year and then perhaps we had some favorable weather this year. So I'm wondering, you know, it seems like you're linking some of their traffic progress towards some of your internal initiatives and I'm wondering how you're adjusting.
for some of the factors that maybe were outside your control.
for some of the factors that maybe were outside your control. Yeah, so...
The first of all, underlying just means transactions. There was nothing there, so thanks for asking for the clarity. Basically, what we saw is as we exited the quarter, our transactions turned positive, and then we saw that continue to build in January . You're right, there's some on the crime.
and then there were some good weather. But what we've also seen is our staffing is at the best it's been. Our turnover is at the best it's been in two years. And I think the combination of focusing on the basics, meaning no menu deactivations, keeping the lines.
open both our front line and digital make line from open to close teams deployed correctly is also a key driver and why we're seeing the traffic progress in January throughout that whole month. So we're feeling good about where we are operationally we believe we can still get even better.
as we get closer and closer to our infamous burrito season. But it's a great position of strength that we're walking forward from. And we like how we exited December and we like how January shaped up.
Great, and if I could just ask one follow up on the operations.
I'm wondering if you could maybe elaborate on what metrics other than transactions that you're focused on and how those are progressing and what you think maybe the ultimate target for those should be...
as you progress through the year or maybe work towards your goals there. Yes, sure. So, like to put a little color on this, you know, menu the activations in our digital business.
Obviously, during the course of the last couple years, we've had a lot of supply chain challenges and one of the work around we created was allowing teams to deactivate certain items, right? So whether it's Glock or Chips or, you know, any of those lines. And we kind of just reestablished with both our suppliers, our distribution partners.
and our teams that that's not a fallback position anymore. The expectation is...
I don't know, can you hear me, David? I can, thank you. Okay. The expectation is you should be in stock and then you should be prepared from open to close with those items. So, there were points and times during that quarter where you had hundreds of menu deactivations and now we're back into, you know.
of single digits on how that's going. So that's a key metric. Another key metric would be our digital on time percentage. That's improved by nearly 10 points. And so I think that's a function again of being deployed correctly, staff correctly, and then obviously having the ingredients you need in order to build.
the order correctly. And then we've seen some progress on throughput as well on the front line. And I anticipate really where we'll see big movement on throughput is more towards the second quarter when we get into kind of more of our peak performance. And that's why you saw us focus on hiring so many additional people.
So there's a lot of good indicators beyond just the traffic trends that we've seen. You know, I always like to start with, hey, if you got more stability.
Your teams are deployed correctly, they're trained correctly, and then we keep it very focused on the basics of running the restaurant. We know we get good outcomes.
Great, thank you very much.
And the next question is from Sarah Senator from Bank of America. Please go ahead. Oh, hi. Thank you. I follow up on labor and staffing and then a quick one on the new unit. So just on the labor piece.
I guess could you help me reconcile, I think, you know, you've been saying mid-single digit wage inflation and I think you had something like a 15 percent price on the menu. So were those hours coming from what you were talking about like the sort of shoulder-to-shoulder drop training or is that 90 percent staff, you know, 90 percent fully staffed? Is that a lot higher?
that inflation subsequent with that has been. You know, the stores, fortunately, are...
We keep track of an app model metric, and that's what we're referring to where we're closing on 90% of our restaurants being app model. In regard to the shoulder to shoulder training, that's just part of our process. I think there was an element at some point where we were maybe getting too reliant on virtual training versus the shoulder to shoulder training.
meaning our field leaders, our team directors also need to be in the restaurants doing shoulder to shoulder training with our general managers and our new crew. So that should not result in any additional labor cost with having more shoulder to shoulder training. But...
Check, I don't know if there's anyone to add to that. No, I think that's right, Sarah. And we don't think we need to have incremental investment in labor for the training because the best training is you put your team's in position. You have somebody that shows them what to do and you have somebody that's watching them to kind of self-correct along the way.
So it shouldn't be extra labor per se. Now when we hire 15,000 people, there's gonna be some additional training, but I don't think it's gonna be anything that you'll see will blow up the labor line with P&L going forward at all.
Okay, so just as we're thinking about kind of the labor, you know, there's still room, I think what you're saying for improvement on just the restaurant level margin line.
Okay. And then just quickly on the New Store productivity, could you clarify if I said sort of there, it's a thousand basis points better, is that because the Chipotleens open at higher volumes than non Chipotleens? And so it's just sort of comparing.
the different models or is there something else going on where across the board new store productivity is better? Thank you. Yeah, yeah, sir, I'll take this. I think it's really more based on the digital lens, because if you look over the last four years or so, you've got to look over longer period of time to look at all the opening. We've moved up our productivity, so for example.
Today, our restaurants open up on average around 85% of what are existing, you know, comp stores are doing. If you look back three or four years ago, we were in kind of the high 70% range or so. So there's been a step change and the biggest thing that's happened from, you know, the three, three and a half years ago to today is we've moved from having to the handful of
poll lane and a convenience that our customers find with that that you know digital drive through. Thank you so much.
The next question will be from David Palmer from Evercore ISI. Please go ahead.
Thanks. One other question about digital orders. I've been somewhat surprised by the level of decline there. I think back in the third quarter we estimated that digital traffic per store decline in the mid-teens. That's including both delivery and pickup. It happened.
Maybe you can comment on what you think that was correct, but also how much you think digital traffic per store decline in the fourth quarter. And just relatedly, you know, what are your thoughts about that channel? I know it's important to you. What you're outlook for it and are there things you can do to stabilize that line.
Yes. Go ahead Jack. Well, yeah, I'll get started David. Listen, there's a couple of things that are driving it. One is we're having a surge in return to in-restripe. And so that part of our business is growing very, very healthily throughout the last year and a half or two years since we've been...
moving away from the pandemic, but secondly delivery has been declining as well. Delivery transactions in the fourth quarter declined 15% and that's I think then just again a normal kind of move away from people getting out and about and. I think there's probably some people who are deciding that while that channel adds a lot of convenience there's a there's a higher price that comes with that so those are the two main.
drivers and you know we figured that digital would kind of sell in this high 30% range and so we're at 37% range now so it's within the range that we thought we would be in and early on in the pandemic we saw our two markets that were at least affected that be the Southeast and the Southwest.
When they were starting to normalize, they were normalized towards that high 30% range. So it feels like about the right range for us.
So as your view that you're going to start to kind of lap the second quarter, things really step down.
Do you think you're going to enjoy that comparisons when it comes to digital orders and start to stabilize on that channel? And then perhaps enjoy some of the benefits you're talking about with throughput on the front-make line if that is I believe that you're going to get that dual benefit there. Yeah, that's right David I mean the way we think about it is we feel like we've reset the delivery business to be now
where it makes sense economically. As such, our order ahead business, I think, has started to show the right trajectory, and then obviously our in-store business has shown tremendous acceleration. So I think you said it well.
Thank you. The next question is from Andrew Charles from Cowan. Please go ahead.
Great, thanks. Jack, I have two margin questions for you. There's obviously a lot of noise in 4Q labor costs, as well as 1Q guidance for labor. I'm curious what the impact of highly expected sick claims having 4Q. I admit the term, but there's some external factors that you're betting within the mid 25% labor margins. Please help tease us out and turn to what that impact is from that.
that target.
Yeah, so let me start with the fourth quarter. Our expectations were that our margin would be more than 25% range rather than 24% range. And when you look at the pieces of how we got down to 24, part of was the loyalty breakage. You know.
Frankly, there was an 80 basis point change year over year in the confolated to just that journal entry that we had to book for the breakage. If you look at just the there was 30 basis points of additional or reduced breakage that we had to reflect this year, that cost us 20 basis points on the margin. It was 60 basis points on
We saw higher than expected medical claims and sick pay during the quarter as well. We typically do see those things pick up a little bit in the fourth quarter, especially in December . But the surge was more than we expected. That's not something that we would expect to to require.
And then sales softened during December as well. I think that went hand in hand with softer retail sales. We know there were some weather and a seasonal shift and the holidays and things like that. And that was 20, 30 base points or so. So we look at that margin in the fourth quarter and we think that those things normalize there's as much as a hundred bases points.
And then you probably suggest the basis just over $2.7 million up towards that three. The flow through that we know our model provides will still get us to that 27%.
And can you clarify, I'm sorry, you said sales were bit softer than you got to expect to December , but any girl in the script, you guys talked about how there was improvement through the quarter. So was that just reflection that December didn't perform as a level that you got to really expecting?
Yeah, I mean, the way I would describe the quarter, we started out soft and we talked about that in October that we were doing a mid single digit comp that you know, GGS while there was an attachment rate that that was as expected. It wasn't driving transactions, so we started out, you know, soft in the quarter.
We picked up as we stopped comparing Gensbrisket, that was in the middle of November . So we had, call it, high single digit cons for a while. And then we left the menu price and increase from December of 2021. And then just as we got around the holiday, we just didn't see that pop, that momentum that we normally see. And so December , so I would describe it as frankly.
We started the quarter soft and we ended the quarter soft. Now what we're happy about is as the holidays, we got through the holidays and we got into January , that's where our transaction is not just from a comparison standpoint, but just not a trend month over month, month, really did improve. And so we feel good about where we go from here, but yeah, listen to the fourth quarter with a tough quarter course. Let's remember.
Now what we're happy about is as the holidays we got through the holidays and we got into January , that's where our transaction is not just from a comparison standpoint, but it's just not a trend month over month, month really did improve. And so we feel good about where we go from here, but yeah, listen to fourth quarter with a tough quarter for us. Thanks for your call, Jack.
The next question will be from Brian Bittner from Oppenheimer and Company. Please go ahead. Thank you. Thanks for the question. As you move throughout 2023 and you lab, some of these large menu price increases as the year progresses. Would you?
You know, think about replacing them with some type of increases. I'll be it probably a lot more normalized, more lower price increases. Or do you plan to let these fully roll off? And Jack, as you sit here today, what do you anticipate the total pricing factor to be?
for the full year 23 for the same store sales model. Yeah, so I mean I'll start with that and then we talk about expectations. We're running right now in that kind of 9 to 10% range and as I mentioned it rolls off early in Q3 and then in.
I'm sorry, early in Q2 and mid Q3. Then there were a couple of delivery adjustments, target adjustments in there as well. We'll end up being somewhere in that kind of mid-single digit, because by the time you get to the end of the year, we're running basically zero pricing. So overall for the year, we'll be somewhere in that kind of mid-single digit.
In terms of pricing action, we're not going to take a price increase just to cover a lap over last year. The main thing we're going to do is we're going to watch inflation and we're going to hope that inflation is tame.
You know, right now we know that there is some pressure in a few of our ingredients. The one that we keep hearing about, we haven't seen it yet, but everyone is predicting that there's going to be greater supply versus demand. But we'll watch that carefully and see what inflation does, but it's going to be more about inflation in wages, inflation in the ingredients.
And do we need to take pricing action to cover some of that, but we wouldn't take a price increase just to cover a comp lap. That makes sense. And just a clarification on the same store sales guidance for the first quarter. I know you've talked a lot about traffic flipping positive here in January , but if we just hypothetically land in that...
that guidance range assumes that we're also going to be positive transactions more in the low single digit as we move away from Omicron. Pricing will be that 9% to 10% range that I mentioned. And then there's going to be a mixed component. We think it's kind of probably being that low, maybe two is three is percent something like that. That mixes is a little harder to predict. But those are the main components.
Great, thank you. Thank you. And the next question will be from John Tower from City Group. Please go ahead. Great. Thanks for taking the question. Quick clarification on the question. On the new store productivity, I know we caught on this a little bit earlier during the quarter. Was there anything about timing where I'd based on the way that we...
If you could dissect that and give us a reason. So what you might have missed, I know it hasn't been that long, but curious to know how it didn't perform versus your expectations and why you think that happened.
I'll let Jack answer the first one on the store productivity and then I can try and move on that. You hit the nail on the head. We opened a record 100 restaurants during the quarter but it was very, very backloaded. Our team did a great job of just scratching, clawing and doing everything they could to get the restaurants open. And then...
I think we probably had a record opening in the month of December as well. We had more than half of the opening, or in the last month of the year. So, yeah, you didn't see a typical sales flow through considering we opened a 100 restaurants. And then on your question about garlic with USAID, look, I think it's one of those things where we tested it.
that we make sure we learn from it going forward. And that's why we use this day to day process so that we are always learning.
Thank you and our next question will be from Sharon Zacvia from William Blair. Please go ahead
Thank you. And our next question will be from Sharon Zaxia from William Blair. Please go ahead. Hi. Good afternoon.
I wanted to ask a question about staffing and the lower turnover that you're seeing. Is there a way to kind of compare and contrast?
tenure on the front line now versus 2019. And if we think about throughput opportunity as we answer high-fusen, how much is the front line because it is both experience kind of lagging where you were in 2019 or dimensionalized kind of how?
how much throughput opportunities really on the table here as you have, you know, more productive front-line staff. Yeah, look thanks for the question on this because I think this is an important one, which is what we know is when we have our teams at model and deployed correctly.
with leadership present for shoulder to shoulder training. Our restaurants perform.
And that's what we saw in 2019, and that's what we anticipate occurring going forward. So we know there's upside in how much throughput is our teams are capable of doing. And obviously we're targeting to get those throughput numbers back to where they were in called the 2019 time period.
The one thing that's nice is our turnover levels have dropped. So we're getting more stability in the teens, which means we're getting more reps so that as we walk into these higher level or higher volume months, they've got more reps and being deployed correctly, working together correctly.
to ensure that we get more throughput. And now that's what we're focused on is the people that we have today. How do we get trained it? How do we get them deployed? And then how do we make sure those teams stay together?
Yeah, and just to add, you know, when we look at the time in position back to 19 and there's two factors here. One is turnover. The other one is promotion rates as well, but when your turnover slows down, people are going to be in their position longer. In, for example, on the kitchen manager.
We're very close to where we were in 2019. So the average 10 year in the Kitchen Manager role was like 0.69 meaning it was about eight months or so Today it's like 0.64 so it's like maybe seven seven and a half months something like that Interprinted we're not quite back to 19 But we're ahead of where we were a year ago and we're within a striking distance again. So
You know, those are areas that, you know, we were saying that our average tenure was going down, you know, during the high turnover, period of the last, you know, year and a half or so, but those numbers appear to just like with the turnover be stabilizing and moving back up.
to make you more efficient and perhaps more consistent in some ways. So I was just hoping you could take a few minutes or a few seconds and just kind of talk about some of the different packages that you have how far along they are. And when you, we actually might be able to start to see, you know, some benefit even if it's on a limited basis.
at a market level. Thank you. Yeah, sure. So probably the one that's closest in is the new grill work that we've got going on, which I mentioned in my earlier remarks. It just gives our teams a tool that allows them to cook the chicken, frankly, just perfect every time.
and a lot faster, significantly faster. And the same thing goes for stake. And we're actually moving that from a one-store test now to a multi-store test, as we speak. So we're excited about that one. Obviously, we're working on...
automated digital make line, which is in partnership with hyphen. And we'll get the first one of those into a real light prototype in our cultivates center probably end of this quarter early in the next quarter. So that one's a little bit further out. And then we just got rolling with a light pilot on the what we call chippy. So do
which is our automated arm or robotic arm to fry chips. So much more information on that as that goes live in the one restaurant. So, you know, I did one that's probably close to sin is the grill and it was probably further styled. Probably is our digital make line, automated digital make line.
All of these are really promising because when you can significantly reduce cook times and then make the practice of grilling chicken and steak easier, good things happen with our culinary. That's what we've seen in the one restaurant. People are giving us feedback that the steak and chicken taste great. Our team members are giving us feedback that they love using the new grills.
And so, you know, we're more consistent with great culinary. Everybody wins. The next question will be from Dennis Geiger from UBS. Please go ahead. Thank you. Just first wondering if it would be possible to give the traffic mix price for the 4Q instant information on really nice? And I would just question why don't we get your
And then the question is really about pricing, another one I'm pricing. Just curious if you believe you've seen any customer resistance to pricing levels, how that's kind of shaped how you thought about the pricing you talked about for the year and related to that, any kind of update on value scores, the low income customer that you spoke to last quarter, anything as it relates to shaping your view.
on how the business performs into a potentially tougher macro. Thanks, guys. Yeah, sure. So look, we really have not seen any meaningful resistance to our pricing, especially as it relates to our insular experience. Obviously, the delivery channel was down, but I think that's a function of...
A couple things. One, you do have to pay a premium for that occasion, combined with that the in-store experience is back and people are back out and about. So potentially, you know, they see the convenience, the customization of coming in the restaurant and getting it on kind of their control terms. You know, we continue to see.
the higher income consumer, you know, the individual that earns over $100,000 coming more often. And frankly, I think the same thing would have happened with the low-income consumer, regardless of what the pricing was that we acted on. And, you know, we made the decision not to go chasing people with discounts. That's not what our brand is, and that's not what we're going to do. We're better off winning the value game.
through great culinary, great speed, life convenience, terrific customization. And we know that continues to resonate. Our values course continue to be really strong. If you look at people that I would say are comparable, that are in the fast-catal kind of, we're still at 10 to 30 percent discount. So, you know, look, I think
We've made a lot of really good moves to kind of move with the challenges that we've had to deal with. And, you know, as a result, I think we're seeing stronger operations, stronger teams. And, you know, we're seeing, I think that work come out to bear in January and, you know, where we are here in February . So...
I don't know if there's anything bad to that. I think you said that perfectly, Brian . I think you were looking for the components in the quarter. The components are pricing was about 13 and a half. Transactions were down about four. Mixed was down about three. So that gets you to an underlying cop, about 6.5%.
And then we had a journal on tree that deals with breakage and that was 80 basis points so that gets you to the 5.6% count. Great, thank you guys. And our next question is from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much. First question is just on the restaurant margin. You know, for full year 22, you ended in that 24% range. So you talked about maybe some headwinds in the fourth quarter that brought that envelope expectation. Just wondering if you can give any specific thoughts as you look to full year 23. And then you gave some color specifics of the first quarter.
As you think about the environment going forward, your pricing perhaps rolling off by the end of the year and what you note today based on kind of the key cost pressures and was wondering your thoughts on a full year 23, whether it's reasonable or assume a return to 25% plus and 23 or beyond. And then you mention getting to more like 27% when you hit the 3 million, but just wondering kind of on the interim what you're thinking specifically to 20.
decision on pricing action right now. So the way I would think about it is we're going to kind of let the year play out. We're going to do everything we can in terms of managing supply chain, managing as we recruit people. We've got to pay the wages to make sure that we gear up for per per year. We'll watch how the inflation element plays out.
And we don't have any plans right now to take pricing action. So we might be more patient this year than we were last year. Last year, the inflation kept coming out of, and then we could see more ahead. And we take pricing action. We'd see even more ahead. It doesn't feel like it's at that fever pitch. So I think you could see us being more patient this year.
What I can tell you is when things do normalize, whether that's later this year or into 2024, we absolutely have, at these kind of volumes, the ability to get a margin up into that 25% range on a sustainable basis, and then it'll grow from there. I just don't want to make any promises on a quarter by quarter basis, just because so many things have happened in the last.
several quarters and it's it's hard to predict what's going to happen but I do know that our model is intact understood and just following up on
A couple of bigger picture topics. I think Brian you mentioned that international growth is going to be at, I think it's at a measured pace. Wondering if the headwinds come to your point about the economy in Western Europe perhaps is the primary reason why it's measured or maybe there are other...
causes for concern, anything around that international acceleration and when the timing of that might be would be great. Thank you.
Yeah sure so obviously Canada it's full steam ahead right we're opening I
The most restaurants we've ever opened from a percentage standpoint and probably absolute standpoint ever in Canada.
which is really exciting and those economics continue to perform really well. When you look at Europe , look to top line is really... way.
performing. And frankly, we've been much more patient on pricing there because we want to make sure that people have the experiences which you pull away. So, you know, there's a lot of inflation that we're still dealing with in Europe , but look, we like what we're seeing. You know, the good news is feedback on the experiences is really very positive.
feedback on the culinary is very positive and the most recent restaurants that we've opened are performing really well. So we're just taking our time with it because unfortunately the last three years have not been normal in any way. So we were just to make sure we aren't getting any false positives or false negatives on any part of the business. So...
The good news is we've got a tremendous growth runway in the United States that we can be very patient with how we approach our international expansion. But the early signs are people like burritos and bowls and they like our culinary and they like the convenience and they like the speed.
So that's a recipe for a lot of opportunity down the road.
Thank you. The next question is from Dendello, Garzillo with Bernstein. Please go ahead. Mine.
Thank you and the next question is from Dendello, Garzillo with Bernstein. Please go ahead.
Great, thank you. So if I understand correctly, the traffic improvement you're seeing seems to be standing primarily from productivity and operational improvements, also as you're moving along in 2023. But I'm wondering, your expectations on the demand side from consumers, and in particular, whether you're seeing or expecting any trends that could be possibly of set up setting?
the productivity and operational improvements as we are moving along in 2023. Look, the consumer demand, especially if we use our in-store experience right now, looks to be there. Especially if you look at the higher income consumer, their purchase frequency has actually gone up.
So, you know, we fundamentally believe that better we operate, the better our performance And that's why we've got, you know, Scott and the team have a full-core press, frankly, on, you know, great people, great culinary. If we do those two things.
against our operating standards. You know, we believe we'll continue to make progress on throughput and we'll continue to see the gains that hopefully we've experiencing in the first part of this quarter.
Thank you. And I think you also mentioned there are some positive signs that are emerging from Project Square 1. I was wondering if you can elaborate on that one and maybe like share a couple of metrics where you're particularly proud of.
Yeah, look, I mentioned this earlier. I'm actually one of the things that we've seen is a lot less incidents of many deactivations. So when you go to order online, you know, all of the products are available, you know, chips, clock, chicken steak, that is dramatically decreased. And we know that's a big deal because
When you order online, if you don't have what you want available, your conversion rate goes down. And so we've seen when we have the product and stock, our conversion rate gets back to where it should be. We've also seen a huge step up in our on time percentage on time.
in a meaningful way. And then we've also already seen some progress on throughput. I'll be a small movement, but I think that has more to do with the time of the year than a testament to the impact of Project Square One. What I also think is also really great news is, we have more stability in our teams than we've had in over two years. And we've got more teams at model.
with less turnover, and I think Scott's got these teams focused on deploying correctly and getting trained Shoulder to shoulder so that they're ready to go when the rush shows up Thank you and our final question today will be from Brian Harbor from Morgan Stanley . Please go ahead
Yeah, thank you. Maybe first is the question on delivery. Are you able to see in your data that those customers have shifted to coming into the stores or mobile order ahead or do you think those customers have basically fallen off as you've seen that business decline a little bit? Yeah.
You know, what it looks like to us is we've definitely seen people make a shift in restaurant and then some shift to order ahead.
That's probably been the biggest transmit you've seen. Obviously the premium, especially when you operate in our white label execution, is one of those places where you can quickly compare what's the difference between ordering delivery versus ordering pickup.
And that's an obvious one where I think we've seen as result people, they toggle between the two and then they choose order ahead. So yeah, we've seen people stay committed to the idea of getting to Poltley. I'm sure there are those customers where if something's free somewhere else for delivery, they might take advantage of a freebie. But...
Look, we're not interested in renting or borrowing customers. We want people to be a part of the Chipotle business because the value of propositions are right for them. They buy into the food that we provide, the culinary that we provide, at the convenience and speed at which we provide it. So that's been a conscious choice.
I think it's going to serve us well in the long run. Okay, and maybe just a really question on kind of some of the new perks that you rolled out the free poll A that you launched in January . I mean, is it your view that that drives kind of a step up in frequency or how else do you think it will affect customer behavior?
doing two things. One, it's hopefully keeping more people engaged in the loyalty program. You know we're only what one month in on it. And then also acquiring more people into the rewards program. And so it looks really promising that it's doing exactly what we wanted to do. But again, it's only one month in.
And what was your second part of your question? Just if you think that's kind of the next catalyst for driving greater, more work. Yeah, that's right.
But what we definitely know is when people are engaged in our rewards program, we get more purchase frequency out of them. And the most engaged people come through our digital business when it comes to our rewards program. So I do think the combination of high engagement with rewards, specifically around the amount of personalization that we're doing here.
will result in more frequency out of customers down the road. And usually that comes via a digital experience. It's where you see more of the impact from the rewards program.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Brian Nichol for any closing remarks.
Okay, thanks. And thanks everybody for all the questions and being a part of the call. Obviously, you know, 2022 was another one of these years where a lot of unexpected things occurred, but I do think once again we've demonstrated the resiliency of Chipotle and the power of our food with integrity purpose.
combined with the culinary and convenience that we provide. You know, again, we were able to expand our AUVs, our margins. We had a record number of store openings in the fourth quarter. And, you know, we're optimistic about where the business is today because of the focus on great operational execution.
combined with great culinary and great people. And you're going to continue to see a stay focused on executing those basics while we continue to execute against the other strategies to make the brand more visible, loved, and hopefully engaged with. So off to a good start in 2023, and we're optimistic about our growth runway going forward. So thanks, everybody.