Q1 2024 Chipotle Mexican Grill Inc Earnings Call

Operator: Good day, and welcome to the Chipotle Mexican Grill first quarter 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Cindy Olsen, Head of Investor Relations and Strategy.

Good day and welcome for the Chipotle Mexican Grill first quarter 'twenty 'twenty four conference call.

Speaker Change: All participants will be in a listen only mode.

Speaker Change: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After todays presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question you May press Star then one on a touchtone phone.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to Cindy Olson head of Investor Relations and strategy. Please.

Cindy Olsen: Hello, everyone, and welcome to our first quarter fiscal 2024 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.chipotle.com.

Cindy Olsen: Please go ahead.

Cindy Olsen: Hello, everyone and welcome to our first quarter fiscal.

Cindy Olsen: 2024 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 Chipotle Dot Com I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward looking statements. These statements are based on <unk>.

Cindy Olsen: I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements. These statements are based on management's current business and market expectations, and our actual results could differ materially from those projected in the forward-looking statement. Please see the risk factors contained in our annual report on Form 10-K and in our Forms 10-Q for a discussion of risks that may cause our actual results to vary from these forward-looking statements.

Cindy Olsen: <unk> current business and market expectations, and our actual results could differ materially from those projected in the forward looking statements. Please see the risk factors contained in our annual report on Form 10-K, and in our Form 10-Q for a discussion of risks that may cause our actual results to vary from these forward looking statements.

Cindy Olsen: 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. We will start today's call with prepared remarks from Brian Niccol, Chairman and Chief Executive Officer, and Jack Hartung, Chief Financial and Administrative Officer, 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.

Cindy Olsen: 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. We will start today's call with prepared remarks from Brian Nickel, Chairman and Chief Executive Officer, and Jack Morton, Chief financial and administrative officer, after which we will take care.

Brian R. Niccol: Our entire executive leadership team is available during the Q&A session and with that I will turn the call over to Brian.

Brian R. Niccol: Thanks, Cindy. And good afternoon, everyone.

Brian R. Niccol: Thanks, Cindy and good afternoon, everyone. The momentum in the business continued in the first quarter as we delivered 7% comp sales growth driven by over 5% transaction growth.

Brian R. Niccol: The momentum in the business continued in the first quarter, as we delivered 7% comp sales growth, driven by over 5% transaction growth. Our strong sales trends were fueled by our focus on improving throughput in our restaurants, as well as successful marketing campaigns, including spotlighting barbacoa and the return of chicken al pastor as a limited-time offer. For the quarter, sales grew 14% to reach $2.7 billion, driven by a 7% comp. In-store sales grew by 19% over last year, as throughput reached the highest levels in four years. Digital sales represented 37% of sales. The restaurant level margin was 27.5%, an increase of 190 basis points year over year. Adjusted diluted EPS was $13.37, representing 27% growth over last year.

Brian R. Niccol: Our strong sales trends were fueled by our focus on improving throughput in our restaurants as well as successful marketing campaigns, including spotlighting Barbara Colo and the return of chicken out past or has a limited time offer.

Brian R. Niccol: For the quarter sales grew 14% to reach $2 $7 billion, driven by a 7% comp in store sales grew by 19% over last year as throughput reached the highest levels in four years.

Brian R. Niccol: Digital sales represented 37% of sales restaurant level margin was 27, 5% an increase of 190 basis points year over year.

Brian R. Niccol: Adjusted diluted EPS was $13 37.

Brian R. Niccol: Representing 27% growth over last year.

Brian R. Niccol: And we opened 47 new restaurants, including 43 Chipotle. The strength in our business has continued into April, and as a result, we are increasing our annual comp guidance and now estimate comps in the mid to high single-digit range for the full year.

Brian R. Niccol: And we opened 47, new restaurants, including forty-three each poll ways to strengthen our business has continued into April and as a result, we are increasing our annual comp guidance and now estimate comps in the mid to high single digit range for the full year now.

Brian R. Niccol: Now, let me shift to an update on our five key strategies that help us to win today while we grow for the future. These strategies include, sustaining world-class leadership by developing and retaining diverse talent at every level. Running successful restaurants with a people-accountable culture that provides great food with integrity while delivering exceptional in-restaurant and digital experiences. Making the brand visible, relevant, and loved to improve overall guest engagement. Amplifying technology and innovation to drive growth and productivity in our restaurants, support centers, and in our supply chain. And finally, expanding access and convenience by accelerating new restaurant openings in North America and internationally. I'll begin with our world-class people leadership.

Brian R. Niccol: Now, let me shift to an update on our five key strategies that help us to win today, while we grow our future.

These strategies include.

Brian R. Niccol: Sustaining world class people leadership by developing and retaining diverse talent at every level.

Brian R. Niccol: Successful restaurants with a people accountable culture that provides great food with integrity, while delivering exceptional in restaurant and digital experiences.

Making the brand visible relevant and loved to improve overall guest engagement amplifying technology and innovation to drive growth and productivity of our restaurant support centers and in our supply chain.

Finally, expanding access and convenience by accelerating new restaurant openings in North America and internationally.

Brian R. Niccol: Yeah.

Brian R. Niccol: I'll begin with our World class people leadership last month, we held our all manager conference, where we brought together 4500 of our restaurant support center leaders to celebrate their success as well as to amplify our focus unexceptional people exceptional food and exceptional throughput.

Brian R. Niccol: Last month, we held our all-manager conference where we brought together 4,500 of our restaurant and support center leaders to celebrate their success as well as amplify our focus on exceptional people, Exceptional Food, and Exceptional Throughput. The conference included over 3,200 General Managers, 100 Apprentices, 450 Field Leaders, 60 Team Directors, and 11 Regional Vice Presidents.

Brian R. Niccol: The conference included over 3200 General managers 100, apprentices 450 field leaders 60 team directors and 11 regional Vice presidents.

Brian R. Niccol: For the first time, we also included crew members who have worked with us for over 20 years to celebrate their commitment and dedication to Chipotle. In fact, one of our general managers in attendance from Denver, Colorado, has been with Chipotle for 23 years, and she also had four crew members from her restaurant who have each been with the company for over 20 years. Collectively, that is over 100 years of Chipotle experience all at one restaurant, which is just incredible.

Brian R. Niccol: For the first time. We also included crew members, who have worked with us for over 20 years to celebrate their commitment and dedication to chipotle in.

Brian R. Niccol: In fact, one of our general managers in attendance from Denver, Colorado has been with Chipotle for 23 years and she also had for crew members from her restaurants, who have each been with the company for over 20 years collectively that is over 100 years of Chipotle experience call. It one restaurant, which is just incredible and.

Brian R. Niccol: And it is no surprise that this restaurant has fantastic operations with throughput that is outperforming the overall company. At our conference, we highlighted the growth opportunity at Chipotle. To reach our long-term target of over 7,000 restaurants in North America, we showed our teams that we will need to double the number of field leadership positions we have. And as we target over 90% internal promotions, the majority of these future leaders will come from the GMs and apprentices at this conference.

Brian R. Niccol: There's no surprise this restaurant has fantastic operations with throughput that is outperforming the overall company.

Brian R. Niccol: At our conference we highlighted the growth opportunity at Chipotle to reach our long term target of over 7000 restaurants in North America. We showed our teams that we will need to double the number of field leadership positions, we have and as we target over 90% internal promotions. The majority of these future leaders will come from the Gms and apprentices at this conference. This was a powerful.

Brian R. Niccol: This was a powerful and motivating message, and one that is unique to Chipotle given our scale, growth, and company-owned model. And in connection with our 50-to-1 stock split, we also announced that all of our GMs, as well as crew members who have been with Chipotle over 20 years, will receive stock grants once the split is effective. This will allow them to participate in the financial success of the company.

Brian R. Niccol: And motivating message and one that is unique to chipotle, given our scale growth in company owned model.

And in connection with our 50 to one stock split we also announced that all of our Gms as well as crew members, who have been with Chipotle over 20 years will receive stock grants once the split is effective.

Brian R. Niccol: This will allow them to participate in the financial success of the company.

Brian R. Niccol: Bottom line, Chipotle is changing lives for the better. In fact, one of our restauranteurs and a certified training manager spoke at the conference and shared that her experience at Chipotle helped her to overcome financial hardship, that she was even on the verge of homelessness before she joined Chipotle. She started as a crew member over 10 years ago and has thrived, making her way to the highest level GM and is now on her way to becoming a field leader. She was able to leverage our education benefits to earn a college degree, the first in her family, and using the stock she received as a restauranteur, she was able to purchase her first home.

Brian R. Niccol: Bottomline Chipotle is changing lives for the better in fact, one of our restaurant tours and certified training managers spoke at the conference and share that her experience at Chipotle helped her to overcome financial hardship no. She was even on the verge of homelessness before she joined Chipotle she.

She started as a crew member over 10 years ago and has thrived, making her way to the highest level G. M and is now well on our way to becoming a field leader she.

Brian R. Niccol: She was able to leverage our education benefits to earn a college degree the person or family and utilizing the stock. She received as a restaurant tour. She was able to purchase or first of all she was also one of our team members and our behind the foil commercials as she really is a great example of the exceptional people that make chipotle chipotle.

Brian R. Niccol: In addition to our World class people exceptional food and exceptional throughput are key areas of focus and are both critical to running our successful restaurants.

Brian R. Niccol: She was also one of our team members in our behind-the-foil commercials, as she really is a great example of the exceptional people that make Chipotle, Chipotle. In addition to our world-class people, exceptional food and exceptional throughput are key areas of focus and are both critical to running our successful restaurant. We spent time at our all-manager conference reminding our teams about Chipotle's culture of food with integrity and how there's a direct connection between how food is raised and prepared and how it tastes.

Brian R. Niccol: We spent time at our all manager conference reminding our teams about Chipotle culture of food with integrity and how there's a direct connection between how food is raised and prepared and how it tastes, we showcase chipotle food with integrity journey, and our strong partnerships with our farmers and suppliers, who take special care and assuring their growing our food with the highest standards. We also.

Brian R. Niccol: Besides the importance of teaching and tasting chipotle, which means that our restaurant teams taste of food. They prepare multiple times a day to assure it is delicious and meets our high standards you see Chipotle was founded on this idea of real food and real culinary.

Brian R. Niccol: We showcase Chipotle's food with integrity journey and our strong partnerships with our farmers and suppliers, who take special care in assuring that they are growing our food to the highest standards. We also emphasize the importance of teaching and tasting Chipotle, which means that our restaurant teams taste the food they prepare multiple times a day to assure it is delicious and meets our high standards. You see, Chipotle was founded on this idea of real food and real culinary. It's not a marketing slogan or a short-term initiative; it's in our heritage, it's in our DNA.

Brian R. Niccol: It's not a marketing slogan or short term initiative, it's in our heritage. It's in our DNA our restaurant teams take pride in our food and our healthy high quality eating experience adds value for our guests. In addition to our delicious food exceptional throughput or the speed of service and our restaurant also adds to the extraordinary value proposition, we offer I am thrilled to share that the momentum.

Brian R. Niccol: And throughput continued to build in the first quarter as we improved by nearly two entrees and our peak 15 minutes compared to last year with each month showing an acceleration.

And our all manager conference. We also focus on coaching the nuances of great throughput or executing what we call. The four pillars. This includes expo or the crew member between source and cash to help expedite the bagging and payment process linebacker typically the manager on duty who supplies both lines with freshly prepared food. So it's a crew on our line can continue to serve our guests without <unk>.

Brian R. Niccol: Our restaurant teams take pride in our food, and our healthy, high-quality eating experience adds value for our guests. In addition to our delicious food, exceptional throughput, or the speed of service, in our restaurant also adds to the extraordinary value proposition we offer. I am thrilled to share that the momentum and throughput continue to build in the first quarter as we improve by nearly two entrances in our peak 15 minutes compared to last year, with each month showing an acceleration.

Brian R. Niccol: Eruption meets implies or another way of saying that everything that is needed for lunch or dinner peak is ready and in its place and aces in their places are having the best trained crew deployed unique position each position for lunch and dinner peaks.

Brian R. Niccol: We're in the early innings of consistently executing the four pillars, but when we do it creates a flywheel effect in our restaurants, the restaurants run more smoothly as our teams are properly trained and deployed which allows them to keep up with demand without stress. This.

Brian R. Niccol: At our Health Manager Conference, we also focus on coaching the nuances of great throughput, or executing what we call the four pillars. This includes Expo, the crew member between Salsing Cash to help expedite the bagging and payment process; Linebacker, typically the manager on duty who supplies both lines with freshly prepared food so that the crew on our line can continue to serve our guests without interruption.

Brian R. Niccol: This leads to more stability and therefore more experienced teams that execute better every day and this can be seen in the latest turnover data, which is at historically low levels and for our guests faster throughput results in shorter faster moving lines and hotter fresher food.

Brian R. Niccol: Maintaining our value proposition and driving incremental transactions.

Brian R. Niccol: Mise en place, or another way of saying that everything that is needed for a lunch or dinner peak is ready and in its place, and ACEs are in their places, or having the best trained crew deployed in each position for lunch and dinner. We are in the early innings of consistently executing the four pillars, but when we do, it creates a flywheel effect in our restaurant. The restaurants run more smoothly as our teams are properly trained and deployed, which allows them to keep up with demand without stress. This leads to more stability and, therefore, more experienced teams that execute better every day, and this can be seen in our latest turnover data, which is at a historically low level.

Brian R. Niccol: Our restaurant in the financial District in Boston is a Great example, where a year ago. They were doing mid 'twenty entrees in their peak 15 minutes and today Theyre doing over 40, entrees and their peak 15 minutes with days that can reach as high as 80, which is among the highest in the company. The restaurant has low turnover and outsize transaction growth, which clearly demonstrates they are creating a better overall.

Brian R. Niccol: Experience in our restaurants.

Brian R. Niccol: Now turning to marketing our marketing team has started the year off strong with outstanding brand advertising and menu innovation. We've continued our successful behind the foil brand campaign, showing a real teams prepping, our delicious fresh food by hand everyday reinforcing a key differentiator for Chipotle. This ran across all media channels, including high profile placements in television.

Brian R. Niccol: And for our guests, faster throughput results in shorter, faster-moving lines and hotter, fresher food... strengthening our value proposition and driving incremental transactions. Our restaurant in the Financial District in Boston is a great example where, a year ago, they were doing mid-20 entrees in their peak 15 minutes, and today they are doing over 40 entrees in their peak 15 minutes, with days that can reach as high as 80, which is among the highest in the company.

Brian R. Niccol: Such as college football and the NFL playoffs. We also began to promote our delicious Barbara call as we leveraged our consumer insights that told us that many of our guests did not know that Barbara coal was braised beef. So we renamed it braised beef Barbara column and emphasize the culinary recipe, which is slow cooked responsibly raised beef season, with garlic and cumin enhance shred.

Brian R. Niccol: It was chipotle is best kept secret and is now growing in popularity.

Brian R. Niccol: The restaurant has low turnover and outsized transaction growth, which clearly demonstrates they are creating a better overall experience in the restaurant. Now, turning to marketing. Our marketing team has started the year off strong with outstanding brand advertising and menu innovation. We have continued our successful behind-the-foil brand campaign, showing our real teams prepping our delicious, fresh food by hand every day, reinforcing a key differentiator for Chipotle. This ran across all media channels, including high-profile placements on television, such as college football and the NFL playoffs.

Brian R. Niccol: The campaign was a success driving incremental transactions and spend and it was simple for operations team to execute since it was an existing menu items.

Brian R. Niccol: This is a perfect example of how our marketing team continues to make chipotle more visible more relevant and more loved.

Brian R. Niccol: During the quarter. We also brought back one of our most requested new menu items.

Brian R. Niccol: Chicken I'll pass store, our guests loved our spin on the I'll pass store using our double chicken Morita peppers with a splash of pineapple fresh line and hand, chopped cilantro similar to Carneous auto when we bring back the past favorite we are able to improve the entire experience as we leverage our know how across culinary supply chain marketing and operations to make them more.

Brian R. Niccol: Delicious with seamless execution.

Brian R. Niccol: Chicken I'll pass store is off to a great start once again driving incremental transactions into our restaurants.

Brian R. Niccol: We also began to promote our delicious barbacoa as we leveraged our consumer insights that told us that many of our guests did not know that barbacoa was braised beef. So we renamed it Braised Beef Barbacoa and emphasized the culinary recipe, which is slow-cooked, responsibly-raised beef, seasoned with garlic and cumin, and hand-shredded. It was Chipotle's best-kept secret and is now growing in popularity. The campaign was a success driving incremental transactions and spend, and it was simple for our operations team to execute since it was an existing menu item.

Brian R. Niccol: Moving on to technology, and innovation, our marketing and digital teams continued to grow and evolve our rewards program, which recently celebrated its fifth anniversary. It is exciting that we now have a digital reach of about 40 million rewards members that we can leverage to increase engagement through our marketing initiatives. We continue to find successful ways to drive enrollments.

Brian R. Niccol: And we are leveraging our digital team to create a seamless app experience and deliver more relevant journeys for rewards members.

Brian R. Niccol: The goal is to drive higher engagement in the program, which results in higher frequency and spend over time.

Brian R. Niccol: In our restaurants, we continue to explore technology tools that could drive higher productivity and improve the overall experience for our teams. This includes things like forecasting and deploying labor recruiting new crew members preparing our fresh food and automating the preparation of digital orders.

Brian R. Niccol: This is a perfect example of how our marketing team continues to make Chipotle more visible, more relevant, and more loved. During the quarter, we also brought back one of our most requested new menu items, Chicken Al Pastor.

Brian R. Niccol: The fact that our all manager conference. We showed our teams the latest version of our automated digital make line and Autocar, which cuts cores and appeals avocados and as we discussed last quarter. We were excited to get both into a restaurant later this year as part of the stage gate process.

Brian R. Niccol: Our guests loved our spin on the Al Pastor using our Adobo chicken, Morita peppers with a splash of pineapple, fresh lime, and hand-chopped cilantro. Similar to carne asada, when we bring back a past favorite, we are able to improve the entire experience as we leverage our know-how across culinary, supply chain, marketing, and operations to make it more delicious with seamless execution. Chicken Al Pastor is off to a great start once again, driving incremental transactions into our restaurant.

Brian R. Niccol: Our final strategic priority is expanding access and convenience by accelerating new restaurant openings in North America and internationally.

Brian R. Niccol: We remain on track to open 285 to 315, new restaurants. This year, mostly in North America, we continue to see strength in openings across geographies and location types, including urban suburban and small towns. Additionally, our development team is making progress to smooth the cadence of openings throughout the year with the number of restaurants under construction.

Brian R. Niccol: Moving on to technology and innovation, our marketing and digital teams continue to grow and evolve our rewards program, which recently celebrated its fifth anniversary. It is exciting that we now have a digital reach of about 40 million rewards members that we can leverage to increase engagement. Through our marketing initiatives, we continue to find successful ways to drive enrollments, and we are leveraging our digital team to create a seamless app experience and deliver more relevant journeys for our rewards members. The goal is to drive higher engagement in the program, which results in higher frequency and spend over time.

Brian R. Niccol: Trucks up meaningfully to last year.

Brian R. Niccol: Outside of North America, I'm delighted to share that we opened our first restaurant in Kuwait with Y'all shy group, which marks the first time, we've entered a new country in over 10 years. This was a highly collaborative effort between the ultra group and our Chipotle teams across culinary food safety development operations and supply chain to successfully launched chipotle in a brand new market with the same food.

Brian R. Niccol: Quality standards and customer experience that we have in North America. Although it is very early the opening was strong and we look forward to continued success in many restaurants across the region with the I'll shy group.

Brian R. Niccol: Moving to Europe as you May recall, we brought over one of our top operators about a year ago, who help to identify areas of opportunity, including better aligning our training tools systems and culinary with our North American operations, where it makes sense and is feasible. We've made nice progress aligning the culinary and are beginning to better align the operations, including a recent change in leadership struck.

Brian R. Niccol: In our restaurants, we continue to explore technology tools that could drive higher productivity and improve the overall experience for our customers. This includes things like forecasting and deploying labor, recruiting new crew members, preparing our fresh food, and automating the preparation of digital origin. In fact, at our All Manager Conference, we showed our teams the latest version of our automated digital make line and AutoCADO, which cuts cores and peels avocados.

Brian R. Niccol: Sure as we expand the role of our Canadian leader to oversee both Canada and Europe over.

Brian R. Niccol: Over the last five years candidates economics have improved to be on par with the U S. In fact, Canada's leading our company in many key operational kpis, including throughput.

The successful approach of aligning the local strategy with our overall operational vision and diligently overseeing execution of Chipotle standards has set up Canada for rapid expansion.

Brian R. Niccol: And, as we discussed last quarter, we are excited to get both into a restaurant later this year as part of the StageGate project. Our final strategic priority is expanding access and convenience by accelerating new restaurant openings in North America and internationally. We remain on track to open 285 to 315 new restaurants this year, mostly in North America. We continue to see strengthened openings across geographies and location types, including urban, suburban, and small towns.

Brian R. Niccol: We see many similarities between the European operation today in the Canadian operation five years ago, the new leadership team in Europe, including two top operators from the U S will take a similar strategic approach to improve economics and unlock Europe's growth potential in.

Brian R. Niccol: In closing the strength in our business, including transaction driven comps is due to the collective hard work of our 120000 employees, who are results driven passionate about our purpose of cultivating a better world and excited for our growth opportunities ahead.

Brian R. Niccol: Additionally, our development team is making progress to smooth the cadence of openings throughout the year with the number of restaurants under construction up meaningfully. Outside of North America, I'm delighted to share that we opened our first restaurant in Kuwait with the Al Shaya Group, which marks the first time we've entered a new country in over 10 years. This was a highly collaborative effort between the El Cheyye Group and our Chipotle teams across culinary, food safety, development, operations, and supply chain to successfully launch Chipotle in a brand new market with the same food quality standards and customer experience that we have in North America. Although it is very early, the opening was strong, and we look forward to continued success and many restaurants across the region with Al-Shabaab.

Brian R. Niccol: At our all manager conference I highlighted the importance of people development as it represents one of our greatest strengths seeing our leaders all in one place was inspiring and their personal growth stories are a real and a key ingredient to chipotle success and future growth.

Brian R. Niccol: Makes me more confident than ever that we have the right people and the right strategy to achieve our long term goals of more than doubling our restaurants in North America and expanding internationally.

Brian R. Niccol: As I've said in the past I believe the next Chipotle is chipotle and with that I will turn it over to Jack.

Jack Hartung: Thanks, Brian and good afternoon, everyone sales in the first quarter grew 14, 1% year over year to reach $2 $7 billion as sales comp grew 7% driven by over 5% transaction growth restaurant level margin of 27, 5% increased about 190 basis points compared to last year earnings per share adjusted for.

Brian R. Niccol: Moving to Europe, as you may recall, we brought over one of our top operators about a year ago, who helped to identify areas of opportunity, including better aligning our training tools, systems, and culinary with our North American operations where it makes sense and is feasible. We have made nice progress aligning the culinary and are beginning to better align the operations, including a recent change in leadership structure as we expand the role of our Canadian leader to oversee both Canada and Europe.

Jack Hartung: Unusual items was $13.37 representing.

Speaker Change: Representing 27% year over year growth first quarter had unusual expenses related to an increase in legal reserves.

As Brian mentioned based on our strong underlying transaction trends, we are raising our full year comp guidance to the mid to high single digit range. We.

Speaker Change: We anticipate second quarter comps to be the highest of the year, which includes a benefit of an extra day from the Easter ship and we anticipate comps to continue to be driven by transactions in the back half of the year, we do have some challenging rollover components, including chicken El Paso or ending lapping our menu price increase from the prior year and rolling over the very successful Carneous attic.

Brian R. Niccol: Over the last five years, Canada's economics have improved to be on par with the U.S. In fact, Canada is leading our company in many key operational KPIs, including through: The successful approach of aligning the local strategy with our overall operational vision and diligently overseeing execution of Chipotle standards has set up Canada for rapid expansion. We see many similarities between the European operation today and the Canadian operation five years ago.

Speaker Change: Campaign with that said, we have a strong plan in place for the back half both in terms of operations and marketing.

Speaker Change: Additionally, in April minimum wage in California for restaurant companies like ours increased to $20 an hour.

Speaker Change: As a result, our wages in California went up by nearly 20% and we subsequently took a 6% to 7% menu price increase in our California restaurants, just to cover the cost in dollar terms. This way I'd almost a full point to total company pricing beginning in Q2.

Brian R. Niccol: The new leadership team in Europe, including two top operators from the U.S., will take a similar strategic approach to improve economics and unlock Europe's growth. In closing, the strength of our business, including transaction-driven comps, is due to the collective hard work of our 120,000 employees who are results-driven, passionate about our purpose of cultivating a better world, and excited for our growth opportunities ahead. At our all-manager conference, I highlighted the importance of people development as it represents one of our greatest strengths.

Speaker Change: California restaurant cash flow is below the company average. So this increase will allow us to maintain cash flow. However, it will have a negative impact to overall company restaurant level margin by about 20 basis points.

Speaker Change: I'll now go through the key P&L line items, beginning with cost of sales.

Speaker Change: Cost of sales in the quarter with 28, 8% a decrease of about 40 basis points from last year. The benefit of last year's menu price increase was partially offset by inflation across several ingredient cost primarily beef and produce and an approach a protein mix headwind from the successful deep Barbara co op marketing initiatives.

Brian R. Niccol: Seeing our leaders all in one place was inspiring, and their personal growth stories are real and a key ingredient to Chipotle's success and future growth. This makes me more confident than ever that we have the right people and the right strategy to achieve our long-term goals of more than doubling our restaurants in North America and expanding internationally. As I've said in the past, I believe the next Chipotle is Chipotle. And with that, I will turn it over to Jeff. Thanks, Brian.

Speaker Change: For Q2, we expect our cost of sales to be in the mid 29% range due to higher prices across several items, but most notably avocados as we anticipate a step up from the low levels, we have seen over the past several quarters we.

Speaker Change: We anticipate cost of sales inflation will be in the mid single digit range for the remainder of this year.

Speaker Change: Labor costs for the quarter was 24, 4% a decrease of about 20 basis points from last year as the benefit from sales leverage more than offset wage inflation and the higher performance based compensation for.

Speaker Change: For Q2, we expect our labor cost to stay in the mid 24% range with wage inflation stepping up to about 6% as a result of the minimum and correct minimum wage increase in California.

Jack Hartung: Thanks, Brian, and good afternoon, everyone. Sales in the first quarter grew 14.1% year-over-year to reach $2.7 billion, as sales comp grew 7%, driven by over 5% transaction growth. Restaurant-level margin of 27.5% increased about 190 base points compared to last year. Earnings per share adjusted for unusual items was $13.37, representing 27% year-over-year growth.

Speaker Change: Other operating costs for the quarter was 14, 3% a decrease of about 100 basis points from last year. The decrease was driven by sales leverage lower delivery expenses and lower marketing and promo costs.

Speaker Change: Marketing and promo costs were two 9% of sales in Q1, a decrease of about 30 basis points from last year in Q2, we expect marketing cost to be in the low 2% range with the full year to come in just below 3%.

In Q2 other operating costs are expected to be in the low 13% range.

Speaker Change: G&A for the quarter was $204 million on a GAAP basis or $191 million on a non-GAAP basis, excluding a $13 million increase in legal reserves.

Jack Hartung: The first quarter had unusual expenses related to an increase in legal reserves. As Brian mentioned, based on our strong underlying transaction trends, we are raising our full-year comp guidance to the mid to high single-digit range. We anticipate second quarter comps to be the highest of the year, which includes the benefit of an extra day from the Easter shift, and we anticipate comps to continue to be driven by transactions in the back half of the year. We do have some challenging rollover components, including ending chicken al pastor, lapping our menu price increase from the prior year, and rolling over the very successful carne asada campaign.

Speaker Change: G&A also includes $126 million in underlying G&A $34 million related to noncash stock comp $21 million related to our successful all manager conference. We held in March and $10 million related to higher bonus accruals and payroll taxes on equity vesting and exercises when.

Speaker Change: We expect our underlying G&A to be around $129 million in Q2 and step up each quarter as we make investments in people and technology to support ongoing growth.

Speaker Change: We anticipate stock comp will be around $36 million in Q2, although this amount could move up or down based on our actual performance.

Speaker Change: We also expect to recognize around $6 million related to higher bonus accruals and employer tax taxes associated with shared that best during the quarter.

Jack Hartung: With that said, we have a strong plan in place for the back half, both in terms of operations and the market. Additionally, in April, the minimum wage in California for restaurant companies like ours increased to $20 an hour. As a result, our wages in California went up by nearly 20%, and we subsequently took a 6-7% menu pricing freeze in our California restaurants just to cover the cost and dollar turn. This will add almost a full point to total company pricing beginning in Q2. California restaurant cash flow is below the company average, so this increase will allow us to maintain cash flow. However, it will have a negative impact on overall company restaurant level margin by about 20 basis points.

Our total anticipated G&A in Q2 to around $171 million.

Speaker Change: Depreciation for the quarter was $83 million or three 1% of sales and we expect depreciation to step up slightly each quarter as we continue to open more restaurants.

Speaker Change: Our effective tax rate for Q1 was 22% for GAAP and $22 one per cent for non-GAAP.

Speaker Change: And our effective tax rate benefited from option exercises and equity vesting above grant values for fiscal 2024, and we estimate our underlying effective tax rate will be in the 25% to 27% range, though it may vary based on discrete items.

Speaker Change: On March 19th we announced that our board of directors approved a 50 for one stock split one of the largest in New York stock sustained history. We believe this will make our stock more accessible to our employees as well as a broader range of investors pending.

Jack Hartung: I'll now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter was 28.8%, a decrease of about 40 basis points from last year. The benefit of last year's menu price increase was partially offset by inflation across several ingredient costs, primarily beef and produce, and a protein mix headwind from the successful Beef Barbacoa marketing initiative.

Speaker Change: Pending shareholder approval in early June to increase the number of authorized shares the stock will begin trading on a post split basis at the market open on Wednesday June 26.

Speaker Change: Our balance sheet remains strong as we ended the quarter with $2 $2 billion in cash restricted cash and investments with no debt.

Jack Hartung: For Q2, we expect our cost of sales to be in the mid-29% range due to higher prices across several items, but most notably avocados, as we anticipate a step up from the low levels we have seen over the past several quarters. We anticipate cost of sales inflation will be in the mid-single-digit range for the remainder of this year. Labor cost for the quarter was 24.4%, a decrease of about 20 base points from last year, as the benefit from sales leveraged more than offset wage inflation and higher performance-based compensation.

Speaker Change: As a result of the timing of our announcement of the stock split we were unable to repurchase shares for most of the quarter, which limited our share repurchases to just $25 million and an average price of 2000 and $320.

Speaker Change: At the end of the quarter, we had nearly $400 million remaining under our share authorization program and we will be able to resume opportunistically repurchasing our shares when the window opened reopened in a few days.

Speaker Change: We opened 47, new restaurants in the first quarter of which 43 had a chipotle and.

Speaker Change: And we continue to anticipate opening between 285 and 315, new restaurants in 2024 with over 80%, having a chipotle and we remain on track to move towards the high end of the 8% to 10% range by 2025, assuming timeline conditions do not worsen.

Jack Hartung: For Q2, we expect our labor costs to stay in the mid-24% range, with wage inflation stepping up to about 6% as a result of the minimum wage increase in California. Other operating costs for the quarter were at 14.3%, a decrease of about 100 basis points from last year. The decrease was driven by sales leverage, lower delivery expenses, and lower marketing and promotion costs.

Speaker Change: To close I want to reiterate the message I shared at our recent all manager conference.

Speaker Change: He started over 30 years ago with a young chef who thought just because food is served fast doesn't mean it has to be a typical fast food experience.

Speaker Change: That evolved into our food with integrity journey defying the traditional fast food model by investing more in our gradient and shaping our economic model to help fund that investment.

Jack Hartung: Marketing and promotion costs were 2.9% of sales in Q1, a decrease of about 30 base points from last year. We expect marketing costs to be in the low 2% range, with the full year to come in just below 3%, and in Q2, other operating costs are expected to be in the low 13% range. D&A for the quarter was $204 million on a GAAP basis, or $191 million on a non-GAAP basis, excluding a $13 million increase in legal reserves.

Speaker Change: And today, we have a special brand and unique economic model that allows us to spend more on our ingredients yet remain one of the most affordable meals in the industry, while also maintaining industry leading margins.

Speaker Change: These three characteristics are incredibly difficult to replicate premium ingredients affordable prices and attractive margins and this is a huge competitive advantage and as we continue to protect and strengthen our economic model the future looks very bright for chipotle.

Speaker Change: And with that we're happy to answer your questions.

Jack Hartung: G&A also includes $126 million in underlying G&A, $34 million related to non-cash stock comp, $21 million related to our successful all-manager conference we held in March, and $10 million related to higher bonus accruals and payroll taxes on equity vestings and exercises. We expect our underlying G&A to be around $129 million in Q2 and step up each quarter as we make investments in people and technology to support ongoing growth. We anticipate stock comp will be around $36 million in Q2, although this amount could move up or down based on our actual performance.

Speaker Change: We will now begin the question and answer session.

To ask a question you May Press Star then one on your touch telephone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Is it any time your question has to do that right and you would like to withdraw your question. Please press Star then two.

Speaker Change: In the interest of time, please limit yourself to one question and one follow up.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Okay.

Speaker Change: The first question today comes from David Tarantino with Baird. Please go ahead.

David E. Tarantino: Hi, Hi, good afternoon.

David E. Tarantino: My question's on on speed of service and Brian I think you mentioned that you improved in Q1 by two transactions, which I think is the biggest improvement we've seen in quite some time. So I guess the first question is could you maybe elaborate on the factors that drove such a sharp.

Jack Hartung: We also expect to recognize around $6 million related to higher bonus accruals and employer taxes associated with shares that float in the quarter, bringing our total anticipated GNA and Q2 to around $171 million. Appreciation for the quarter was $83 million, or 3.1% of sales, and we expect appreciation to step up slightly each quarter as we continue to open more restaurants. Our effective tax rate for Q1 was 22% for GAAP and 22.1% for non-GAAP.

David E. Tarantino: Improvement and then secondly could you maybe give.

David E. Tarantino: As an update on where you think you are exiting the quarter entering the first or second quarter versus where you ultimately want to be how much progress you know I guess, you know relative to the ultimate goal did you make in the last three and half months.

David E. Tarantino: Yes.

Speaker Change: So thanks, David well first I got to give a big kind.

Kind of applause to our operators.

Jack Hartung: And our effective tax rate benefited from option exercises and equity vesting above grant values. For fiscal 2024, we estimate our underlying effective tax rate will be in the 25% to 27% range, though it may vary based on discrete items.

Speaker Change: We've really done a great job I think of staffing.

Speaker Change: Casually and deploying and then really executing against our four pillars of great throughput. So the nice thing that happened is we saw frankly, a step up almost every month.

Speaker Change: <unk>.

David E. Tarantino: We continue to see progress as we are now in the month of April in fact, if you remember this Dave we were talking probably in 2023 about being in the low twenty's and wanted to get into the mid twenties.

Jack Hartung: On March 19th, we announced that our board of directors approved a 50 for 1 stock split, one of the largest in New York Stock Exchange history. We believe this will make our stock more accessible to our employees, as well as a broader range of investors. Pending shareholder approval in early June to increase the number of authorized shares, the stock will begin trading on a post-split basis at the market open on Wednesday, June 26.

David E. Tarantino: The good news is we're finally closing in on those mid twenties.

David E. Tarantino: And we're starting to see certain days push high twenties.

David E. Tarantino: So still lots of room for improvement.

David E. Tarantino: But I really must say that I think the focus.

Jack Hartung: Our balance sheet remains strong as we enter the quarter with $2.2 billion in cash, restricted cash, and investments with no debt. As a result of the timing of our announcement of the stock split, we were unable to repurchase shares for most of the quarter, which limited our share repurchases to just $25 million at an average price of $2,320. At the end of the quarter, we had nearly $400 million dollars remaining under our Share Authorization Program, and we will be able to resume opportunistically repurchasing our shares when the window opens again in a few days.

David E. Tarantino: The staffing the deployment of scheduling and then also giving our operators the visibility with reporting.

David E. Tarantino: Has really I think driven terrific outcomes on this throughput at throughput effort.

David E. Tarantino: And we're really excited about where we can go from here.

David E. Tarantino: And just maybe a quick follow up on that so the last year you've made.

David E. Tarantino: This type of progress on throughput that I can remember was all the way back in 2014, and it was a very big comp driver that year and I just I just wonder.

David E. Tarantino: Could this become a you know a big comp driver.

Jack Hartung: We opened 47 new restaurants in the first quarter, of which 43 had a Chipotle. And we continue to anticipate opening between 285 and 315 new restaurants in 2024, with over 80% having a Chipotle. And we remain on track to move toward the high end of the 8 to 10% range by 2025, assuming timeline conditions do not worsen.

David E. Tarantino: As you look at the rest of this year and into the next few years I mean is it possible that this is a big driver as we think about you know how the next several years plays out or is this more of a we're starting to get closer to where you want to be in and you know.

David E. Tarantino: Maybe it plays out this year.

David E. Tarantino: Normalized versus that base.

Speaker Change: Yeah, no you're exactly right. David So 2014 was kind of our high watermark on throughput.

Jack Hartung: To close, I want to reiterate the message I shared at our recent all-manager conference. Chipotle started over 30 years ago with a young chef who thought just because food is served fast doesn't mean it has to be a typical fast food experience. That evolved into our food integrity journey, defying the traditional fast food model by investing more in our menu and shaping our economic model to help fund that investment. And today we have a special brand and unique economic model that allows us to spend more on our ingredients and yet remain one of the most affordable meals in the industry, while also maintaining industry-leading margins. These three characteristics are incredibly difficult to replicate.

Speaker Change: And we believe we've got years of opportunity in this.

Speaker Change: Just from what we're seeing we still have a lot of opportunity to execute against the four pillars of great throughput. So our teams are.

Speaker Change: Doing a much better job than we were.

Speaker Change: Last months or even six months ago.

Speaker Change: But there's still so much upside in what our teams can do and perform.

Speaker Change: So this is a multi year, you're going to hear us talking about throughput for a long time, and I think youre going to be hearing us talk about how we're getting better.

Speaker Change: As time goes by assuming we're able to keep the staffing assuming were able to keep the deployment assuming were able to keep the teams focused on this but you know.

Jack Hartung: Premium ingredients, affordable prices, and attractive margins. And as we continue to protect and strengthen our economic model, the future looks very bright for Chipotle. And with that, we're happy to answer your questions.

Speaker Change: Rest assured it is one of our key drivers of.

Speaker Change: Our strategy going forward and our operators know it's critical.

Speaker Change: And the good news is when they have success with throughput a lot of good things happen for the team.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key.

Speaker Change: Customer satisfaction scores go up bonuses go up all kinds of good things are happening in the restaurant. The food is better the experience is better.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from David Tarantino with Baird. Please go ahead.

Speaker Change: Yes.

Speaker Change: It's one of those things that cascades into everything being a lot better.

Speaker Change: Great. Thank you very much and congrats on a great start to the year.

Speaker Change: Thanks, David.

Speaker Change: The next question comes from Lauren Silberman with Deutsche Bank.

Lauren Silberman: Please go ahead.

Lauren Silberman: Thanks, so much traffic.

Traffic incredible numbers, you talked about the strength continuing into April and particularly impressive when considering what we're seeing in the overall industry can you give more color on just the cadence of trends you saw throughout the quarter and into April and color on what you're seeing with the consumer performance at the high income versus low income consumer. Thank you.

David E. Tarantino: Hi, good afternoon. My question is on speed of service, and Brian, I think you mentioned that you improved in Q1 by two transactions, which I think is the biggest improvement we've seen in quite some time. So I guess the first question is, you know, could you maybe elaborate on the factors that drove such a sharp improvement? And then, secondly, could you maybe, you know, give us an update on where you think you are exiting the quarter, entering the first or second quarter, versus where you ultimately want to be? How much progress, you know, I guess, relative to the ultimate goal, did you make in the last three and a half months?

My apologies it looks like we've lost connect you with that speakers. Please hold while we reconnect.

Lauren Silberman: Okay.

Lauren Silberman: Yeah.

Lauren Silberman: Hum.

Lauren Silberman: Yes.

Lauren Silberman: [music].

Brian R. Niccol: Yeah, so thanks, David. Well, first, I got to give a big, you know, kind of applause to our operators. You know, we've really done a great job, I think, of staffing, scheduling, and deploying, and then really executing against our four pillars of great throughput. So, the nice thing that happened is we saw, frankly, a step up almost every month, and we continue to see progress as we, you know, are now in the month of April.

Lauren Silberman: Okay.

[music].

Lauren Silberman: Uh huh.

Lauren Silberman: [music].

Brian R. Niccol: In fact, if you remember this, David, we were talking probably in 2023 about being in the low 20s, and we wanted to get into the mid-20s. The good news is we're finally closing in on those mid-20s, and we're starting to see certain days push the high 20s. So, you know, still lots of room for improvement, but I really must say that the focus, the staffing, the deployment, the scheduling, and then also giving our operators visibility with reporting has really, I think, driven terrific outcomes for this throughput effort. And we're really excited about where we can go from here.

Lauren Silberman:

Lauren Silberman: Yeah.

Lauren Silberman: [music].

David E. Tarantino: And just maybe a quick follow-up on that, so the last year you made this type of progress on throughput that I can remember was all the way back in 2014, and it was a very big comp driver that year. And I just wonder, could this become a big comp driver, you know, as you look at the rest of this year and into the next few years? I mean, is it possible that this is a big driver as we think about, you know, how the next several years will play out, or is this more of a, we're starting to get closer to where you want to be, and, you know, maybe it plays out this year, and you normalize versus that base?

Brian R. Niccol: Yeah, no, you're exactly right, David. So 2014 was kind of our high-water mark on throughput, and we believe we've got years of opportunity in this. You know, just from what we're seeing, we still have a lot of opportunity to execute against the four pillars of great throughput. So our teams are doing a much better job than we were, you know, just last month or even six months ago. But there's still so much upside to what our teams can do and how they perform.

Brian R. Niccol: So this is a multi-year project, and you're going to hear us talking about throughput for a long time. And I think you're going to be hearing us talk about how we're getting better as time goes by, assuming we're able to keep the staffing, assuming we're able to keep the deployment, you know, assuming we're able to keep the teams focused on this. But, you know, rest assured; it is one of our key drivers.

Brian R. Niccol: Our strategy going forward, and our operators know it's critical, and you know, the good news is, when they have success with throughput, a lot of good things happen. Customer satisfaction scores go up, bonuses go up. All kinds of good things are happening in the restaurant. The food is better. The experience is better. It's one of those things that cascades into everything being a lot better. Alright, thank you very much.

Lauren Silberman: Okay.

[music].

David E. Tarantino: Great, thank you very much and congrats on a great start to the year. Yeah, thanks, David.

Lauren Silberman: Hum.

Lauren Silberman: Yeah.

Lauren Silberman: The next question comes from Lauren Silberman with Deutsche Bank. Please go ahead.

Speaker Change: Thank you very much for your patience, we have reconnected with our speakers.

Speaker Change: We currently have Lauren Silberman from Deutsche Bank, asking a question. Please continue your line.

Lauren Silberman: Thanks so much. On traffic, incredible numbers. You talked about the trends continuing into April and are particularly impressive when considering what we're seeing in the overall industry. Can you give more color on just the cadence of trends you saw throughout the quarter and into April and color on what you're seeing with the consumer performance with the high-income versus low-income consumer? Thank you.

Lauren Silberman: Hey, guys.

Lauren Silberman: Right.

Lauren Silberman: I could just ask about guest traffic incredible trends during the quarter concern continuing into April, particularly impressive when considering what's going on in the overall industry can you give some more color on the cadence of trends you saw throughout the quarter and into April and then talk about what you're seeing with the consumer high income versus low income performance. Thank you.

Operator: My apologies, it looks like we've lost connection with our speakers. Please hold while we reconnect.

Lauren Silberman: Yeah sure. So this is Brian I'll get us started injecting free to chime in.

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Operator: Thank you very much for your patience. We have reconnected with our speakers. We currently have Lauren Silberman from Deutsche Bank asking a question. Please continue, Lauren.

Brian R. Niccol: Obviously, we had some weather in January and.

Brian R. Niccol: Then we had the timing of the Easter holiday in March and April.

Brian R. Niccol: Consistent with what we saw was a step up from that bad weather and then really our transactions had been running kind of in this mid single digit range.

Lauren Silberman: Hey guys, so if I could just ask about just traffic, incredible trends during the quarter, trends continuing into April, particularly impressive when considering what's going on in the overall industry. Can you give some more color on the cadence of trends you saw throughout the quarter and into April and then talk about what you're seeing with the consumer, high income versus low income performance? Thank you.

Brian R. Niccol: Which has been you know I think a real testament to the work that's been going on both in the restaurant around throughput and then obviously some of the marketing work that we've got going on.

Brian R. Niccol: With Barbara <unk> and chicken out past store.

Brian R. Niccol: Yeah, sure. So this is Brian. I'll get it started. And Jack, feel free to chime in.

Brian R. Niccol: So we we continue to see that strength as we entered April and.

Brian R. Niccol: When we look at where that strength is coming from because you're asking your question was about consumers slash income cohorts.

Brian R. Niccol: You know, the good news is Obviously, we had some weather in January, and then we had the timing of the Easter holiday in March and April, but consistently, what we saw was a step up from that bad weather, and then, really, our transactions have been running kind of in this mid-single-digit range, which has been, you know, I think, a real testament to the work that's been going on both in the restaurant around through So, we continue to see that strength as we enter April, and, you know, when we look at where that strength is coming from, because I think your question was about consumers slashing income cohorts, it's really broad-based, so from...

Brian R. Niccol: It's really broad based so from.

Brian R. Niccol: The low income consumer to the middle income to the higher income consumer we're just seeing gains with all income cohorts and.

Let me ask the question why is that what we hear back from every group is a great value proposition.

Brian R. Niccol: So the speed at which people can get these quality ingredients customize the way that they want for.

Brian R. Niccol: The price points that we provided.

Brian R. Niccol: Just playing back is just create value in this environment.

Brian R. Niccol: Yeah.

Speaker Change: Hey, Brian.

Brian R. Niccol: From the low-income consumer to the middle-income to the higher-income consumer, we're just seeing gains across all income cohorts. When we ask the question, why is that? What we hear back from every group is, you know, it's a great value proposition. And, you know, the speed at which people can get it.

It was on track transact that transactions were up.

Speaker Change: Almost five 5% during the quarter and that was offset by check increase by about one 5% now what's driven by check and then offset by.

Speaker Change: A little mixed a little negative mix, mostly due to group sizes.

Lauren Silberman: Great, thank you for that!

Lauren Silberman: Very helpful. If I could just have a quick one on throughput. Do we expect the throughput efforts to compound over time as consumers recognize the improved operations? Is that what's happening as we move through the quarters?

Brian R. Niccol: Very helpful. If I just had a quick one on throughput.

We expect the throughput as efforts to compound over time as consumers recognize the improved operations is that what's happening.

Brian R. Niccol: As we move through the quarters.

Brian R. Niccol: Yes, yes, that's exactly right. I think we've talked about this in the past. You know, when you know the line moves quickly, you're willing to get in line. And also, what happens is the experience is just all that much better, right? The culinary experience moves faster, and then you get to your experience faster. So, our teams run more efficiently, the food, I think, comes across even better prepared, and then you as the customer move through the line faster. So, it is one of those things where, kind of, speed begets speed, is the way to describe it.

Speaker Change: Yes, yes, that's exactly right I think we've talked about this in the past.

Speaker Change: When you know the line moves quickly.

Speaker Change: Going to get in line.

Speaker Change: And also what happens is the experience is just all that much better rate the culinary moves faster.

Speaker Change: And then you get to your experience faster so our teams run more efficiently. The food I think it comes across even better prepared and then use the customer move through the line faster. So it is one of those things were kind of speed to get speed.

Speaker Change: A way to describe it yes, and then Brian I, just going to ask at the.

Jack Hartung: Brian, I was just going to ask you about the in-store channel. It's the fastest-growing channel during the quarter, and that's coming from two areas. One, we have our in-store customers. Those customers that tend to come in-store are coming more often, and it makes sense that when the lines are moving, they're going to come more often. And we're actually also seeing a little bit of a shift from some of the orders ahead.

Speaker Change: In terms of the in store channel it is our fastest growing channel.

Speaker Change: During the quarter and Thats coming from two areas. One we've got our in store customers those customers that tend to come in store are coming more often and it makes sense that when the lines are moving they're going to come more often.

Speaker Change: Actually also seeing a little bit of shift from some of the order ahead. Those folks are shifting into the order into the in store channel as well again when the lines are moving well when the restaurants running well people like to come in and you know it's like their meal along the frontline.

Jack Hartung: Those folks are shifting into the order channel, into the in-store channel as well. And when the lines are moving well, when the restaurant's running well, people like to come in and select their meal along the front line.

Speaker Change: Yeah.

Lauren Silberman: Great, congrats on the quarter!

Speaker Change: Great Congrats on the corner.

Andrew Charles: The next question comes from Andrew Charles with TD Cowan. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from Andrew Charles with P. D. Cowen. Please go ahead.

Andrew Charles: Great, thank you. I want to ask a little about transactions. Jack, I'm hoping you can talk about apples-to-apples, the impact on traffic this has had. So, if you go back to July 2022, when you guys introduced Project Square One, you talked about hundreds of base points of transactions that are on the table from reclaiming peak same-source sales or peak transactions. So, here we are. You're back to pre-COVID levels. Is there a way you can help contextualize what you've seen from transaction growth, same-source transactions from Project Square One in the last year and a half or so, since July 2022?

Andrew Charles: Great. Thank you Wanda.

Andrew Charles: One is the warrant transactions here, Jack hoping you can talk about apples to apples the impact on traffic. This has had so if you go back to July 2022. When you guys introduced project square one you talked about one hundreds of basis points of transactions. They are on the table from reclaiming peak same store sales or peak transactions. So here we are.

Andrew Charles: Are.

Andrew Charles: You are back to pre Covid levels is there ways, you can help contextualize and last year and a half or so since July 2020 to what you've seen from transaction growth same store transactions from project square one.

Jack Hartung: Yeah, Andrew, so it's hard to parse out the transactions and say how much is due to things like Chicken Al Pastor, how much is due to things like Barbacoa, Barbacoa, we think drove some transactions as well, and then throughput, how much is driven by throughput specifically. I think part of what's happening is they complement each other, and so when we're moving into our peak season right now, and these are our peak sales seasons, and we've got Chicken Al Pastor, which has been, you know, it's off to a great start, and you've got seasonally more people coming into the restaurant, and more people want to come in and enjoy Chicken Al Pastor, if you don't have throughput, the in-store channel is not going to be the fastest growing channel, or at least it's not going to grow as fast, so is throughput driving the transactions, or is it enabling the transaction, so it's hard to sort through whether it's the driver or the enabler, but it really doesn't matter to us, because when we've got great LTOs with great advertising, and then we're executing great throughput, we know the transactions will flow, and similar to David Tarantino's comment from 2014, that's exactly what was happening, is throughput is an enabler, or a driver of transaction growth, for not just many quarters, but many years.

Jack: Yes, Andrew it's so it's hard.

Jack: Parse out the transactions and say how much is due to things like chicken out past or how much is due to things like Barbara called Barb color, we think drove some transactions as well and then.

Jack: Throughput how much is driven by throughput specifically I think part of what's happening is they complement each other and so when we're moving into our peak season right now and these are our peak sales season, and we've got chicken El Paso, or which has been it's off to a great start and she's got seasonally more people coming into the restaurant and more people want to come in and enjoy chicken El Paso.

Jack: If you don't have throughput.

The in store channel is not going to be the fastest growing channel or at least it's not going to grow as fast. So it's throughput driving the transactions, where it is or isn't it enabling the tracks transaction. So it's hard to sort through whether it's the driver or the enabler, but it really doesn't matter to us because when we've got great <unk> with great advertising and that we're executing great throughput we know that.

Jack: Transaction.

Jack: We will flow and similar to David Tarantino his comment from 2014 and Thats exactly what was happening is throughput is an enabler or a driver of transaction growth for not just many quarters, but many years.

Andrew Charles: Got it. And then separately, Brian, philosophical question for you, just given the strength of the business you're seeing in recent years, which I think is really exemplified in the first quarter, given the challenging industry backdrop, just curious how your philosophy on a second concept has perhaps changed. You know, you no doubt have a full plate of exciting opportunities for the brand in the years ahead. But just given the success and the recipe for success that you've seen that you've implemented, does that lead you to believe that you could benefit from a second concept? You know, uh, I was to this.

Speaker Change: Got it and then separate Lee Brian Your philosophical question for you just given the strength of the business you are seeing in recent years, which I think is really exemplified in the first quarter given the challenging industry backdrop I'm just curious how your philosophy on a second concept has perhaps changed you no doubt have a full plate of exciting opportunities for the brand in the years ahead, but just given the success.

Speaker Change: And the recipe for success that you've seen that you've implemented does it lead you to believe that you could benefit from a second concept.

Brian R. Niccol: You know, obviously, this comes up, you know, every once in a while, people bring it up. And, you know, the thing I would say is right now, we're much more focused on just turning Chipotle into an iconic brand that I think it can be, not just in the U.S., but, you know, outside the U.S. Obviously, if the opportunity presents itself where, you know, it would make sense for us to do something outside of the brand, you know, so I never want to say never, but it's just not a focus area for us right now.

Speaker Change: Yes.

Yes.

Speaker Change: Obviously this comes up every once in a while people bring it up and.

Speaker Change: I would say is right now we're much more.

Speaker Change: More focused on just turning chipotle into an iconic brand that I think it can be.

Speaker Change: In the U S, but outside the U S.

Speaker Change: Obviously, if the opportunity presents itself we're.

Speaker Change: It would make sense for us to do something outside of the brand. So I never want to say never but its just not a focus area for US right now we've got so much opportunity in front of us.

Brian R. Niccol: We've got so much opportunity in front of us, just with what we can do with the Chipotle brand, that internally, we're not working on it. But, you know, you never know; the external environment changes, and we'd be foolish to say we wouldn't be opportunistic. And luckily, we're operating from a position of strength right now, so I want to be as opportunistic as possible on the brand Chipotle. And then, if the external environment were to change and present other opportunities, you know, maybe we would consider it, but it's not part of our growth strategy.

Speaker Change: Just with what we can do with the brand Chipotle.

Speaker Change: Internally, we're not working on it but you never know the external environment changes and we'd be foolish to say, we wouldn't be opportunistic and luckily.

Speaker Change: We're operating from a position of strength right now so I want to be as opportunistic as possible and branch, partly and then if the external environment were to change present other opportunities.

Speaker Change: Maybe maybe we would consider it but it's not part of our growth strategy right now.

Sara Harkavy Senatore: The next question comes from Sara Senatore with Bank of America. Please go ahead.

Speaker Change: Fair enough. Thank you.

Speaker Change: The next question comes from Sara Senatore with Bank of America. Please go ahead.

Sara Harkavy Senatore: Thank you. Just a quick housekeeping and then another question, please. So just, I think Jack, you mentioned a slightly negative mix.

Sara Harkavy Senatore: Thank you.

Sara Harkavy Senatore: Quick housekeeping and then and then another question. Please say just I think Jack you mentioned slightly negative mix can.

Jack Hartung: Can you clarify what pricing was this quarter? I think it was just under 3%, like 2.8, something like that. And then what does that mean for 2Q now that you've taken that price increase in California? So that's just the sort of modeling question.

Sara Harkavy Senatore: Can you clarify was pricing this quarter I think it was just under 3% like 2.8, something like that and then what what does that mean for QQ now that you've <unk>.

Speaker Change: The price increase in California. So that's just a sort of a modeling question, yes, sorry, you're right pricing in the quarter. It was like 2728, the only change going into the next quarter in the next couple of quarters is you've got the California pricing, that's somewhere around 100 basis points or a little bit less so Q2 and Q3 will.

Jack Hartung: Yeah, Sara, you're right. Pricing in the quarter was like $2.7, $2.8. The only change going into the next quarter and the next couple quarters is that we have California pricing. That's somewhere around 100 base points or a little bit less. So Q2 and Q3 will be somewhere in that 3.5% range. And then Q4 will fall off and be more in that 1.5% range because we'll compare it against last year.

Speaker Change: Somewhere in that three 5% range, and then Q4 will fall off and be more in that one 5% range, because we will compare against last year's pricing.

Great. Thank you very helpful. And then I wanted to ask about yesterday.

Sara Harkavy Senatore: Great, thank you. Very helpful.

Sara Harkavy Senatore: And then I wanted to ask about sort of the store mix, which is, you know, you're seeing a shift towards in-store. Does that have any impact on group size, presumably from the lower delivery, but do you see any impact from shifting to in-store? I'm thinking more, you know, possibly positive from better attached to things like beverages, for example. And I'm curious if, you know, as you look out ahead, you know, if the mix could possibly turn positive from a driver like that.

Speaker Change: Sure Max which is yeah, youre seeing them shift towards in store and does that have any I know you said mm.

Max: Size is still falling a little bit presumably from the lower delivery, but do you see any impact from shifting to ensure I am thinking more possibly positive from better attach for like beverages for example, and and and I'm curious if a you know as you look out ahead.

Max: If mix could could possibly turn it.

Max: Turn positive.

Jack Hartung: Yeah, it's a good question, Sarah. We're actually seeing within the 1.5% of negative, or it's a one and a half percent positive with, you know, a mixed impact of, call it about a hundred basis points or so. What's happening is the group size is more like declining by about two percent. We actually do have size, an additional side attachment, but we're seeing the side attachment grow in both digital and in-restaurant.

Max: From a driver like that.

Speaker Change: Yes, it's a good question, Sarah where we're actually seeing within the call. It one 5% negative.

Speaker Change: Or it's.

Speaker Change: It's a one 5%.

Speaker Change: Positive with.

Speaker Change: A mix impact of call it about 100 basis points or so what's happening is the group size is more like.

Speaker Change: Declining by about 2%, we actually do have size additional side attachment, but we're seeing that side attachment grow in both digital and an in restaurant and we are seeing decided attachment increased faster and restaurants on the site. So there is a positive factor there is less from drinks, though it's more with extra meets its chips.

Jack Hartung: And we are seeing the side attachment increase faster in-restaurant than the main dish, so there is a positive factor there. It's less from drinks though, it's more with extra meats, chips, and queso. So we're getting a better attachment in both channels, and it is getting better even in the in-store channel. Part of that, we think, frankly, is when we have the line fully staffed, we do think we do a better job of not only making the burrito but making sure when the burrito or the bowl is presented to our cashier, that these extras in these sides are more properly rung up. Drinks have been relatively steady; we're not seeing a big shift in drinks.

Speaker Change: Queso, so we're getting a better attachment in both channels and it is getting better even than the in store channel part of that we think frankly is when we have the line fully staff. We do think we do a better job of not only making the brito theyre, making sure when the burrito or bowl is presented to our cash cash here that these extra and then these side are more properly.

Speaker Change: <unk> run up drinks had been relatively steady and we're not seeing a big a big shift in drinks.

Sara Harkavy Senatore: Okay, got it. Thank you. So, kind of the opposite of the check management that we're seeing elsewhere. Thank you very much.

Speaker Change: Okay got it. Thank you said kind of the opposite of the check management that we're seeing out Sir Thank you very much correct.

Jon Tower: The next question comes from Jon Tower with Citigroup. Please go ahead.

Speaker Change: Yeah.

The next question comes from Jon Tower with Citigroup. Please go ahead.

Jon Tower: Great. Thanks for taking the questions. First, maybe as we think about that path to $4 million AUVs that you've spoken about before, can you help us maybe think about even your average customer frequency today and how that compares to the rest of maybe some of your competitive set out there for just your average customer?

Jon Tower: Great. Thanks for taking the question.

Just a couple first maybe as we think about that path to $4 million of UBS that you've spoken about before can you help us just maybe think about even your average customer frequency today and then how that compares to the rest of maybe some of your competitive set out there.

Brian R. Niccol: Yeah, you know, I don't know how to think about our frequency relative to some competitive opportunities out there. What I can tell you is that the folks that are in the rewards program, you know, we see with their high engagement, we see higher, you know, spend, and more frequency. And then also, what we're seeing in the business, which I think is really nice to see as a result of the efforts both in better operational execution and, I think, our advertising around just the base business, this idea of real ingredients, real culinary, you know, fast customization. We're just seeing the base business grow. So, you know, obviously, we love what Chicken Al Pastor does for us.

Jon Tower: Just your average customer.

Yes.

I don't know.

Jon Tower: How to think about our frequency relative to some competitive opportunities out there what I can tell you is the folks that are in our rewards program, we see with their high engagement, we see higher spend and more frequency and then also what we're seeing in the business, which I think is really nice to see as a result I think.

Jon Tower: The efforts both in better operational execution, and I think our advertising around just the base business. Besides just real ingredients real culinary.

Jon Tower: Fast customization, we're just seeing the base business growth.

Jon Tower: Obviously, we love what chicken out that store does for us as far as menu variety absolutely love. The fact that we were able to Rehan Barbara coal, which is within our existing business, but I think it's been nice about the cadence of marketing and news combined with I think great operational.

Brian R. Niccol: As far as menu variety is concerned, obviously, we love the fact that we're able to re-hit Barbeco, which is within our existing business. But I think it's been nice about the cadence of marketing and news combined with, I think, great operational executions. We're just seeing the base business grow. So we're getting more new users, and we're getting existing users to come more often. And, you know, it's a great recipe to grow your core business in all the various ways we've talked about, right, from marketing to digital to operations.

Jon Tower: Execution is we're just seeing the base business grow so we're getting more new users, we're getting existing users to come more often and.

Jon Tower: It's a great recipe to grow your core business.

Jon Tower: And all the various ways, we talked about right from marketing to digital to operations.

Jon Tower: Great. Maybe just pivoting a little bit on you, can you talk about the Canadian market and specifically about the potential you think for that over the long term? And then, you know, expanding. I think you mentioned earlier that Europe looks a lot like Canada five years ago, but do you feel like you can, you know, given everything you've learned in Canada, implement a lot of what you've taken there and apply it to Europe such that, you know, the timeline around getting growth in Europe will be a lot faster versus what you saw in Canada?

Speaker Change: Great maybe just pivoting a little bit on your can you talk about the Canadian market.

Speaker Change: And specifically about the potential you think for that over the long term and then you know.

Speaker Change: Expanding I think you'd mentioned earlier the idea that.

Speaker Change: Europe looks a lot like Canada five years ago, but do you feel like you can given everything you've learned in Canada implement a lot of what you've taken there and apply it to Europe such that the.

Speaker Change: Timeline around getting growth in Europe will be a lot faster versus what you saw in Canada.

Brian R. Niccol: Yeah, look, I mean, we're delighted with what's happened, or what's occurred in Canada. You know, five, six years ago, we were struggling to make unit economics look very compelling. Now they're very compelling, you know; it's right there with the US. And as a result, that business is closing in on 50 restaurants, and pretty soon, we'll have 100 restaurants up there. And then I think we'll be talking about having hundreds of restaurants, which is really exciting.

Speaker Change: Yes look I mean, we're delighted with what's.

Speaker Change: What's happened what's occurred in Canada.

Speaker Change: Five six years ago.

Speaker Change: We were struggling to make the unit economics look very compelling now theyre very compelling is right there with the U S and as a result.

Speaker Change: Business is closing in on 50 restaurants, and pretty soon we will have 100 restaurants up there and then I think we'll be talking about having hundreds of restaurants in Canada, which is really exciting to answer your question on Europe, Yes look I think our.

Brian R. Niccol: To answer your question on Europe, yeah, look, I think... Our belief is we've learned a lot from what we had to do in Canada to get that business to perform. We're taking that leadership there, giving her the opportunity to oversee our European business, take those lessons learned and apply them. And, at the same token, we're taking what we think are some of our best operators in the U.S. and giving them the opportunity to grow by working in our European business.

Speaker Change: Our belief is we've learned a lot from what we've had to do in Canada to get that business to perform we're taking that leadership there, giving her the opportunity to oversee our Europe business take those lessons learned and apply it and then at the same token we're taking what we think are some of our best offers in the U S, giving them the opportunity to grow by work.

Speaker Change: And our European business.

Brian R. Niccol: So, you know, the timeline, I don't know what the timeline is going to be, but I am feeling optimistic that, you know, we've got the right operators, the right leadership. And then, you know, look, the proposition is compelling, right? Clean food, great cuisine, done fast, with high levels of customization. That resonates. So, you know, I'm optimistic about where we go from here for all the reasons I just mentioned.

Speaker Change: So.

Speaker Change: The timeline I don't know what the timeline is going to be but I am feeling optimistic.

Speaker Change: We've got the right operators the right leadership, and then look the proposition is compelling clean food.

Speaker Change: Culinary done fast with high levels of customization that resonates.

I'm optimistic about where we go from here for all the reasons I just mentioned.

Jon Tower: I appreciate you guys taking the questions.

Speaker Change: Got it I appreciate you guys taking the questions.

Dennis Geiger: The next question comes from Dennis Geiger with UBS. Please go ahead.

Speaker Change: The next question comes from Dennis Geiger with UBS. Please go ahead.

Dennis Geiger: Great, thank you. Brian, I wanted to follow up on your comment there that the incremental traffic or visits are coming both from existing customers coming back more as well as from new customers. I don't know if you have this granular level of detail, but I'm curious if you have a sense maybe from where, maybe it's everywhere, but if it's QSR, if it's other fast casual, any sense, you know

Great. Thank you and Bryan I wanted to follow up on your commentary that the incremental traffic or visits are coming both from existing customers coming more as well as from new customers. I don't know if you have this granular level of detail, but but I'm curious.

Dennis Geiger: If you have a sense, maybe from where maybe it's everywhere, but if its <unk> if its other fast casual.

Brian R. Niccol: You know, not really. The good news for us is it's pretty broad-based, right? It's coming across all income cohorts. It's coming across lunch and dinner and the afternoon. So it's not like there's one...

Bryan: Are you picking it up more at lunch the incremental visits and customers more at dinner is there are there any other level of granularity to kind of.

Bryan: So help explain some of the success and maybe where it's where it's coming from is it is it shifts to you folks.

Speaker Change: No not really I mean, the good news for US is it's pretty broad based right its coming across all of our income cohorts, that's coming across lunch and dinner.

Brian R. Niccol: Chipotle. You know, I think you've heard us talk about this time and time again. Exceptional food, exceptional people, exceptional throughput. And I think we're just getting better at each of those things. And the good news for us is we have an opportunity to be even better than we are today.

Speaker Change: In the afternoon.

Speaker Change: So it's not like there is one thing.

Speaker Change: That I would identify as like this change in consumer behavior I think the one big change for US is we're performing a lot better and giving people the experience that they actually one for chipotle.

Speaker Change: You've heard US talk about this time and time again exceptional food exceptional people exceptional throughput and I think we're just getting better at each of those things and the good news for US is we have announced we have even better than we are today.

Dennis Geiger: That's great! And then just one, just on the menu innovation follow-up, just given the success you've seen as you bring back past favorites, as it relates to the go forward, given the success that you've seen in recent years from that strategy, has that shifted at all how you think about menu innovation going forward as it relates to, you know, bringing back past favorites versus some newer items and any shift there for you and for the team? Thank you.

Speaker Change: And then you layer in what I talked about earlier as it relates to marketing, but we're talking about the brand itself and then some of this menu news.

Speaker Change: It's just it's one of those things that builds on itself right.

Great Digital program screen marketing programs become much more effective manner.

Executing operations at a higher level and I think thats whats happening.

Speaker Change: That's great and then just one just on the on the menu innovation follow up just given the success you've seen as you bring back.

Brian R. Niccol: No, no real shift. I mean, I think we like this cadence of one or two items a year. The good news is, we now have a great proven group of menu news that we can provide. And the good news is, we've got a really talented culinary team and a talented marketing team that continue to help us find, I think, new flavors that make sense that can be executed correctly at Chipotle. So, you're going to see us continue to hopefully mix in things that have worked in the past and things that will be new but have gone through our stage gate process so that we have a high level of success or belief in success going forward. So, we like the pace we're in. We can operate really well with it. And, you know, it seems to be responding with our customers. So, we want to keep doing what's working. Thank you.

Past favorites.

It relates to the go forward given the success that you've seen in recent years from that strategy has that shifted at all how you think about menu innovation.

Innovation going forward as it relates to bringing back past favorites versus some newer items and any shift there for you and for the team. Thank you.

Speaker Change: No no real shift I mean, I think we like this cadence of one or two.

Speaker Change: Items a year. The good news is we've got a great proven group.

Speaker Change: Uh huh.

Menu news that we can provide and the good news is we've got a really talented culinary team and a talented marketing team that continues to help us find I think new flavors that makes sense that can be executed correctly to chipotle. So.

Speaker Change: Youre going to see US continue hopefully mix in things that we know have worked in the past and.

Things that there'll be new but I've gone through our stage gate process. So that we have a high level of success, our belief and success going forward. So we like the cadence. We're in we can operate really well with it and.

Speaker Change: It seems to be resonating with our customers. So we want to keep doing what's working.

Speaker Change: Thank you and congratulations.

Speaker Change: Thank you.

The next question comes from John <unk> with Jpmorgan. Please go ahead.

Dennis Geiger: Thank you and congratulations. Thank you. The next question comes from John Ivankoe with J.P. Morgan. Please go ahead. Hi, thank you very much. Oh, I wanted to get an update on some of the...

John: Hi, Thank you very much I wanted to get an update on some of the near term operational operational initiatives that you've talked about before the clamshell audit, Colorado Heights, and just kind of where we are in the stage gate process and if you can put that in the context of kind of an updated I guess.

John William Ivankoe: The next question comes from John Ivankoe with J.P. Morgan. Please go ahead. Hi, thank you very much. Oh, I wanted to get a

John: Funding of the cultivate find what types of opportunities that youre looking for for the next phase of opportunities to overall accelerate the chipotle brand. Thanks.

John William Ivankoe: Yeah, sure. So, obviously, all this stuff is really exciting. You know, the dual-sided grill, we've expanded to a few more restaurants, specifically our high-volume restaurants. You know, we think that's not only a great unlock for consistency in the preparation of our proteins and meats, but it's also a nice unlock for our high-volume restaurants because you can cook the chicken faster. It allows the teams then to, you know, start preparation closer to when we want to serve customers, which is really exciting.

Speaker Change: Yes sure.

Speaker Change: Obviously all of this stuff is really exciting.

Speaker Change: The dual sided grill.

Expanded to a few more restaurants, specifically our high volume restaurants.

We think thats not only a great unlock for consistency in the culinary of our proteins and meat, but it's also a nice unlock for our high volume restaurants.

Speaker Change: Because you can cook the chicken faster.

It allows the teams then to start prep closer to when we want to serve customers, which is really exciting.

Brian R. Niccol: So, we're continuing to test and learn on that front. We've also made some nice progress on the energy usage associated with it, which was something that was a bit of a barrier. On hyphen and AutoCAD, I'm happy to say we've got both of those units back in our Cultivate Center for a couple prototypes, and we are feeling really good about getting those into a restaurant probably in the back half of this year.

Speaker Change: So we're continuing to test and learn on that front. We've also made some nice progress on the energy usage associated with it.

Speaker Change: <unk> was something that was a bit of a barrier.

Speaker Change: Hyphen, and Autocar, though I'm.

Speaker Change: I'm happy to say, we've got both of those units back on our cultivate center for.

Speaker Change: A couple of prototypes in and we are feeling really good about getting those into a restaurant probably in the back half of this year.

Brian R. Niccol: You know, and then there's a lot of other things happening, too, like forecasting, deployment, tools to help our team members cut vegetables more efficiently and more effectively. So, there's a lot of good things happening behind the scenes, and I'm optimistic about what, you know, some of these things can do for our team members to give them a better experience, which I know translates into better food and ultimately better experiences for our customers.

Speaker Change: And then there's a lot of other things happening too.

Speaker Change: With online like forecasting deployment.

Speaker Change: Tools to help our team members cut veggies more efficiently more effectively.

Speaker Change: There's a lot of good things happening behind the scenes.

Speaker Change: And I'm optimistic about what some of these things you can do for our team members.

Speaker Change: To give them a better experience, which then translates into better culinary and then ultimately better experiences for our customers.

Brian R. Niccol: On the Cultivate Next Fund, you know, this continues to be a real... I think it's a highlight area for us because we're continuing to see great ideas. And these great ideas are all the way from different ways to fertilize, to weeding in the fields, to different ways to actually deliver food or oils. So, you know, the thing I love about this is it's perfectly in sync with our purpose of cultivating a better world, and we can use it to really move forward the entire system necessary to give people great cuisine, great ingredients, great food, at affordable prices. So, you're seeing us invest up and down the supply chain all the way to the point of customer experience.

Speaker Change: On the Colgate and Exelon.

This continues to be a real.

Speaker Change: I think highlight an area for us because we are continuing to see great ideas and great ideas are all the way from different ways to fertilize to leading in the fields to different ways of actually deliver food oils.

Speaker Change: So.

The thing I Love about this is it's perfectly in sync with our purpose of cultivating a better world and we can use it to really move forward the entire system necessary to give people great culinary great ingredients, great food at affordable prices, So you're seeing us invest up and down the supply chain all the way to the point of customer.

Sharon Zackfia: The next question comes from Sharon Zackfia with William Blair. Please go ahead.

Speaker Change: Experience.

Speaker Change: Thank you.

Speaker Change: The next question comes from Sharon Zackfia with William Blair. Please go ahead.

Sharon Zackfia: Hi, great, thanks for taking the question. I guess, you know, in California where you took the price increase, I know it's pretty recent, but could you give us an idea of where Average Ticket now sits in California and whether you've been seeing any resistance within that market as wages have ticked up and you've had to take that price increase?

Sharon Zackfia: Alright, great. Thanks for taking my question I guess.

Sharon Zackfia: On California, where you took the price increase I know its pretty recent but could you give us an idea of where average ticket now sits in California, and whether you've been seeing any resistance within that market is what it does is picked up and you've had to take that price increase.

Jack Hartung: Yeah, Sharon. So the average ticket in California is similar to the rest of the country. You know, until this increase, our menu prices in California were very similar to the averages throughout the country, even though the cost of doing business out in California tends to be higher. After the increase, we still have burritos that are going to be, you know, reasonably priced. The chicken burrito is going to be around $10. You know, it's very early, as you mentioned. It's too early to tell.

Speaker Change: Yes, Sharon so the average ticket in California is similar to the rest of the country until this increase.

Our menu prices in California were very similar to the averages throughout the country, even though the cost of doing business out in California tends to be.

Speaker Change: Higher after the increase we still have <unk> that are going to be.

Speaker Change: Reasonably priced that chicken burrito is going to be around $10.

Speaker Change: It's very early as you as you mentioned, it's too early to tell we're not seeing any kind of change in consumer behavior, yet, but it's only been a matter of a few weeks. So far so we'll keep a close eye on it we still think and.

Sharon Zackfia: We're not seeing any kind of change in consumer behavior yet, but it's only been a matter of a few weeks so far. So we'll keep, you know, a close eye on it. We still think in, you know, in California compared to competitors, we're still a terrific value. If you look at what others are charging, because if you look at others in California before this increase and compare them to average menu prices throughout the country, they tend to be higher.

Speaker Change: In California compared to competitors, we're still a terrific value. If you look at what others are charging because if you look at others in California before this increase and can compare them to average menu price throughout the country. They tend to be higher they are passing on the higher cost of doing business. We've tried to keep our pricing very very affordable in California. So we still think we operate.

Sharon Zackfia: They're passing on a higher cost of doing business. We've tried to keep our pricing very, very affordable in California. So we still think we offer great value here. So we think we'll fare quite well. You know, as a consumer absorbs and figures out how they want to balance their budget, we think Chipotle will stay in the budget.

Speaker Change: Value here, so we think we'll fare quite quite quite well as.

Speaker Change: The consumer absorbs and figures out how do they want to balance our budget, we think chipotle will stay in the budget.

Brian R. Niccol: Okay, great. I wanted to ask another question, too, as it relates to Chipotle, which obviously has been great, but as you look at kind of the automation and the initiatives you're working on, do you think there's anything that you're looking at or that could come down the pike that would open up kind of the opportunity for a non-digital drive-thru, just a regular drive-up and order drive-thru, or Yeah, we don't imagine that.

Speaker Change: Okay, Great I wanted to ask another question to you as it relates to Chipotle, and which obviously have been great.

Speaker Change: As you look at kind of the automation and the initiatives. We're working on do you think there is anything.

Speaker Change: Anything that you're looking at or that could come down the pike that would open up.

Speaker Change: Kind of the opportunity is for a non digital drive through just a regular dried up in order drive through or is.

Speaker Change: Is there not something from a robotic assembly standpoint that could answer that for you.

Sharon Zackfia: Yeah, we don't imagine that happening. You know, the thing that makes Chipotle pretty special is all the customization, and we would hate to screw up that experience. And that's why, you know, you might remember this. I remember when we first did this, everybody was like, oh, everybody's going to be confused. How are they going to go out of order? So on and so forth, and it's turned out to be a really pleasant experience for both our team members and our customers because, literally, all they have to do is pick up their food.

Speaker Change: Yes, we don't envision.

Speaker Change: Sure.

Speaker Change: Occurring the the thing that makes chip holding pretty special as all of the customization.

Speaker Change: And we would hate to screw up that experience.

Speaker Change: And Thats why you know.

Speaker Change: I remember this I remember when we first did this everybody was like everybody is going to be confused how they're going to go out and order.

So on and so forth.

Speaker Change: Turns out to be a.

Really pleasant experience for both our team members and our customers because.

Literally all they have to do is pick up their food everything's paid for the orders accurate.

Sharon Zackfia: Everything's paid for, the order's accurate, it's on time, and on you go. You know, we think there are other places for us to be more, you know, productive where we're hunting for kind of using robotics and AI. I'm finding other ways to improve productivity, but you're not going to see that coming down the pipe.

Speaker Change: It's on time and.

Speaker Change: On yugo so.

Speaker Change: We think there's other places for us to be more productive, we're hunting kind of using robotics and AI.

Finding other ways to do productivity, but.

Speaker Change: Youre not going to see that coming down the pike.

Speaker Change: Okay, great. Thank you.

Brian James Harbour: The next question comes from Brian Harbour with Morgan Stanley. Please go ahead.

Speaker Change: The next question comes from Brian Harper with Morgan Stanley. Please go ahead.

Brian James Harbour: Yeah, thank you. Good afternoon. I had a question just about your comments about the Rewards Program. Obviously, you can continue to add people to that, but, you know, the effort to kind of... Dr. John Tarantino, Jeffrey Bernstein, Danilo Gargiulo, John Hartung, Danilo Gargiulo

Brian Harper: Yes. Thank you good afternoon I had a question just on your comments about.

Brian Harper: The rewards program, obviously, you continue to add people to that but you know the effort to kind of drive engagement on the same user basis. You know I know you've worked on personalization and off of offers and such have you seen that kind of showing of you've seen pretty nice improvements in frequency or anything you can say just about.

Brian R. Niccol: Yeah, I think one of the things that's pretty interesting that over the last, I'd say, couple months has really worked well for us is, uh, kind of between machine learning and AI, I'm not sure what the right label is here, but we, we figured out how to identify somebody that might go less frequent so that we can keep them in the mix, and, um, that's proving to be pretty powerful, uh, still a very small cohort that we're learning on, but the good news is we're seeing nice progress with that cohort that I'm optimistic, uh, kind of in our stage gate process, we'll take that learning and figure out how to apply it on a much bigger scale so that then you can feel it across the digital business, um, but it's those types of things where I think the team's doing a nice job of commercializing the data in a very effective way that ultimately for the customer, it feels like more personalization, more relevance, uh, therefore you keep the engagement up, and then obviously when we

Brian Harper: What what you've observed kind of from the same user base rewards members.

Speaker Change: Yes, I think one of the things that's pretty interesting that over the last I'd say a couple of months has really worked well for us is.

Speaker Change: Kind of between machine learning and AI I'm not sure what the right label is here, but we figured out.

Speaker Change: So how to identify somebody that might go.

Speaker Change: Less frequently so that we can keep them in the mix and.

Speaker Change: That's proving to be pretty powerful.

Speaker Change: Still a very small cohort that we're learning on but the good news is we're seeing nice progress with that cohort that I'm optimistic now kind of in our stage gate process, we'll take that learning and figuring how to apply it on a much bigger scale. So that then you can feel it across the digital business.

Speaker Change: But it's those types of things, where I think the team's done a nice job of commercializing the data in a very effective way.

Speaker Change: Ultimately for the customer it feels like more personalization more relevance. Therefore, you keep the engagement up and then obviously when we keep the engagement we see the higher spend in the more frequency.

Brian James Harbour: Okay, got it. The other comment you made, Brian, is about forecasting and deployment in restaurants. So, you know, it's not just equipment; it's also kind of that piece of it, which, you know, I assume you're referring to kind of the software tools that you've put there. What have you seen from that so far? Has that made a big difference in your opinion on throughput and the kind of staffing? Could you say more about that? Yeah, definitely. Look, I think one of the things that's happening...

Speaker Change: Okay.

Speaker Change: Okay got it.

Speaker Change: The comment you made Brian just about forecasting and deployment in restaurants.

Speaker Change: It's not just equipment and it's also kind of that piece of it which you know I assume you're referring to kind of the software tools that you've put correct. There is is that what.

Speaker Change: What have you seen from that so far is that made a big difference in your opinion on throughput and kind of staffing can you say more about that.

Brian R. Niccol: Yeah, definitely. Look, I think one of the things that's happening is because we're getting better at forecasting, better at deploying, better at scheduling, you know, the job is becoming a better job, right? And one of the ways you see it is in our turnover numbers, right? Our turnover numbers are the lowest they've ever been. We've got some regions well below 100% turnover at the crew level, which I've never seen in my time in this industry.

Speaker Change: Yes, definitely look I think one of the things that's happening is because we're getting better forecasting better deploying better at the scheduling the job is becoming a better job right and one of the ways you see it is in our turnover numbers radar turnover numbers are the lowest they've ever been we've got some regions well below a 100% turnover.

Speaker Change: At the crew level, which I've never seen in my time in this industry I think some of the lowest number as I've ever seen frankly at Chipotle.

Brian R. Niccol: I think some of the lowest numbers I've ever seen, frankly, at Chipotle. The more we can do to support them so that they have a successful day, the better they feel about the job, the better they feel about the experience that they're giving. You know, nobody likes to show up and be out of chicken when a customer gets to that point.

Speaker Change: To be in that 100% range I think it's a testament to us making the job a better experience for our team members.

Speaker Change: I say this all the time of our folks I said this at our AMC are folks show up at work wanting to succeed the more we can do to surround them. So that they have a successful day the better they feel about the job the better they feel about the experience that they're giving you know nobody likes to show up and be out of chicken when a customer gets to that point and so the more we can do to ensure.

Brian R. Niccol: And so the more we can do to ensure, you know, they prepare correctly, they're staffed correctly, they're deployed correctly, you know, the better the experience is going to be. And I think we're starting to see that in the turnover numbers. We're starting to see that in, frankly, just the performance at throughput, right? The ultimate kind of metric to see like, is the whole system really working?

Speaker Change: Sure.

Speaker Change: A prep correctly, they're staffed correctly, they're deployed correctly.

Speaker Change: The better the experience is going to be and I think we're starting to see that in the turnover numbers, we're starting to see that in frankly, just the performance at throughput right. The ultimate kind of metric to see what gets the whole system really working the whole system's working when we get great throughput and.

Brian R. Niccol: The whole system's working when we get great throughput, and, you know, I'm just, I'm delighted to see it happen. I talked about this a little bit in my prepared remarks.

Speaker Change: I'm, just I'm delighted to see it happen I talked about this a little bit in my prepared remarks, you really saw coming alive at our AMC because when I had the opportunity to talk to people in the hallways are on our way to breakout I think people are just energized. They are fired up about this idea of being successful in their role being successful as a leader and that.

Brian R. Niccol: You really saw it coming alive at our AMC because when I had the opportunity to talk to people in the hallways or on our way to breakouts, I think people were just energized. They were fired up about this idea of being successful in their role, being successful as a leader. And that translates into the team. Everybody likes to be part of a winning team. And I think that's what's happening in our restaurants. We've got leaders that know they're leading and winning. [inaudible] We're going to do more of that.

Speaker Change: Translates into the team everybody likes to be part of a winning team and I think thats whats happening in our restaurants, we've got leaders that know their leading winning teams.

Speaker Change: So.

Speaker Change: We're going to do more of that.

Chris O'Call: The last question today comes from Chris O'Call with Cecil. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The last question today comes from Chris <unk> with Stifel. Please go ahead.

Chris O'Call: Yeah, hi. Thank you.

Chris: Yeah, Hi, thank you.

Chris O'Call: I had a follow-up related to execution during peak periods. And in particular, Brian, you've talked about helping teams in the stores have better visibility to know how they're performing in their 15 minutes so they can course correct, I think, in real time. Is this a fairly new system or dashboard tool that managers have access to? And then maybe to help us understand the opportunity, I was just wondering if you could tell us what the difference is between the number of entrees during 15-minute peaks for the top 20% and maybe the bottom 20% performers?

Chris: Had a follow up related to execution during peak periods and in particular.

Chris: Brian you've talked about helping teams in the stores have better visibility to know how they are performing in their 15 minutes. So they can course correct I think in real time is this a fairly new system or dashboard tool that managers have access to and then maybe to help us understand the opportunity I was just wondering if you could tell us what's the difference between the number of entrees during 15.

Chris: Me too.

Chris: 15 minute peaks.

Chris: The top 20% and maybe the bottom 20% performers.

Brian R. Niccol: Yeah, so to answer your first question, it is a new tool that we rolled out in January that gives them real-time visibility, which has been hugely powerful. You know, it's great because now when I visit restaurants and ask people, hey, how are they doing, they can tell me what their best 15 dishes have been so far, and a lot of them now are so well aware, like, hey, I know we can do better than that.

Brian: Yeah. So to answer your first question. It is a new tool that we rolled out in January that gave them real time visibility.

Brian: Which has been hugely powerful.

<unk> is now when I visit restaurants, and you ask people Hey, how are you doing they can tell me with their best 15 has been so far and a lot of them now are so well aware like hey, I know, we can do better than that so we might have <unk> 25 in the last 15, but I think we're going through 35 in the next 15.

Brian R. Niccol: So, like, we might have done 25 in the last 15, but I think we're going to do 35 in the next 15, which is really exciting to hear them have that type of visibility and have that type of clarity so that, as a team, they know what they're all working on. Um, what was your other question?

Brian: Which is really exciting to hear them.

Brian: That type of visibility and have that type of clarity so that as a team they know what they're all working towards.

Brian: What was your other question.

Chris O'Call: It was the range of throughput. Oh, the range of top and bottom. Yeah, and I can take that one.

Speaker Change: It was a range on throughput out of the range to the top and bottom, yes, I can take that one we will see at the bottom and these tend to be lower volume restaurants, youll see restaurants that are doing in the mid teens call. It and then I.

Jack Hartung: We will see at the bottom, and these tend to be lower volume restaurants, you'll see restaurants that are doing in the mid-teens, call it that. And then, I don't think this is maybe the top 20%, but when we look at the top restaurants, which tell us what the potential is, Brian gave an example during the prepared remarks in Boston, we've seen as high as 80, and we've seen some even higher than that. The top performing restaurants consistently, or at least on the peak days, are going to be in that 40, 50 range. So, it's a very wide range, and we're still towards the lower end of that range with a lot of potential ahead of us. Great. Thanks.

Speaker Change: I don't think this is maybe the top 20%, but when we look at the top restaurants, which tell us what the potential is Brian gave an example, during the prepared remarks and Boston, we've seen as high as 80, we've seen some even higher than that but I would say the top performing restaurants are consistently or at least on peak days are going to be in that 40 to 50 range. So it.

Speaker Change: The very wide range.

Speaker Change: And we're still towards the lower end of that range with a lot of potential ahead of us.

Speaker Change: Great. Thanks, and congratulations on a great start to the year.

Chris O'Call: Great. Thanks, and congratulations on a great start to the year.

Brian R. Niccol: This concludes our question and answer session. I would like to turn the conference back over to Brian Niccol for any closing remarks. Okay, thank you.

Speaker Change: Thank you.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Brian Nichols for any closing remarks.

Brian R. Niccol: Okay, thank you. And thanks, everybody, for the questions. Obviously, I appreciate the kind words recognizing how we're off to a great start. Very proud of the momentum that the business has and really proud of what our operators are doing in our restaurants. I mentioned it in my prepared remarks, but it was so much fun to be at our AMC with all of our restaurant general managers, apprentices, field leaders, team directors, and regional vice presidents talking about the business.

Brian R. Niccol: Okay. Thank you.

Brian R. Niccol: And thanks, everybody for the questions, obviously I appreciate the kind words.

Recognizing how we're off to a great start.

Proud of the momentum that the business has and really proud of what our operators are doing in our restaurants I mentioned it in my prepared remarks, but there was so much fun to be at our AMC with all of our restaurant General managers apprentices field leaders team director as regional Vice President talking about the business everybody was.

Brian R. Niccol: Everybody was clearly aligned on what the task needed to be at hand, which was great food, developing great people, great culture, great teams, and right, and then ultimately getting great throughput for our customers. And I think you're seeing the power of focus, the power of alignment, and the power, frankly, of Chipotle's culture and great people in these results in the last quarter. I am optimistic about where we go from here. It's exciting to think about how we can double this business, going from 3,400, 3,500 restaurants to 7,000 restaurants, getting to 4 million average unit volumes, and then continuing to make great progress on throughput.

Brian R. Niccol: Clearly aligned on what the task needs to be at hand, which is great culinary developing great people great culture, great teams right and then ultimately getting grade throughput for our customers and I think youre seeing the power of focus the power of alignment and the power frankly of Chipotle culture and great people and these results in the last quarter.

Optimistic about where we go from here, it's exciting to think about how we can double this business going from 3400, 3500 restaurants to 7000 restaurants getting to 4 million average unit volumes.

Brian R. Niccol: And then continuing to make great progress on throughput and surrounding this brand I think with great digital great marketing.

Brian R. Niccol: And surrounding this brand, I think, with great digital and great marketing, it's really an exciting moment for the brand and the company. We're just getting started, which really makes this a lot of fun. So thanks for taking the time. It's great to see the business respond with transactions driving the comp, and we're going to stay focused on what we know works. So we'll talk to you guys in a couple months. Thanks, everybody.

Brian R. Niccol: It is really it's really an exciting moment for the brand and the company and.

Brian R. Niccol: We're just getting started which is which is really makes us a lot of fun. So thanks for taking the time, it's great to see the business respond with transactions driving the comp and.

Speaker Change: We're going to stay focused on what we know works. So we will talk to you guys in a couple of months. Thanks everybody.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

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Speaker Change: Yeah.

Speaker Change: [music].