Q4 2024 Chipotle Mexican Grill Inc Earnings Call and Business Update
Speaker Change: Good day, and welcome to the Chipotle Mexican Grill 4th Quarter 2024 Results Conference Call.
Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation there will be an opportunity to ask questions.
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Please note, today's event is being recorded.
Speaker Change: I would now like to turn the conference over to Cindy Olsen, Head of Investor Relations and Strategy. Please go ahead. Hello everyone and welcome to our fourth quarter and full year fiscal 2024 earnings call. By now you should have access to our earnings press release.
Speaker Change: 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 statements.
Speaker Change: Please see the risk factors contained in our annual report on Form 10-K and in our Form 10-Qs for a discussion of risks that may cause our actual results to vary from these forward-looking statements. Our discussion today will include non-GAAP financial measures.
Speaker Change: A reconciliation to gap measures can be found via the link included on the presentation page within the investor relations section of our website.
Speaker Change: We will start today's call with prepared remarks from Scott Boatwright, Chief Executive Officer, and Adam Rymer, Chief Financial 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 Scott.
Scott Boatwright: Thanks Cindy and good afternoon everyone. I speak on behalf of everyone at Chipotle when I say that we are deeply saddened by the devastation caused by the recent wildfires in Southern California.
Scott Boatwright: The safety of our restaurant teams and guests is a top priority. Unfortunately, I'm pleased to report that our team members are safe and the impact of our business has been minimal.
Scott Boatwright: In response to this tragedy, Chipotle has provided thousands of burritos to firefighters and first responders.
Scott Boatwright: committed 1 million dollars in free meals to those impacted, as well as made donations through our Cultivate Foundation to charitable organizations aiding in the relief efforts.
Scott Boatwright: We also featured the American Red Cross in our app to provide our guests a way to donate by rounding up their change. I want to thank our employees and our guests for helping to support the recovery efforts in the affected communities.
Now turning to our business update.
Speaker Change: Chipotle had another outstanding year, delivering strong transaction-driven comps each quarter.
Scott Boatwright: expanding margins, opening over 300 restaurants, gaining momentum in key industry-leading brand metrics,
Speaker Change: making progress on many back of house initiatives and building our footprint internationally.
Speaker Change: For the fiscal year 2024, sales grew about 15% to reach $11.3 billion, driven by a 7.4% comp, including over 5% transaction growth.
Digital sales of 3.9 billion dollars represented 35% of sales.
and John Hartung. Thank you. Thank you.
AUVs increased to 3.2 million dollars.
Speaker Change: The restaurant level margin was 26.7%, an increase of 50 basis points year-over-year.
Speaker Change: Adjusted diluted EPS was $1.12 representing 24% growth over last year and we opened a record 304 new restaurants including 257 Chipotle names.
Speaker Change: Our fourth quarter results were also impressive, especially considering that we are lapping the very successful Carne Asada limited time offer from last year.
Speaker Change: Additionally, we experienced some volatility around the December holidays, which we believe was impacted by the calendar shifts this year.
Speaker Change: For the fourth quarter, sales grew over 13% to reach $2.8 billion, driven by a 5.4% cop.
Digital sales were 34% of sales.
Speaker Change: Restaurant level margin was 24.8%, a decline of 60 basis points year over year.
Speaker Change: Adjusted diluted EPS was 25 cents representing 19% growth over last year and we opened 119 restaurants including 95 Chipotle's.
and Scott Boatwright.
Speaker Change: Considering our underlying trends as well as our incremental throughput opportunity and strong marketing plan, we believe we can continue to drive positive transaction comps in 2025 and anticipate annual comps to be in the low to mid single-digit range.
Speaker Change: Adam will provide more details on this in just a few minutes.
Speaker Change: Now before I dive into an update on our strategies, I want to take a minute to share a key takeaway from our Leadership Summit held in November.
An important thing we are prioritizing is to be guest-obsessed.
Speaker Change: I want to make sure that as we continue to scale Chipotle, everything we do is in service of our guests or those who serve our guests.
Speaker Change: This will require an understanding and a focus on how each role in the organization ladders up to making the experience in our restaurants better every day.
Speaker Change: A guest-obsessed mindset is crucial to ensuring that we continue to deliver against our five key strategies that help us win today while we grow the future.
Speaker Change: And these strategies include running successful restaurants with a people accountable culture that provides great food with integrity of delivering exceptional in-restaurant and digital experiences.
Speaker Change: amplifying technology and innovation to drive growth and productivity at our restaurants, support centers, and in our supply chain.
Speaker Change: Making the brand visible, relevant, and loved to acquire new guests and improve overall guest engagement.
Speaker Change: sustaining world-class people leadership by developing and retaining top talent at every level and expanding access and convenience by accelerating our restaurant openings in North America and internationally.
Speaker Change: I will start with our operations and our focus on throughput.
Speaker Change: One key driver of running successful restaurants is an experienced general manager who understands the importance of throughput and can train and develop the crew to execute the four pillars consistently every day.
Speaker Change: The good news is our GM turnover continued to improve in 2024 and is among the lowest levels in the company's history.
Speaker Change: More stability among our GMs results in more stability in our restaurants.
Speaker Change: and stability coupled with consistent training and reps has been a big driver of the progress we have seen.
Speaker Change: In 2024, throughput improved by about two entrees in the peak 15-minute period, and we achieved our near-term goal to reach the mid-20s.
Speaker Change: Our support centers and restaurant leadership teams continue to find ways to improve our ability to execute the four pillars.
Speaker Change: For example, our weekly throughput reviews conducted across our restaurant support centers help to keep us top of mind and give our restaurant leaders information to provide coaching and feedback to drive improvement as well as celebrate excellence.
Speaker Change: We also made the decision last quarter to have the manager on duty responsible for the expo position and this helped to improve the percentage of restaurants with an expo in place to over 60 percent.
Speaker Change: While I'm thrilled to see the progress we are making, we still have work to do, and throughput remains one of our biggest priorities and opportunities in 2025.
Speaker Change: One of the important unlocks this year will be our focus on modernizing the back of house to improve the team member experience and the speed and simplicity of prep while maintaining our high culinary standards.
Speaker Change: This will ensure more restaurants complete PrEP on time, which will enable better execution of the four pillars during peak periods, and this brings me to amplifying technology.
Speaker Change: We have several innovative tools that we are testing to improve the prep process.
Speaker Change: As we mentioned last quarter, we are currently in the middle of rolling out the produce slicers to all restaurants and expect the rollout to be complete by this summer.
Speaker Change: Fresh chopped produce in our restaurants each day is key to maintaining our high culinary standards.
but it's also one of the most time-consuming tasks.
Speaker Change: The slicer improves the experience for our team members by reducing the time to chop produce and improve the culinary by ensuring consistent cut sizes.
Speaker Change: As we have mentioned in the past, some of the efficiencies from the produce slicer will help offset the investment we made last year, ensuring generous portion sizes.
Speaker Change: Over the last several months, we also began a new initiative in a patch of restaurants to better understand the synergistic benefits of installing the produce slicer, the dual-sided plancha, the three-pan rice cooker, and the dual-vat fryer in the same restaurant.
Speaker Change: As a reminder, the dual-sided plancha cooks the chicken and steak in under half the time it takes on the traditional plancha with the same sear and char and better consistency and juiciness.
Speaker Change: The new rice cooker eliminates the large rice pots and cooks the rice in the pans that you see on the line, which creates more consistent quality and streamlines the rice cooking process.
Speaker Change: And the dual back fryer doubles the capacity for frying our chips, resulting in better quality and reducing the time it takes while ensuring consistent availability.
Speaker Change: Based on the initial results, we have decided to roll out all four pieces of equipment to new restaurant openings beginning later this year. And as we gain more data and insights into this initiative, we will determine if and how we roll out more broadly to existing restaurants.
Speaker Change: This is a great example of how we're beginning to look at our tools and processes and conventions holistically rather than as bolt-on additions.
Speaker Change: The end goal is to improve the experience for our teams by making tasks easier to execute, more efficient, faster, and more consistent while maintaining our high culinary standards.
Speaker Change: We are also pursuing long-term innovations to our StageGate process, including AutoCADO, our device that cuts cores and scoops avocados, and our augmented digital makeline.
both of which are being evaluated on a test basis.
Speaker Change: While it is early in our learnings on these opportunities, we are making progress and remain optimistic about each of these innovative tools.
Speaker Change: When we improve the experience for our restaurant teams, it ladders to a better guest experience.
Speaker Change: Exceptional in-restaurant and digital experiences coupled with our powerful marketing strategy to make the brand more visible, more relevant, and more love builds the brand momentum and results in year after year of transaction growth.
Speaker Change: Our marketing strategy in 2024 was nothing short of exceptional, with a strong brand campaign and two very successful limited-time offers, including Chicken Al Pastor and Brisket.
Speaker Change: Both of which surpassed our expectations and drove incremental transactions and spend.
Speaker Change: This helped to further strengthen our brand as we ended the year leading and gaining momentum in important categories like high quality ingredients, value for the money, healthy and nutritious, good amount of food for the money, and brand I love. And we have a strong plan for 2025 to keep the momentum going.
Speaker Change: We started off the year by putting a spotlight on our Lifestyle Bowls and to encourage and reward healthy habits among our guests in North America and Europe and our second partnership with Strava, the app for active people with over 135 million users in more than 190 countries.
Speaker Change: With health and wellness top of mind for our guests, this is a great way to show how the Chipotle ingredients can be customized to fit and fuel any dietary restrictions or lifestyle routines.
Speaker Change: Additionally, I think it's no secret that our Chipotle honey chicken pilot was a success. It was our best-performing limited-time offer, both in early sensory testing as well as the broader to market tests, and you'll see it in our restaurants in the near future.
Speaker Change: We will also continue to reinforce our brand story of high quality, responsibly sourced ingredients made fresh every day through our behind the foil advertising campaign.
Speaker Change: This campaign, which features our real teams preparing our delicious food, has certainly resonated with our guests, who are not just buying our brand, but buying into our brand.
and our purpose to cultivate a better world.
Speaker Change: Speaking of our teams, last year was another tremendous year of opportunities and growth with over 23,000 people promoted of which over 85% of all restaurant management roles were internal promotions.
Speaker Change: We also promoted three regional vice presidents who started as crew members and now five of our 11 regional vice presidents started as crew and worked their way up to the highest level of operations.
Speaker Change: managing a region of the country with sales over 1 billion dollars.
Speaker Change: Collectively, these five RVPs have over 100 years of experience at Chipotle.
Speaker Change: To be promoted to an RVP, not only do they need to run a successful sub-region, but they also need to show the ability to develop and grow future leaders. And these five have developed and promoted over 30 team directors, nearly 100 field leaders, and hundreds of general managers.
Speaker Change: These are life-changing careers for the RVPs as well as the leaders they are developing along the way.
Speaker Change: I think this is a testament to our leadership development capabilities as an organization, which I couldn't be prouder of.
Speaker Change: At the end of the day, our business wins when we lean into the growth and development of all Chipotle team members.
Finally, moving to expanding access.
Speaker Change: 2024 was another outstanding year with 304 new restaurant openings, including 257 Chipotle's.
Speaker Change: making it a second year in a row of record openings.
Speaker Change: We continue to anticipate between 315 and 345 new openings in 2025, with at least 80% including a Chipotle.
Speaker Change: I'm excited to share that we recently surpassed our 1,000th Chipotle and now this drive-through format makes up over 25% of our restaurants.
Speaker Change: On average, the Chipotle takes less than 30 seconds to complete the order pickup process.
Speaker Change: The added convenience has been incremental as Chapulte Lanes continue to generate better revenues, margins, and returns than non-Chapulte Lanes opened at the same time.
Speaker Change: It can also be seen in the mix of business as Chipotle's have a larger pickup mix, mostly offset by a lower delivery mix.
Speaker Change: Shifting to outside the U.S., we now have 85 international restaurants, including 55 in Canada, 27 in Europe, and 3 in the Middle East.
Speaker Change: As we mentioned last quarter, we're proving that Chipotle resonates across geographies, and we will accelerate growth in Canada and the Middle East in 2025.
Speaker Change: We will also continue to make progress on proving out the economic model in Europe and begin to build a pipeline for growth.
Speaker Change: To conclude, 2024 was another year of milestones, including growing transactions over 5% and surpassing $3.2 million in AUV, reaching 1,000 Chipotle lanes, opening our first restaurants in the Middle East, and making tremendous progress in Europe.
Speaker Change: I want to thank our 130,000 employees for your hard work last year.
Speaker Change: The amount of talent and passion we have is more than most businesses could ever hope for.
Speaker Change: I don't take that for granted and I'm proud to be a part of this great organization that prioritizes our people and their growth.
Speaker Change: And we continue to have so much growth in front of us as we aim to reach 7,000 restaurants in North America, grow our AUVs beyond $4 million, expand margins, and make progress toward becoming a global iconic brand.
Speaker Change: This will require exceptional people, exceptional food, and exceptional throughput, and a commitment to being guest obsessed.
Speaker Change: I'm confident that we have the right team to achieve these ambitious goals and that the best is yet to come. With that, I'll turn it over to Adam.
Adam Rymer: Thanks Scott and good afternoon everyone. Sales in the fourth quarter grew over 13% year-over-year to reach 2.8 billion dollars as comp sales grew 5.4% driven by 4% transaction growth.
Adam Rymer: Our comp included a negative 20 basis point true-up related to our loyalty program. As a reminder, in Q4 of each year, we re-evaluate the estimated breakage for loyalty points that will expire, and this year we decreased our estimate due to higher member engagement.
Adam Rymer: Restaurant level margin of 24.8% declined about 60 basis points compared to last year. Earnings per share was 24 cents on a gap basis and 25 cents on a non-gap basis, adjusted for unusual items, representing 19% year over year growth.
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Adam Rymer: During the quarter, transaction comps were positive in all months, driven by the launch of Brisket and continued improvement in throughput. As Scott mentioned, we experienced softer trends around the holidays in late December, which we believe was due to Christmas and New Year's falling in the middle of each week.
Adam Rymer: Comps have been volatile so far in 2025 with weather having a larger impact on our sales than what we experienced last year.
Adam Rymer: There are also a couple of factors to keep in mind when you think about the full year. In the second quarter, we will be rolling off about 90 basis points of pricing in April when we lap the pricing we took last year in California to offset the step up in wages.
Adam Rymer: And Easter will fall back into the second quarter this year, which will negatively impact Q2 comps by about 100 basis points, with no net benefit in the first quarter because of Leap Day in the prior year.
Adam Rymer: I will now go through the key P&L line items, beginning with cost of sales.
Adam Rymer: Cost of sales in the quarter were 30.4%, an increase of about 70 basis points from last year. The benefit of our menu price increase was more than offset by higher usage as we focused on ensuring consistent and generous portions.
Adam Rymer: as well as the mixed impact from our premium smoked brisket LTO and inflation across several items, most notably avocados and dairy. Relative to our guidance, avocados were favorable as the year-over-year step-up was less than we anticipated.
Adam Rymer: For Q1, we expect our cost of sales to be in the high 29% range as pricing leverage and the benefit from brisket ramping down will be partially offset by higher costs across several items, most notably avocados and chicken. Our guidance does not include the impact of the new tariffs on items imported from Mexico, Canada, and China.
Adam Rymer: We source about 2% of our sales from Mexico, which includes avocados, tomatoes, limes, and peppers, and less than 0.5% of our sales from Canada and China. If the recently announced tariffs go into full effect, it would have an ongoing impact of about 60 basis points on our cost of sales.
Adam Rymer: Also, we remain confident that we can offset the 60 basis point portion investment we made in 2024.
Adam Rymer: Recently, we have started to see the impact ease slightly, as we expected, and we will offset the remainder through efficiencies we have identified within our supply chain, as well as several in-restaurant initiatives, including the produce slicers.
Adam Rymer: While we expect to realize some of the benefit in the first half of the year, we don't anticipate a full offset until the second half of 2025.
Adam Rymer: Finally, underlying cost of sales inflation is expected to be in the low single-digit range for the first quarter and for the full year, which excludes the normalization of avocado prices, the mixed impact from LTOs, the portion investment, and any impact from tariffs.
Adam Rymer: Labor costs for the quarter were 25.2 percent, an increase of about 20 basis points from last year, as the benefit from sales leverage was offset by wage inflation.
Adam Rymer: For Q1, we expect our labor costs to be in the high 24% range with wage inflation in the mid single-digit range.
Adam Rymer: We anticipate wage inflation will step down to the low single-digit range in Q2 and for the remainder of the year when we lap the nearly 20% step up in wages in California that went into effect in April of last year.
Adam Rymer: Other operating costs for the quarter were 14.5%, a decrease of about 20 basis points from last year. The decrease was driven by sales leverage and a lower delivery mix, partially offset by a true-up and insurance reserves.
Adam Rymer: Marketing and Provo costs were 3% of sales in Q4, a decrease of about 10 basis points from last year. In Q1, we expect marketing costs to be in the low 3% range, with the full year to come in the mid 2% range.
Adam Rymer: In Q1, other operating costs are expected to be in the low 14% range.
Adam Rymer: G&A also included $133 million in underlying G&A, $32 million related to non-cash stock compensation.
Adam Rymer: $8 million related to higher bonus accruals and payroll taxes on equity vesting and exercises and $2 million related to our upcoming Field Leadership Conference, which is scheduled in Q1 for this year.
Adam Rymer: We expect our underlying G&A to be around $135 million in Q1, and we'll step up each quarter as we make investments in people and technology to support ongoing growth.
Adam Rymer: We anticipate first quarter G&A will also include around $33 million in stock-based compensation, although this amount can move up or down based off of actual performance, and is subject to the final 2025 grants, which are issued in Q1.
Adam Rymer: Around $8 million related to employer taxes associated with shares that vest during the quarter and $3 million for costs associated with our biannual field leadership conference in March, bringing our anticipated total G&A in Q1 to around $179 million.
Adam Rymer: Depreciation for the quarter was $84 million or 2.9% of sales. For 2025, we expect it to remain around 3% of sales.
Adam Rymer: Our effective tax rate for Q4 was 24.4% for GAAP and 24.6% for non-GAAP, and benefited from a reduction in non-deductible expenses.
Adam Rymer: For 2025, we estimate our underlying effective tax rate will be in the 25-27% range, though it may vary based on discrete items.
Adam Rymer: Our balance sheet remained strong and we ended the quarter with 2.3 billion dollars in cash, restricted cash and investments, and no debt. During the fourth quarter we purchased 331 million dollars of our stock at an average price of $59.83.
Adam Rymer: For the full year, we purchased nearly $1 billion at an average price of $57.21. Going forward, we will continue to opportunistically purchase our stock.
Adam Rymer: During the quarter, the Board authorized an additional $300 million to our Share Purchase Authorization, and at the end of the quarter, we have just over $1 billion remaining.
Adam Rymer: To close, I want to thank our 130,000 employees for all your hard work and dedication in delivering an exceptional experience for our guests each and every day.
Adam Rymer: This powers our strong economic model that we continue to protect and grow and allows us to invest back into Chipotle by growing our footprint and furthering our purpose of cultivating a better world. We have a strong plan for 2025 and we look forward to sharing our progress with you in the coming quarters. And with that, let's open it up for questions.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question you may press star 1 on your telephone keypad.
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Speaker Change: Today's first question comes from Sarah Senator with Bank of America. Please go ahead.
Sarah Senator: Oh, great. Thank you. Just a quick housekeeping and then a question about the food line. So, just on the housekeeping, you talked about positive transactions in 2025. So, I think you mentioned 90 basis points of price rolling off. If you don't take any additional price, what does that look like for the full year? I think you would still have...
And then the question about food costs is...
Speaker Change: you know better than we expected given you know all the headwinds you highlighted in terms of inflation and portion investments. I guess to the extent that it was better than you thought, what was the impact? Was it the pricing? Was it benefits from supply chain earlier than you expected and have you contemplated you know tariffs as you think about it going forward? Thanks.
Speaker Change: Hi, Sarah. So, on your first question, we believe pricing will be somewhere around 2% in 2025, and so that assumes no additional price, because if you think about it, we just took about 2% in December. That'll carry through December of this year.
Speaker Change: And then on your second question, you're right, we came in a little bit better than we guided in Q4 on cost of sales. And that was mostly because the step-up in avocado prices was a little bit less than we anticipated. It's still happening. It just is more of a timing issue.
Great, anything out there?
Speaker Change: Sorry, this is Scott. Sarah, did you have a question around tariffs? Yeah, just anything, you know, I know it's obviously in flux, but to the extent that avocados have been a swing factor, yeah, if you wouldn't mind touching on that. Thank you.
Speaker Change: Yeah, I'll take this one if you don't mind, Sarah. So, our supply chain team has done a remarkable job over the last couple of years with vendor diversification and moving some country of origins out of Mexico proper. Today, we source from both Colombia, Peru, as well as well as the Dominican Republic. Only about 50% of our avocado supply today is coming out of Mexico. I think we said earlier in the prepared remarks, it's about a 60 basis points impact.
if it is something that sustains for the year.
Thank you.
Speaker Change: Thank you. And our next question comes from David Tarantino with Baird. Please go ahead.
David Tarantino: Hi, good afternoon. My question is on the COMPS guidance for the year. I think, Adam, you mentioned a few issues related to the first half. I was just hoping that maybe you could elaborate on how you're thinking
Speaker Change: The comp trajectory could play out as the year goes on, and I have a follow-up.
So, thanks David. I'll start talking about really January, so
Speaker Change: If you look at January from a transactions comp standpoint, we're at about a negative two.
Speaker Change: And that included a pretty sizable impact from weather, as well as the calendar shift, which kind of had, you know, people going back to work and to school a little bit later.
Speaker Change: The New Year's Day following in the middle of the week, and then a very small impact from the wildfires in LA. All of that was about a 400 basis point impact on our comps in January. And so the underlying trend there is closer to about a plus 2.
Speaker Change: And so if you push that plus two forward for the rest of Q1, we believe that Q1 will come somewhere around flat-ish on comps. And the reason for that is, really, when you're looking at February, we're going to be comping over a really successful braised.
Speaker Change: beef barbacoa campaign that we did last year and that one the amazing thing about that is we really saw a nice uplift not only in transactions
Speaker Change: but also in mix that caused a really nice lift and check. A lot of that sustained, and so we don't believe it'll hit quite the same way this year because of how much of it sustained, so that's going to be a bit of a tougher comp.
Speaker Change: as well as the second iteration of Chicken Al Pastor hitting in March. It was really pent-up demand from the first time that it was in restaurants, and so with that going up as much as it did, that's going to be a really tough, tough comp going into March. And then Easter is also kind of a delay.
Speaker Change: And so Easter, you know, being a few weeks later, is going to cause...
Speaker Change: A little bit of, you know, a loss in sales in the sense of Easter tends to really spring our burrito season or beginning of kind of that spring step ups that we see. So the fact that that's happening several weeks later makes us believe that.
Speaker Change: All of those things will lead to kind of a flat transaction comp in the first quarter. And then when you go into the second quarter, really strong comps from the year before, so I think that'll be kind of a low point for us in terms of the comparison for the full year, and then we'll step up in Q3 and Q4 from there to get to that low to mid-single digit guide that we have for the full year.
Speaker Change: I just want to say, David, I apologize. I think Adam said that the Cobb would be flat for the quarter. He meant the transactions would be flat for the quarter.
I just want to make sure we cleared that up.
Thank you. Thank you.
Speaker Change: Yeah, thanks for that clarification. I guess, you know, are you assuming a big lift from, you mentioned honey chicken would be coming pretty soon. Is that embedded in your guidance? Are you assuming something similar out of honey chicken as you thought of chicken albestor? I guess, how should we think about...
and potentially the upcoming launch of that that you signaled.
Speaker Change: Yeah, hi David, Scott here. That is not included in the guidance that Adam just gave you, and we typically launch our LTOs around mid to late March.
Speaker Change: We do intend to launch a product around that time frame and we're excited about the marketing calendar for the year. I think Chris and team have done a really nice job of setting up the year to drive positive transactions and we're excited about the LTO we're going to launch in the spring.
Thank you very much.
Speaker Change: Thank you. And our next question comes from David Palmer at Evercore ISI. Please go ahead.
Speaker Change: Thanks. As a follow-up on that commentary about the the LTO with honey chicken, lapping chicken al pastor, to some degree I feel like we all focus on these LTOs as the big driver for comps or you know it's obviously easy for us to focus on these
Speaker Change: on these innovations. But when you think about real comp drivers for the year, I'm wondering what other things you're really thinking about that'll give you momentum as you go through the year. You mentioned throughput. Do you think that'll be as much of a lift this year or maybe even bigger than last year?
Speaker Change: and maybe you're contemplating certain things that you can do seasonally, maybe personalized marketing initiatives or anything beyond these LTOs that you might be thinking about in terms of a sales driver. Thank you.
Speaker Change: Yeah, David, you've heard us talk about this idea of having the flywheel really generating outsized performance and the flywheel can, you know, being included, inclusive of
Speaker Change: Great operations, great marketing, and a great digital strategy. I'll start with operations. I'll tell you, our ops teams have never been on better footing as they stand today with regard to staffing, app model, the best retention numbers we've experienced in my eight years with the brand.
Speaker Change: Culture is really strong in the organization today. And we're set up for what could be an extraordinary year around this idea of improving this guest experience, the total guest experience. We've spent a lot of time over the past many years really getting to the heart of extraordinary culinary.
Speaker Change: Speed down the line has been a key focus. There's more work to do there, David, and I think that the unlock for step change improvement there is grounded in this idea
Speaker Change: on what I'm talking about is modernization of the back-of-house at Chipotle, which drives efficiency, allows us to be better prepared for the...
Speaker Change: Peak period at lunch and dinner. And it also allows us to continue to scale this great brand as we endeavor to go to 7,000 restaurant in North America alone. That said, operationally, I feel like we've never been on better footing.
Speaker Change: We'll continue to lean into, obviously, the throughput strategies we've deployed in the past and a couple of new ideas we have for this year.
Speaker Change: As it relates to the marketing calendar, as I said earlier, Chris and team have come forward with a marketing plan that is really extraordinary and probably the best plan we've seen in the branches I've been here as well. We have incremental spend, as you know, year over year. We have more linear TV this year than last.
The LTOs this year are going to be really strong.
Speaker Change: We have some new things we're going to test and learn on as it relates to summer months. More on that at a later date.
Speaker Change: And then with regard to digital, the team is really working on this idea of leaning into
Speaker Change: the AI assistant to help with customer journeys. I'll give you an example of what that looks like.
Speaker Change: is a new pre-defection journey when the model detects that a customer's behavior is changing in a particular way.
that would signal a propensity for churn.
Speaker Change: We will take them on a new journey with personalized extras and offers to encourage them to re-engage. And so I think those things are going to drive meaningful difference within the digital channel. And so that total flywheel gives me a lot of confidence this year that we'll have positive transactions and continue to move the business forward.
Thanks, Scott. Pass it on.
Speaker Change: Thank you. And our next question today comes from Lauren Sullivan with Deutsche Bank. Please go ahead.
Lauren Sullivan: Thank you very much. I wanted to follow up on the traffic commentary. Underlying traffic in January up to... It's a decel from what you've been seeing in recent quarters. As you assess the underlying business and understand there's a lot of noise, any more color on what you're seeing from the consumer? Any shifts that you're seeing across cohorts? Just trying to understand how we go from...
I guess what underlying is.
Lauren Sullivan: plus two, but we're at a down two to back up to positive as we move through the year, thank you.
Lauren Sullivan: Yeah, no, I mean nothing really to report from a income cohort standpoint I mean, they're all contributing to the comp very nicely and we saw this throughout Q4 and that really hasn't changed going into January So nothing to report on that side and I would just say, you know as we turn the year and we look at what we're Comping over last year. I mean keep in mind that we're comping over a roughly, you know What five point three percent trans comp from the year before and so I think that's probably what you're seeing with some of that step down in terms of the absolute comp
Thank you. Bye.
Thank you very much.
Speaker Change: Thank you. And our next question today comes from Dennis Geiger with UBS. Please go ahead.
Dennis Geiger: Great. Thanks, guys. Another one on the comp outlook, if I could, sort of bigger picture, cutting through some of the weather noise, the comparisons. Do you guys generally look at the business a little bit longer term as sort of mid-single digit from a, you know, from a same store sales algorithm perspective, you know, pick your price to understand the positive traffic? That's still the right way to think about the business longer term or kind of underlying trajectory. Thank you.
Adam Rymer: Yeah, I'll start and I'll flip it over to Adam. Yeah, absolutely. MidSingleDigits is right where we should be as an organization. We'll continue to put forth strategies that will keep us on that pace in the years to come. I think we've demonstrated, you know, over the past many years that we can continue to push forward.
Adam Rymer: long-standing, durable earnings and have done a remarkable job with it over the past many years.
Adam Rymer: This year, unfortunately, is off to a rough start, and some of that stuff is largely out of our control, but we have what we believe to be a great plan for the year, and guiding the low to mid makes more sense to us based on where we sit today, hence the guidance. But, Adam, anything you would add to that? No, that's perfect. Thanks, Scott.
It makes sense, Scott. Thank you very much.
Thank you.
Thank you.
Speaker Change: Thank you. And our next question today comes from Christine Sherwood Goldman Sachs. Please go ahead.
Speaker Change: Thank you for taking my question. So, Adam, you still seem to be pretty cautious about taking additional pricing this year. I just want to understand whether this is a reflection of consumer price sensitivity rising or competitive pressure on value, or do you think there would still be a runway for incremental pricing if it becomes necessary throughout the year?
Speaker Change: and secondly, just also if you had any thoughts on the mixed component this year. Thank you.
Adam Rymer: Sure. So when it comes to pricing, we are comfortable with the level of pricing we're running right now for the inflation that we're seeing in the business, because as you know, we like to utilize price only to offset inflation, and we want to grow our margins through incremental transactions.
Adam Rymer: And so if there were, you know, something that came up throughout the year that would be a permanent hit to the business in the form of inflation, we would consider taking price. But at this point, we feel we're well covered based off of what we're projecting.
Adam Rymer: And then your question about mix. So the mix drag in Q4 was about 70 basis points. Keep in mind, 20 basis points of that is related to...
Adam Rymer: The loyalty adjustment that we took, which was a multi-period adjustment, so it's really, you know, outside of that, the underlying mixed drag was about 50 basis points.
and when you're looking at that a little bit closer.
It's still driven by a decline in group size.
Adam Rymer: And a big component of that decline in group size that we saw in Q4 really happened in those last couple of weeks of December as it relates to that calendar shift. And then we're continuing it, and there was also a benefit. So when you think about the offset to that group size decline, benefits really came from brisket being a premium priced item, especially compared to carne asada in the year before. And then I'm happy to report we're continuing to see strength in sides. And this is coming from queso. This is coming from extra meat and chips. You probably remember us talking about this for several quarters.
and Scott Boatwright.
Great, thank you.
Speaker Change: Thank you. And our next question comes from John Ivanko with J.P. Morgan. Please go ahead.
John Ivanko: Hi, thank you. The question is on the labor market for you and obviously the entire industry. As we went through the end of 24 and into early 25,
John Ivanko: Wage rates have actually been fairly cooperative, maybe outside of California, but fairly cooperative and turnover levels across the industry have been fairly low relative to historic averages. So can you comment, I guess, on why you think that may have happened?
John Ivanko: You know, at this point in the economy, are you looking for any kind of signs of change? Maybe there are certain pockets of change of either strengthening or weakening in the labor market in various points of the country that maybe you're paying attention to that could potentially be a forward indicator. Thank you.
Thank you.
John Ivanko: It's a great question and one it's hard to answer as you think about why why all of a sudden retention across the industry has improved. I think ours has probably improved at a quicker rate than many others in the industry and I attribute that largely to our what I believe to be best-in-class wages
John Ivanko: best-in-class benefits and a great culture. And so, as I said earlier, we're at all-time highs on staffing as a brand today. As we sit here, we've never been stronger.
John Ivanko: and retention has never been lower and I tribute that success to our operations leadership out in the field really doing a remarkable job creating the right experiences the right environment that people feel heard and that they are able to continue to develop and grow and hit their long-term career goals forward.
John Ivanko: As it relates to our peer group, I really can't speak to what's happening there.
John Ivanko: Is there a canary in the coal mine? I haven't seen one. I think we still continue to see strength in the brand.
John Ivanko: Even in the face of extraordinary value wars, and value wars meaning value as a price point with some of the big QSR players.
John Ivanko: We continue to take SHARE consistently throughout the year, throughout 2024. We continue to see that trend move forward as well.
John Ivanko: I think that's built on the fact that we create extraordinary value.
John Ivanko: and Keith, you know, we're still a 30% discount on average to our peer group and the consumer still sees value at Chipotle as benefit over price.
That's helpful. Thank you.
Speaker Change: Thank you. And our next question comes from Andrew Charles of TD Cowen. Please go ahead.
Andrew Charles: Great, two questions for me. Scott, in light of the external environments presenting some challenges to start the year, can you talk about the decision to keep March as the time to launch this upcoming chicken promotion when it possibly could have been accelerated to help you know make up for some of the shortfall the external environment caused to start the year?
Thank you.
Andrew Charles: Yeah, it's a, you know, we consider that absolutely thought about it, you know, toward the end of last year. Can you pull that up? Can you make it forward?
Speaker Change: To be quite frank, there were two things that went into the decision. Number one is we had a lot of confidence.
Speaker Change: and Braesbeak Barbacoa, even the second time through, we think will be a meaningful launch in February.
Speaker Change: We really want to target that March time frame as it relates to linear TV specifically, because we know that our reach and frequency is much stronger in that March-April time frame. And so it's fishing when the fish are biting, if you will, and putting all of our marbles in one hat.
Hopefully that's helpful.
Speaker Change: Yep. That's great, Clarity. Thanks. And then my second question was around, I think, in the past, you talked about the addition of the expedited position, you know, helps drive around five incremental transactions during that peak 15-minute window. So I'm curious, what is the gating factor to getting that staffing of that position, you know, from 60% to closer to 100%?
Speaker Change: Yeah, believe me, it's something we continue to lean into every single day. I think there are restaurants today that are challenged.
Speaker Change: with getting all the prep items done prior to peak, getting brakes deployed so that we are set and ready for peak rush.
Speaker Change: Oftentimes, what we find when we don't have the expo in position, there are people that are out of position, either on breaks.
Speaker Change: at the dish sink, you know, washing the enormous amount of wares we use on a given day or still involved in prep activity.
Speaker Change: We fervently believe that the back-of-house innovation, the equipment that we are leaning into through our stage gate process will help us drive greater efficiency of the AM morning prep cycle that will allow us to hit those targets more consistently as an organization and create a step change and improvement in throughput.
Very good, I appreciate it, thanks.
Of course.
Speaker Change: Thank you. And our next question comes from Benino Garguino with Bernstein. Please go ahead.
Speaker Change: Thank you. I actually have two questions on potential future unlocks.
Speaker Change: The first one is, if you're looking at international markets, I mean, with nearly one year of new leadership team in the UK, what are now the restaurant-level margins in their region and how have they improved over time? And maybe, Scott, what other initiatives are you expecting to close the gap on margins versus the US?
Speaker Change: Hi Dino, thanks for the question. You know, I'll tell you they've improved measurably, so much so that we have decided to go ahead and start looking at site development in specific areas of Western Europe to begin to build the pipeline to grow again. And so we have a lot of confidence in the team, we have confidence in the progress, they continue to make month-over-month progress.
Speaker Change: and we know that we can drive or create a viable business in the Western Europe markets we operate in today with hundreds of restaurants and potentially thousands of restaurants in other adjacent markets that we can bring in.
Speaker Change: Thank you. And then another source of opportunity for you is probably the Chipotle. And you mentioned that you're still seeing a lot of success in this Chipotle, you know, generating higher sales, higher margins. What is your aspirational opportunity to maybe retrofit the stores with more Chipotles given that they've proven their success?
Thank you. Bye.
Brian Niccol: Welcome to UNO. My name is Brian Niccol. I'm a sophomore. I play basketball. I'm an Olympic gold medallist. I play basketball. I'm an Olympic gold medallist. I play basketball. I'm an Olympic gold medallist.
Speaker Change: Yeah, so we take a hard look at those DINO, so the legacy restaurants, we take a hard look at which ones where it makes sense to convert, where we can do it and still see a nice return on the investment, and we will make those strategic decisions throughout the year on which ones we do convert.
Speaker Change: You know, it's just a hard decision. You've got to understand, you know, how much lease term do I have, do I have space on the lot, will the traffic flow work, will permitting allow it, you know, obviously so many variables that go into that decision. But where we can, you know, we will make the investment because we know there's a return.
All right, thank you.
Speaker Change: Thank you. And our next question comes from John Tower at City. Please go ahead.
John Tower: Great. Thanks for taking the question. Hopefully you can hear me okay.
Yes.
Speaker Change: Great, awesome. Maybe first on Unicrote, you know, you've got another year here in 24 where you hit the effectively smack dab in the middle of your guidance range and I'm just curious if you can offer any insights to...
Speaker Change: What might prevent you from getting to that higher end of the range in fiscal 25? Are you still dealing with local government, you know, permitting issues as kind of a governor there?
Speaker Change: You know, John, some of it's permitting. You know, we're going to hit somewhere in the nine to nine and a half percent range this year, and we'll continue to drive the team as it relates to performance for SARS development. Those are the site acceptance requests for new restaurants.
obviously 21 months out.
Speaker Change: But as I said in the last earnings call, we feel really comfortable and confident that we can grow this business in that 8-10% range and continue to drive what we believe to be best-in-class return on investment.
Speaker Change: Okay, maybe switching gears to the marketing front. This will be another year or 24 was another year where your marketing spend as a percentage sales is roughly in that two and a half percent range. I think you're speaking to a similar level in 25. And when looking back, you know, historically, you guys had been in that 3% range. And I'm just curious,
Speaker Change: I know the dollars have grown, but why kind of take that percentage down rather than keep it there and maybe hit different mediums or use it in a different manner?
Speaker Change: Yeah, I mean what you're seeing with that, and we guided for the full year somewhere in that mid 2% range, what you're seeing there is we're asking for some leverage over the last several years, especially during COVID when we took some outsized price increases to offset inflation and labor and some of the other areas, and so we didn't feel like that should be passed all the way down on the marketing side, and so that's why we're showing a little bit of leverage compared to that historically. However, it is still, like you noted, a very big step up year over year, something around eight, eight and a half percent, but it's something that we can continue.
Adam Rymer, Brian Niccol, John Hartung, Scott Boatwright
Okay, great. I'm passing along. Thank you.
Speaker Change: Thank you. And our next question comes from Brian Harper with Morgan Stanley. Please go ahead.
Yeah, thanks. Good afternoon, guys.
Speaker Change: How would you contextualize the performance of Brisk at this time relative to the past iteration of that and other LTOs? Was there anything different just about timing? For example, was it a stronger start and did it trail off at the end or was it pretty strong throughout?
Speaker Change: Yeah, I'll start and then Scott, feel free to add in. And so we felt like, you know, brisket, this was the first time it had been back in quite some time, because as you know, it's a very difficult item to procure, and especially for us to last several months and the amount of restaurants that we have and things like that. And we were very, very excited about the performance. It hit really high in terms of transactions as well as...
Speaker Change: those that are switching, you know, from all all across proteins, not just, you know, steak and barbacoa, but also chicken as well. And so performed really, really well at the onset of the onset, and then continued through the end of the year and into January. So we're happy with the fact that a lot of our existing customers switched over to brisket, it drove a lot of new customers to the brand.
Speaker Change: and that it sustained really nicely, and so we're really happy with the results of Brisket as well as the hype because, like, as you know, it took a couple of years to get it back into our restaurants and I think that built up some of that hype.
and Scott Boatwright.
Scott Boatwright: Yeah, I would tell you it's an extraordinary product and hopefully the folks on the call have tried it.
Speaker Change: many times throughout the promotional window. I know I probably ate it once a week.
Speaker Change: throughout the entire season. You know, the teams in the restaurant did a really remarkable job delivering that experience with excellence this time around.
Speaker Change: and the consumers voted with their wallets. And the incidents remained strong throughout the entire promotion. It's something we would probably do annually, maybe even permanently, if you could find adequate supply, but unfortunately that's not the case.
Speaker Change: So, hopefully we can bring it back as a future LTO, as an arrow in the quiver in the years to come, but we'll see.
Speaker Change: So, you know, the produce slicer, I guess my question there was, once you roll that out, does...
Speaker Change: I know you can redeploy some of that labor, but does it actually sort of like change labor hours needed? You know, if people can, I don't know, show up an hour later, for example. And then, Scott, you talked about sort of...
Speaker Change: That new suite of equipment that you're you're testing But if you were to sort of put that in more existing locations or try to roll that out faster Is there you know any obstacle to doing so besides just kind of you know securing supply of equipment?
Speaker Change: Yeah, so the produce slicer will save labor. We plan to redeploy some of that labor and capture part of the labor. How much we have is undecided at present.
Speaker Change: The other pieces of equipment are also pieces of equipment that will drive efficiency in the restaurant, better team member experience, better culinary, but will also allow us to redeploy or take labor as margin as well.
Speaker Change: One of those examples is the dual vat fryer, you know the dual vat fryer obviously allows us to cook chips
and less than half the time it takes today.
Speaker Change: The dual-sided plancha we've talked about quite a bit over the years. We think it's a better product coming off the plancha. It reduces the complexity of one of the most complex jobs at Chipotle today, which is the grill operation. And the rice cooker is far more efficient for the team members. Gets them away from those big pans of rice that are just hard to work with and hard to mix.
and makes that process much more efficient.
Speaker Change: Those four pieces of equipment will go into all new restaurant openings at the back end of this year and will be a part of the new restaurant opening package.
Speaker Change: We are looking to retrofit a handful of restaurants today, what we're calling the High Efficiency Equipment Package. We'll walk that through StageGate, and if successful, we're seeing the returns we were looking for, then we'll work through how we retrofit the existing fleet of restaurants today.
Thank you.
Speaker Change: Thank you. And our next question today comes from Sharon Zakla with William Blair. Please go ahead.
Hi, thanks for taking the question.
Speaker Change: I guess, you know, there are a lot of moving parts and restaurant level margin this year, and I just wanted to
Speaker Change: Maybe touch on your thoughts on full-year restaurant-level margin and your ability to defend that. It feels like it might be a tale of two halves where, you know, down in the first half, maybe up in the back half. I'm wondering if that's...
Speaker Change: Correct. And then secondarily, in terms of the opportunities to mitigate those portion investments, is there any opportunity to accelerate the harvesting of those efficiencies? Thanks.
Speaker Change: Yeah, hi Sharon. So you're right in the sense of I think it is kind of a first half second half type of story and a lot of that has to do with the portion investment and the fact that we believe that we can offset that investment in the second half of the year and so that'll cause a little bit of pressure on the first half and then a little bit of relief in the second half but in general as you're looking at it from you know 10,000 feet.
Speaker Change: Our goal this year is to drive positive transactions and flow that through to where we would see incremental restaurant-level margins. So it's really, you know, highly dependent on our ability to drive transactions and our ability to flow that through, but that's the ultimate goal.
Speaker Change: And then, in terms of your second question, I believe it was the offset on the portion investment. Is that correct in the details around that? Yes.
Speaker Change: will start to chip away at here in Q1 and in Q2. And so we'll slowly start to offset that investment. But until those produce slicers come in, you won't see that full offset until the second half of next year.
Thank you.
Speaker Change: Thank you. And our next question comes from Brian Bittner with Oppenheimer & Company. Please go ahead.
Brian Bittner: Hey, good afternoon. All my questions have been answered, so I'll just zoom out for you, Scott.
Speaker Change: You were named permanent CEO in November, and I know on the last call you talked a lot.
about how the strategy isn't changing.
Speaker Change: And I think that makes a lot of sense, but now that you're taking on the permanent role of CEO, are there any...
Speaker Change: differences between you and Brian and how you look at the business that's maybe worth pointing out on this call or perhaps maybe there's opportunities where you see
Speaker Change: You could lean in more. I mean, I think it's anticipated that everything stays the same for the most part, but I just wanted to give you the opportunity to suggest any differences.
Speaker Change: You know, I really appreciate that. You know, I don't know there are a ton of differences. Here's what I would tell you is there are three core things that we have the organization focused on for the year.
Speaker Change: And I talked about this differently in the last earnings call when I talked about a more connected organization.
Speaker Change: And what I endeavor to do in this leadership endeavors to do is be more connected to the guest and around this idea of guest obsession.
Speaker Change: and if you're in a support center role, your guests are the folks out in the field that are doing the work in our restaurants every day and I need us to obsess over those individuals.
Speaker Change: At the restaurant level, we have to do a better job of creating a better experience, consistently, for all guests that come into our restaurants, whether that's clean dining rooms, you know, smiles down the line, or better guest recovery. We have opportunity there.
Speaker Change: We're really strong with culinary today, we're really strong with speed down the line, we have best-in-class team members.
Speaker Change: You know, in every single restaurant, we can do a better job of creating a really unique experience as it relates to guest obsession.
Speaker Change: That's number one. Number two, I keep talking about this, it's a critical one, is modernization of the back of house.
Speaker Change: And I own that one because I've been reluctant for many, many years as a Chief Operating Officer to make any wholesale changes to how we deliver the experience.
Speaker Change: innovations, equipment innovations that will come into the back of house and you know modify, if you will, the knives and cutting board process that we have today.
Speaker Change: I've gotten comfortable because we still need the knives and cutting boards and we create a better consistent cut size.
Speaker Change: which ladders to a better consistent recipe and taste profile. So if we can generate that experience and be more efficient and have better culinary, I am all in. So we are bought into this idea of modernization of back of house. And the last thing is around this idea of growth.
Speaker Change: and growth, not only in organic growth, new restaurant growth, growth around the globe, if you will, as we move into other countries like the Middle East, we're taking a look at a couple of other partnerships as we speak today around the world, but growth with people.
Speaker Change: We want people to start here, stay here, and know they'll hit their career goals and life journeys right here at Chipotle. So, those are the three things that I continue to pound the drum on. This team is a line behind, but it's still grounded in the five key strategies that remain unchanged.
Thanks for that, and congrats.
Thank you.
Speaker Change: Thank you. And our final question today comes from Zach Fathom with Wells Fargo. Please go ahead.
Speaker Change: Hey, good afternoon and thanks for fitting me in. So I wanted to follow up on the restaurant level margins as we've been looking at about
Speaker Change: 20% incremental flow-through in the second half of the year. It seems like we should expect similar in the first half of the year, but as the portion investment eases, maybe you have some equipment productivity, a return to, I guess, re-accelerating comps.
Speaker Change: Is the high 30% to low 40% incremental margin still the right way to think about this business or are there any other puts and takes we should keep in mind?
Speaker Change: No, that 40% flow-through is still very much intact, and you're right on the pieces as to why the second half of the year it's been closer to, call it 20%, because of the portion investment, and then as we start to chip away at that in the first half of this year, like you said, as well as start to drive transaction comps, we'll climb back to that, I believe, for the second half of the year. So you've got the pieces.
Spot on!
Speaker Change: Perfect. And then, Scott, you just mentioned, you know, the potential to explore additional partnerships around the world. So, I guess, first question is, I presume the relationship with Al-Shayeh is going well. And second, any additional color on regions that you might be interested in down the road?
Speaker Change: You know it's our belief that Chipotle works in all geographies around the globe. We think we have an extraordinary product.
Speaker Change: It's hard to argue that rice, beans, and chicken doesn't work around the globe, so we have a lot of confidence in our strategy.
Speaker Change: The partnership with Al Shai, I'll talk about first, is going really, really well.
Speaker Change: And so we have three restaurants open, two in Kuwait, one in Dubai. We have one additional restaurant in Dubai opening very soon. We're happy, Mohammed Al-Shaya is really happy with the relationship, and we'll continue to expand pretty aggressively with the Al-Shaya group here in 2025.
Speaker Change: As we think about other partnerships around the globe, I'm sure you can probably think about or come up with the countries we're thinking about, whether it's Southeast Asia or Latin America.
and we will probably go with like-minded partners.
Speaker Change: Big, robust organizations with a lot of track record of success with American brands within their geography and folks that we know that will have as much passion around what we do as the people in this building. So hopefully that gives you some additional color.
Thanks for the time.
Speaker Change: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Scott Boatwright for the closing remarks.
Scott Boatwright: Well thank you all for listening in today. I was really proud of how the year landed. I'm really proud of this organization and what this team has accomplished. Whether you're in our support centers, doing the good work, supporting our restaurant teams of 130,000 people out in our restaurants today that show up every day with a lot of passion around this idea of cultivating a better world. I couldn't be prouder of where we sit.
Speaker Change: I couldn't be more excited about the year ahead of us. Thank you all. Thank you all for listening in today, and we'll talk soon.
Speaker Change: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.