Q2 2025 Chipotle Mexican Grill Inc Earnings Call
Good day and welcome to the Chipotle Mexican Grill. Second quarter, 2025 results conference call.
All participants will be in a listen-only mode.
Hello everyone and Welcome to our second quarter fiscal 2025 earnings call by. Now you should have access to her earnings press release. If not, it may be found on our investor relations website at ir.com.
I will Begin by reminding you that certain statements and projections made in this presentation about our future business and financial results, constitute for looking statements. These statements are based on Management's current business and Market projections, 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 10K and in our form. 10 cues for a discussion of risks that may cause our actual results to vary from these 4 looking statements. Our discussion today, will include non-gaap Financial measures. A Reconciliation of the Gap, 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 Scott Boatright 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.
Thanks Cindy and good afternoon everyone.
Scott Boatright: In the second quarter, our restaurant teams did an extraordinary job of executing in a challenging environment, including delivering exceptional food, throughput and Hospitality, as well as managing their controllable costs.
Scott Boatright: Additionally, we are beginning to see some of the benefits of our backup house initiatives. As we complete the roll out of the produce slicer.
Scott Boatright: Now, let me review our second quarter results.
Scott Boatright: sales for the second quarter grew 3%, to reach 3.1 billion including a negative 4% comp
Scott Boatright: Digital sales were 35.5% of total sales.
Scott Boatright: Restaurant, level margin was 27.4%, a decline of 150 basis points year-over-year.
Scott Boatright: And diluted EPS was 33 cents a decline of 3% over last year.
Scott Boatright: And we opened 61 new restaurants, including 47, Chipotle Lanes.
Scott Boatright: I will start with an update on our current trends.
Scott Boatright: While we experience the slowdown in our underlying Trend. In may, we did see momentum build as we rolled out our summer marketing initiatives and leaned into hospitality.
Scott Boatright: And exiting the quarter, we returned to a positive comp and transaction Trends, which have continued into July.
Scott Boatright: However, considering the ongoing volatility in our Trends in the consumer environment. We now anticipate comparable sales to be about flat for the full year.
Scott Boatright: With that said, we have a strong plan to build on our industry-leading value proposition, and accelerate transactions.
The fact is most markets for round ten dollars before taxes and fees you can get a hand-crafted chicken bowl or burrito filled in abundance with the best ingredients made. Fresh in our restaurants using classic culinary techniques at a speed at which you cannot find anywhere else.
Scott Boatright: This is a 20 to 30% discount to comparable fast, casual meals, and often below comparable meals at many Quick Service restaurants.
Scott Boatright: Going forward, we will roll out new and creative ways to emphasize our value proposition while improving the benefit of our offering through better execution, menu Innovation and amplifying our Rewards program which will get to in just a few moments.
Scott Boatright: First, I will review our 5 key strategies that will help win today while we grow our future.
Scott Boatright: These strategies include.
Running successful restaurants with the people accountable culture, that provides great food with Integrity while, delivering exceptional and restaurant and digital experiences.
Scott Boatright: Making the brand visible relevant and love to acquire new guests and improve overall, guest engagement.
Scott Boatright: Amplifying technology and Innovation to drive growth and productivity at our restaurants support centers and our supply chain.
Scott Boatright: Expanding access and convenience by accelerating new restaurant openings in North America and internationally. And sustaining world-class people leadership by developing and retaining top talent at every level.
I want to reiterate that we have a lot of opportunity to drive consistent transaction growth over the upcoming years. As we execute against the first 3 of our 5 key strategies, or our flywheel of operations, marketing and digital experience.
Scott Boatright: Starting with operations. We recently appointed Jason Kidd as Chief Operating Officer.
He's off to a tremendous start and brings a wealth of knowledge in vast, operational experience at large-scale multi-unit, retail.
Person to lead and Inspire the 130,000 people that make up our restaurant teams, and that he will also bring new strategic thinking to our executive team.
Scott Boatright: This quarter, I am pleased to say that we continue to make progress around throughput execution. As the percentage of restaurants with an expo in place is now over 70%.
In addition, to coaching and training around the 4 of throughput. We just completed the roll out of the produce slicers across all restaurants, and we are starting to see back of house benefits. As it enables, our teams to complete prep on time and be properly deployed for their Peak period.
Scott Boatright: in addition to the slicer, we have begun rolling out, the high efficiency equipment package, which includes the dual-sided Plancha, the 3 panel cooker, and the high-capacity fryer,
Scott Boatright: we anticipate this rollout will create a more scalable Chipotle with many benefits, including an improvement in the consistency and quality of our culinary and an increase in prep efficiencies that will help our teams be properly deployed for Peak driving faster, throughput.
This will lead to a better team member and guest experience and potentially could unlock additional growth platforms for our business like catering.
For the roll out, we plan to do a phased stage gate approach. We anticipate by the end of year, the high efficiency equipment package will be in hundreds of restaurants, including the sub region, where we plan to introduce our catering test in the fall and all new restaurant openings, beginning in the fourth quarter,
Based on our learnings, we can accelerate the rollout later this year and we estimate it will take around 3 years to complete across all existing restaurants.
Scott Boatright: We also recently opened a new restaurant Innovation space where we have a team working on emergent technology, that rethinks, our tools and processes holistically rather than as bolt on additions.
Scott Boatright: Currently this includes the high efficiency equipment package, our augmented digital, make line AutoCAD and a vision system.
Scott Boatright: Ultimately, we aim to identify the ideal technology and operating model to enhance culinary standards.
Improve the team and guest experience and drive higher returns in our restaurants.
Scott Boatright: The next pillar of our comp flywheel is marketing or making Chipotle more visible, more relevant and more loved.
Scott Boatright: Over the last 2 Summers. We've experienced a Slowdown in Trends as our guests typically step out of their routine and are marketing, spend seasonally slows.
Scott Boatright: To increase visibility and driving engagement. We made the decision to ramp up our summer marketing strategy, and meet our guests, where they are by doubling our reach and social and streaming adding incremental menu, Innovation and launching. Our first ever seasonal program for rewards members called Summer of extras.
Scott Boatright: This is been successful in driving and acceleration in our underlying trends.
Scott Boatright: In terms of menu, innovation.
Scott Boatright: Chipotle honey, chicken has the highest incidence rate of all of our limited time offers and is included in 1 out of every 4 orders.
The guest feedback has been very positive, it will certainly be another lto that we will bring back in the future.
Scott Boatright: We also introduced adobo Ranch last month, which is our first dip in 5 years.
This is our Smoky spicy Twist on classic Ranch made fresh in our restaurants and featuring only real ingredients.
It is delicious easy to execute and off to our great start. Driving incremental transactions.
Scott Boatright: We see more opportunity in sides and dips in the future, and we'll have more to share as they make their way through the stage gate process.
In Social, we leverage user-generated content to launch a tatted, like a Chipotle bag. BOGO
Which is 1 of our best performing bogos ever.
Scott Boatright: Despite only being available for 1 hour as it drove more than double the sales of a normal 3pm to 4pm time frame.
Scott Boatright: Additionally, while the BOGO was only in store, the over 100 million, social Impressions, had a media halo effect, driving more guests into our digital channel, making it a highly incremental promotion.
Scott Boatright: Based on the learnings and success of the recent marketing initiatives and as we start to think about 2026 and Beyond, I believe we have a lot more opportunity to increase visibility highlight our value proposition and add incremental menu Innovation that drives consumer relevance and love for the brand all year long.
Finally, as I mentioned earlier, we will be testing a new catering platform this fall. And a subregion of about 60 restaurants.
Scott Boatright: It will include a new technology stack to help load balance orders across restaurants as well as a full marketing push to drive demand indicator.
Scott Boatright: Our goal is to scale, the catering business within our restaurants. Without disrupting the core operations.
With catering at just about 1 to 2% of sales, versus our peers, who are at 5 to 10 percent. We think this could be a big opportunity longer term.
Scott Boatright: Shifting to the final piece of the flywheel, the digital experience.
We can continue to find ways to enhance our app functionality to provide a seamless experience for our guests.
Scott Boatright: This includes a recent update to the app, providing the ability to personalize multiple message offerings, such as rewards reminders and menu suggestions.
Within rewards about 20 million members are active or have transacted at least once in the last year.
Scott Boatright: To drive more people into our loyalty program. We are ramping up our enrollment campaigns and signage both in restaurant and digitally.
Scott Boatright: We also recently launched summer of extras, a 3-month gamified experience with extra points Badges and prizes as our rewards members, reach milestones.
Scott Boatright: Results have been very encouraging as we drive more people into the rewards program and increasing their frequency and spend year-over-year.
We have another exciting program planned for the fall targeting, the college cohort.
Scott Boatright: And we will continue to find creative ways to drive enrollment and improving engagement.
Scott Boatright: When you layer all these opportunities within the flywheel, we are confident in getting back to Mid single digit, comps and surpassing 4 million dollars in auvs longer term.
And our 40% flow through remains intact with the potential for additional margin opportunities as we continue to improve the back of house experience.
Scott Boatright: Now, moving to expanding access.
Scott Boatright: In the US and Canada. We opened 61 new restaurants. Which marks a record for the second quarter.
We now have 61 restaurants in Canada and over the last 5 years we have nearly tripled the business with economics on par with the US.
Scott Boatright: In the US and Canada. We remain on track to open between 315 and 345 new restaurants this year with 80%, including a Chipotle Lane,
Scott Boatright: We are also confident in our ability to grow new restaurant openings between 8 and 10%. And to reach 7,000 restaurants longer term.
We are also establishing a solid foundation in other International markets which will enable Chipotle to extend its growth runway for decades.
Scott Boatright: In Europe, economics continue to progress with positive consumer feedback on the Improvement in the experience, including the quality of the culinary.
Scott Boatright: Our head of Europe and Canada is doing an, excellent job of building, the team and culture to be able to scale.
Scott Boatright: Similar to what she did in Canada, several years ago.
Scott Boatright: In the Middle East, our restaurant and the Avenue's Mall in Kuwait completed. Its first year of operations, with Revenue surpassing, the average unit volume in the United States.
Scott Boatright: We have 5 restaurants, open in Kuwait in Dubai and alshaya group plans to accelerate growth in the back, half of the year.
Scott Boatright: We remain on track to open our first restaurant with Allah in Mexico, early next year and continue to evaluate other potential Partnerships in different parts of the world.
Scott Boatright: Based on our progress and our current markets and discussions with Partners, we have a lot of confidence that Chipotle's fresh craveable culinary, serve, fast will resonate around the world.
Scott Boatright: Finally moving to sustaining world-class people leadership.
Scott Boatright: We are often asked, if there are parts of the Chipotle story that are underappreciated. And I believe, there are 2, our purpose of cultivating, a better world and our culture of people development.
Scott Boatright: Not only does our purpose, give our teams pride in what they do every day. But with around 80% internal promotions. Our teams can visualize their own growth within the organization which is critical as we scale the and build the brand.
Scott Boatright: The growth of our Canadian business is a notable example.
Scott Boatright: Our team director in Canada, has been with Chipotle for 23 years. She started as an apprentice general manager in Texas and then moved to Canada to become the first field leader in the country.
Speaker Change: Her deep connection with her teams and her ability to develop and grow Future Leaders. Stood out.
Speaker Change: Which led to her becoming Canada's first, team director, about 5 years ago, we decided to accelerate growth in the country.
Path, as achievable.
This is what Chipotle is all about.
Speaker Change: Cultivating, a better world by not only expanding access to our delicious fresh food but by creating life-changing opportunities for our people along the way.
Speaker Change: To close. I want to thank our team for all their hard work. Bringing the Chipotle culinary experience to life each and every day.
Speaker Change: I am optimistic about our operational improvements and early results in learning from our summer marketing initiatives.
Speaker Change: Which we will use to enhance our value proposition, moving forward.
Speaker Change: I continue to see so much opportunity ahead by leveraging, our flywheel of operations, marketing, and digital, to drive our EVS, north of 4 million dollars longer term.
Additionally, we will continue to invest in our restaurants, in the back house. Initiatives to create a more scalable Chipotle as we grow to 7,000 restaurants in the US and Canada and making our way to becoming a global iconic brand.
This will require an exceptional team of people committed to paying homage to our culinary beginnings, and our purpose, while focusing on our long Runway of growth ahead.
Speaker Change: I am confident that we have the right team and a clear strategy to achieve this ambitious goal.
Speaker Change: With that. I will turn it over to Adam.
Adam Rymer: Thanks Scott. Good afternoon everyone.
sales in the second quarter to 3% year-over-year to reach 3.1 billion dollars including a comparable sales, decline of 4%
Adam Rymer: Restaurant level margin of 27.4% declined, about 150 basis points compared to last year.
Adam Rymer: Earnings per share was 32 cents on a gap basis and 33 cents on a non-gaap basis, adjusted for unusual items representing 3%, year-over-year decline,
As Scott mentioned in may, we saw a step down in our underlying transaction Trend. Followed by a re acceleration in, June, as we rolled out our summer marketing initiatives,
Adam Rymer: While comparable, sales and transactions turned positive in June. And this trend continued into July, given the ongoing, voluntary, and our sales, Trends, and the consumer environment. We now anticipate comps to be about flat for the full year.
Adam Rymer: I will now go to the key p&l line, items beginning with cost of sales.
Adam Rymer: Cost of sales in the quarter were 28.9%, a decrease of about 50 basis points from last year.
Adam Rymer: The benefit of our menu price increase from last year and cost of sales efficiencies more than offset inflation, primarily in stake and chicken.
Relative to our guidance. We benefited from lower than anticipated. Avocado prices. A better than expected benefit from Costa sales, efficiencies, and a lower impact, from tariffs.
Thanks to these efficiencies which include both supply chain. And in restaurant initiatives, we have now more than offset. The portion investment we made last year.
Adam Rymer: The Q3 we expect our cost of sales will step up to the high 29% range with about 60 basis points of the step up due to the mix impact from Rolling off Chipotle, honey, chicken and 40 basis points, due to tariffs.
Adam Rymer: we estimate that we will see about a 50 basis point ongoing impact from tariffs, which remains in line with our commentary from last quarter and does not include any impact from Mexican or Canadian Imports that fall under the usmca exemption
Adam Rymer: We still anticipate underlying cost of sales inflation to be in the low single digit range for the remainder of the year, which excludes impacts from ltos, and tariffs, as well as benefits from cost of sales initiatives.
Labor costs for the quarter. Were 24.7% an increase of about 60 basis points from last year, primarily driven by lower volumes, as higher pricing and better. Labor execution more than offset wage inflation.
Adam Rymer: For Q3 we expect our labor cost to be in the high 24% range with wage inflation and the low single digit range for the remainder of the year.
Adam Rymer: Regarding labor execution. Our restaurant teams did a fantastic job managing labor throughout the quarter supported by the rollout of the new produce lasers.
Adam Rymer: Other operating costs for the quarter were 14% an increase of about 110 basis points from last year.
Adam Rymer: Primarily driven by higher marketing costs and lower volumes.
Marketing costs were 2.7% of sales in Q2 and increase of about 60 basis points from last year.
Adam Rymer: In Q3 we expect marketing cost to step up to the mid 2% range with the full year in the high 2% range.
Adam Rymer: For Q3, we anticipate other operating costs to be in the mid 14% range.
DNA for the quarter was 172 million on a gap basis or 160 million dollars on a non-gaap basis. Excluding about 12 million dollars related to retention Equity Awards. Granted to key Executives last August.
Adam Rymer: GNA also includes 140 million dollars in underlying GNA.
Adam Rymer: Compensation, which included a reduction in our performance share approvals.
Adam Rymer: $2 million related to restaurant leadership, conferences offset by million dollars in lower bonus approvals.
We expect our underlying GNA to be around 139 million in Q3.
We anticipate the third quarter GNA will also include around 29 million in, stock-based compensation. Although this amount can move up or down based on our actual performance
Adam Rymer: Around 2 million in employer, taxes, associated with shares that best during the quarter.
And around 1 million dollars, related to restaurant leadership conferences offset by 8 million in lower bonus approvals bringing our anticipated, total non-gaap GNA and Q3 to around 163 million.
Adam Rymer: Depreciation for the quarter was 91 million or 3% of sales for 2025. We expect it to remain around, 3% of sales,
Adam Rymer: Our effective tax rate for Q2 was 24.5% for Gap and 24.2% for non-gaap our effective tax rate benefited from option exercises and Equity vesting above the grant values.
Adam Rymer: For fiscal 2025, we estimate our underlying effective tax rate will be in the 25- 27% range. So it may vary based on discrete items.
Our balance sheet remains strong. As we ended the quarter with 2.1 billion dollars in cash, restricted cash and Investments and no debt.
During the second quarter, we purchased 436 million of our stock at an average price of $50.16. Bringing our year-to-date total to a record 9990 million at an average price of $22.32.
During the quarter, the board, authorized an additional 400 million to our share purchase offer authorization. And at the end of the quarter, we had 839 million remaining.
Adam Rymer: To close. I want to thank our restaurant and support center teams for their dedication to Chipotle and their execution, this quarter our strong economic model rooted in real ingredients, exceptional value and industry-leading margins and returns allows us to continue to invest in our people and our growth.
Scott Boatright: As Scott laid out, we have a long runway for growth in front of us and both the US and internationally and with that, we'll open it up for questions.
We will now begin the question and answer session.
Scott Boatright: To ask a question, you may press star then 1 on your touchtone film.
If you are using a speaker-phone, please pick up your handset before pressing the keys.
Scott Boatright: if at any time your question has been addressed and you would like to withdraw your question, please press star then 2
We ask that you please limit yourself to 1 question and 1 follow-up.
Scott Boatright: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from David Palmer with evercore isi. Please go ahead.
David Palmer: Uh, thanks. Uh, wanted to ask you a question about the digital marketing, uh, and and I I know you were doing some things that you haven't done before. Obviously, some are of extras. You also did some other, uh, digital marketing. You know what worked uh, what didn't work? Um, have you been able to already affect a change uh, in that 2 year to the 8% or so that it seems to be implied for the second half?
Speaker Change: Uh, and they have a quick follow-up.
Hi David, uh, Scott here. Thanks for the question. Um, really pleased with how summer of extras performed? We had about 5 million people participating.
Speaker Change: Uh, of which about 40% of those who transacted. Uh we also saw enrollments go up about 14% year-over-year adding a significant number of people to the top of the funnel which is exciting to see.
Speaker Change: Uh, we drove incremental frequency versus normal behavior across, all frequency bands, including low frequency of the 5 million. 2 million were low frequency users that are now engaging with the brand, the brand throughout summer on a more consistent basis. So I'll tell you all in all I think, uh, I think it's been a great program for us a lot of key learnings there. Uh, and learning is that we will leverage for the back half of the year.
Speaker Change: That's great. I I I would precede the the summer of extras would be really directed towards your active users, you know, just trying to get maybe 1 or 2 more visits out of them during a month. And then, you know, I wonder also with your digital, you know, getting those lapsed users back. Um, and you know, maybe with some
you know, things to kind of get them back like a freebie here or there is is that an opportunity and when can you, you know, maybe get those tools up and running
David Palmer: Really sizeable opportunity. David on the last call, I talked about the welcome journey and I talked about how AI will help us on the welcome journey and our goal of achieving 3 purchases within the first 90 days. Uh, we saw with the AI tool about a 46% 47%, uplift and engagement through that welcome Journey. Uh, so that informed what we are now calling the win back journey. And so this is, uh, a, a more aggressive targeted program for near or lapsing consumers to really get them to re-engage with the brand. So we are still early Innings uh David it should uh be in in Market in test here in the coming months. But we feel like there's a meaningful opportunity to re-engage lapse or near lapse users. Uh, that are that have engaged in the platforms.
Speaker Change: Great. Thank you.
The next question comes from Dennis skyer with UVS. Please go ahead.
Great, thanks very much. Um, first question, just curious, uh, maybe housekeeping if you could sort of speak at all to to Trends through the quarter. Note, I know you talked about that improving momentum, but anything sort of on on June July either the 1 year or I know you spoke last quarter to to the 2-year Trend just so we can kind of level set where that sort of underlying trend is now please.
Speaker Change: Yeah. Dennis, I'll start and then Scott feel free to add in. So going all the way back to April, like we said, during the last call, we're riding the wave from Chipotle honey chicken in our 2-year comp was around a plus 8. In may, we saw the softness that's got talked about and that really, you know, correlated pretty heavily with consumer sentiment bottoming around that time. So our 2-year dropped a couple hundred basis points. But then at that, bounced, back in the second half of June when our summer marketing went into full effect as well as the launch of adobo Ranch and some are of extra and we exited June, not only with positive comps and positive transactions but also that 2 year returning to about that 8% level. Now when you go into July July has been a bit choppy over the last couple of weeks, I think it's due to kind of some post holiday, as well as some whether that we've seen. And so the 2 year stack in July has been bouncing around like 7 to 8%, but we expect that, it'll be closer to 8% in Q3 and we have a solid uh, plan to lap brisket in September, So that obviously includes that as well.
Speaker Change: It's great. I appreciate that, uh, that Colorado, and then maybe 1 more, just, just bigger picture Scott, you talked, about in the confidence kind of in getting back to that, that mid single digit, uh, comp growth profile that, that you, you know, had at least historically, just any additional thoughts on the the timeline there. How important is is sort of the macro normalizing relative to all the initiatives that you you talked about and and kind of just starting to see those continue to gain traction and endgame momentum. Thanks, guys.
Scott Boatright: Yeah, it's a great question. Dennis, I think I think Q2 was probably the worst. Um,
Scott Boatright: Aggregate storm, uh, conditions for an aggregate storm. That we could have faced. We had extraordinary Compares. We had declining consumer confidence. Um, we had, uh, we just, we had, we had all sorts of things. I, I won't make any more excuses around the quarter. Here's what I'll tell you is, as Compares ease in the back, half of the year. If we could get a little favorability on consumer confidence, which seems to be trending upward, uh, in June July. Uh, and then later in the initiatives that we have in the back half of the Year, another exciting lto coming, I've got another side that's making its way through stage gate, as we speak, which could also launch, uh, in the, in the, in the fall kind of winter time frame.
Scott Boatright: We have an additional Rewards program targeted for college students, which will launch here at just a few weeks. Um, which will, I think will drive increased engagement with the the college, uh, college students across the country, uh, which are big fans of our brand. And then we have a lot of benefits that are on their way uh from the produce slicer launch increasing culinary, improving, the guest experience, ensuring that we're ready for great, throughput, this fall. So I I say all that to say, I have a lot of confidence, in the plans, we have of getting us back on our front foot here, very quickly. Uh, and then, um, the 2026 calendar. I'll tell you in shaping up nicely. Uh, Chris and team have been working aggressively on what that will look like. You've already heard me say that.
Scott Boatright: We'll have increased lto Cadence. Um, I talked about 3, um, for the upcoming year to include with pepper and other sides and dips, which we know are highly incremental and that are performing well. So, I feel really confident of us getting back to Mid single digits and, uh, in the near term.
Speaker Change: Thanks Scott.
Speaker Change: The next question comes from Sarah Senator, with Bank of America, please go ahead.
Speaker Change: Productivity. I think you know given timing and also just when trajectories change a lot um in the cost did you maybe just talk a little bit about that the the nsps and and how anything that you might be seeing their looks? I think pretty consistent but I just wanted to confirm that and then also I do have a a separate question.
Speaker Change: Yeah, sure I can jump in on the new store productivity. So you're reading that correctly, we're still in that like around 80% actually, just slightly above that and Q2. So our new store productivity is holding up really, really nicely compared to our existing base.
Speaker Change: Okay, great and thank. And then on the, you know, I know you said, like there's a lot of volatility consumer confidence. I guess. Historically, um, you know, we haven't seen as much of correlation with confidence, um, and then, I guess when I'm thinking about the 2-year, you know, feels like you've thrown a lot at this with, you know, respect to advertising and then the, um, lto and I, I know or so the uh, the doo Ranch
Speaker Change: um, I guess to what extent
Speaker Change: Is this all, is you still have control over you feel confident in the ability, I guess to continue to innovate, um, you know, given that it, we have seen a lot and, and yet it it sort of seems like it's moving the needle just a little bit less, um, significantly than you, than you had. You know, is there any sense that, you know, maybe people are, um, you know, there's fatigue or anything like that that would give you pause
Hi Sarah Scott here, thanks for the question. Um we have been tracking along with consumer sentiment over the last several months which is interesting and it's in its own uh in in looking at the charts and how we Trend along with foot traffic. Here's what I'll tell you is the summer campaign while it seems, like we threw a lot at it. We were just testing and learning. And if you recall, uh, the initiatives around summer, we put into flight, uh, in the fall winter time, frame of last year, it wasn't to respond to market conditions or a, uh, a declining consumer backdrop. And so, the goal this summer was to, to merely test ideas to really betray the summer law. We've experienced over the last couple of years and quite frankly, I think we have learned several things at work. And several things that may not work, that will inform the back half of the year calendar, as well as the 2026 calendar.
Speaker Change: Very helpful. Thank you.
David Tarantino: The next question comes from David, Tarantino with beard, please go ahead.
David Tarantino: Hi. Hi. Good afternoon. Uh, Scott. I would I just want to come back to the um
David Tarantino: The Outlook to getting back to Mid single digit comps. I I guess, you know, there's some debate in the investment Community about whether Chipotle's just reaching a a scale at which it's going to be tough to drive that kind of comp growth, and whether and more appropriate Target for the business, might be something lower than that. So, I just wanted to see if you could react to that comment. Do you think it's going to be harder and harder to get to that kind of number over time? Or do you, do you think this is all just macro holding you back and and once that clears up, you'll, you'll be able to get there. So any, any thoughts on that topic would be great.
Yeah, David. Uh, thanks for the question. I think much of what we're experiencing right now is due to macro and the consumer, the low income consumer is looking for Value as a price point. You know, at present, you have to look no further than what's going on with our competitors, with, you know, snack occasion or 5 Dollar meals or, um, and, and that's where the consumer is drifting towards his value as a price point because of, uh, low consumer sentiment. I think it's in sentiment improves. The business will improve. And so that, you know, I think that's probably the biggest headwind we face. Now, that does cause us internally to think differently about how do we think about value at Chipotle? How do we think about Innovation as it relates to, whether it's lto, or sides, or dips, or desserts. And other platforms that we can layer into the business law?
David Tarantino: Long term, but I still, I still believe and I'm confident this leadership team. And I are all confident that we have a path to get back to Mid single digit growth and return us back to where we need to be uh, in the coming months.
Speaker Change: Thank you.
The next question comes from Chris oal with defo. Please go ahead.
Chris: Yeah, thanks. Good afternoon, guys. Um, Scott, it's encouraging to hear the plan to adjust the lto Cadence next year. How are you thinking about the mix of new product launches versus revisiting, some of those existing favorites that have been proven to, you know, to be consistent performers?
Chris: To you. Thank you for the question, by the way, every time we run an lto, it tends to perform better than it did during its prior launch. Uh, even products that we've Revisited 2 or 3 times. So that gives us a lot of confidence that we have a pantry of items today. Lto, that is, uh, that we can layer into the marketing calendar that we know are proven that will be successful. Um, and we just reintroduced a product in tests that we've launched, I guess it's been in Market 3 times. Now, it actually performed better in tests than it did during its first 3 Market launches. Uh, so that's uh you set that aside and then the team continues to work on other craveable on brand items whether that's center of the plate items or sides or dips that we can launch into the marketplace that will go through our stage gate process to help fill out a more full calendar of 2026 and Beyond.
Chris: Okay, thanks.
Speaker Change: The next question comes from Danilo. Czar Julio with Bernstein. Please go ahead.
Speaker Change: Thank you. Um, it's called. I want to go back on the, uh, the debate on whether macro is impacting, the, um, uh, performance in the second quarter, um, versus something a little bit more structural. And so, I wonder if you can talk a little bit about whether you're seeing some level of competition rising and whether this is a source of concern for you specifically, are you seeing any of your
Speaker Change: uh, consumer's potentially trading down into any other food categories, or do you see stable Trends across the income cohorts
Speaker Change: Hi Dello, thank you for the question. We did see some share loss in the April May time frame as the low income consumer pulled back. Uh, but we're back to share gains yet again in June July. So I think it truly is trending along with the macro and consumer sentiment at this point. And so, I don't have overarching fears. We always keep our eye on the competitors as you, as you, I'm sure you're aware, didn't know. But, uh, we see, No 1 on the rise today, that is causing us to rethink our strategy. Uh, and we'll continue to meet the consumer where they are and try to drive demand through, you know, our core equities of the brand. Whether that's obviously high-quality ingredients, classic culinary, abundance, and a speed at which you can't get anywhere else. And then bring in new ideas around lto to get the consumer to come back more often or bring trial to the brand.
Speaker Change: Great. And and speaking about the frequency itself, I mean the the Loyalty members that you have is around 40 million people and you mentioned that about 20 million of them are active in the past 12 months. Uh, but I'm sure that Within These active population, there are different tiers of activity. Right there are some consumers who are um, more frequent consumers than others. So, uh, what level of frequency from active members. Um, like how is they trained it over time? And which part of the Active consumer base has been more Under Pressure lately. Is it the super user?
Speaker Change: The more casual consumers and what are your plans to be attracting those consumers back in the second half?
Yeah, I talked about this, just a moment ago. I think the low frequency users the 1. That's, that's most at risk here. Danilo, and the the summer of extras promotion really engage that consumer in a meaningful way and cause them to transact with us more frequently over June July. Uh, this program will obviously continue for the next several weeks. And so we continue to see that pick up, which is encouraging, which will also inform our strategy as we think about extras. Um, you know, beyond summer of extras. What does that look like as an evergreen program? That'll inform the back, half of the year calendar, as well as the 2026 calendar.
Speaker Change: Excellent, thank you.
The next question comes from John, even Co with JP Morgan. Please go ahead. Um, hi, thank you. You know, the question is, is also, you know, you know, dissecting the comp and just overall performance to some degree. And, and the question isn't from a con, uh, consumer cohort perspective. The question is dates on various Regional performance differences. That you may see, um, Suburban or Urban differences that you may see. And I asked the question, you know, sitting in New York today where you know where competition has notably improved over the past couple of years, but I can even say that, you know, there's even been some significant changes from, you know, Washington, all the way up through Boston and a lot of areas in between that, you know, if you are
Seeing some, you know, pockets of competitive change in a New York. For example, that maybe have to some extent, uh, been all set by easing of competition and other certain metropolitan areas.
Speaker Change: Yeah, and the only other 2 things I would add in number 1, in some pockets of the country, especially around High vacation times. We've seen a little bit of softness compared to some other areas, especially around holidays and whatnot. So that's been, you know, more pockets and then you asked about, uh, Urban versus Suburban. I mean, the majority, the vast majority of our restaurants are so Urban. However, we've actually seen the urban restaurants outperform those just a little bit, so I think it, you know, the Scott's point in some of those areas although there is more competition. We're not necessarily seeing that, especially on an urban.
Speaker Change: That's great. Thank you for the answer.
Speaker Change: The next question comes from Christy Chong with Goldman Sachs, please go ahead. Uh, yes, thank you. Um, so Scott I would be curious to hear from you just giving your previous role of coo. What specific contribution do you expect Jason to bring to Triple A and what would be his kind of key priorities and focus areas in the near term and for the more um now with all the executive team fully on board, are there any aspects of your long-term strategy that could be reconsidered or tweaked? Thank you.
Speaker Change: Yeah, hi Christie, thank you. Um, you know, Jason brings a vast knowledge of of high level, large-scale retail to our brand and his previous brand, obviously managing, um, a very large food concept. Um, you know, I think, you know, in in our early days and so he's been in restaurant. Doing his restaurant training, he's learning how to work a nice, uh, which is unique to our brand, which is exciting to see. Uh, but I think he'll bring a different perspective and he already has, I mean, we've been in restaurants together over the last few weeks and he's already identifying opportunities to improve the experience for both team, member and guests. That maybe was overlooked by the P, the prior coo, uh, which is exciting. And so I think, I think, I think, I really, really believe Jason will create a step change in our operational performance in this brand. Um, I would like to, I would like to caveat that with
Speaker Change: I could not be more proud of how our 130,000 people have performed in a really tough macro, environment of the last 6 months and achieving the profitability, both restaurant level margin, and EPS that we have enjoyed over the last couple of quarters, uh, is on large part due to their efforts. And so I just want to say thank you to them. That said, uh, the management team fully intact. It's an extraordinary team. Uh that has been in this brand with a lot of historical contacts, a lot of success for a lot of years. And uh, we constantly are talking about our strategy. We're constantly talking about the consumer and we're always looking for ways to innovate whether that's an operations, digital or marketing. And the idea is this team. Generates our uh, best-in-class full stop and have a lot of confidence in our strategy today and how it will evolve in the future.
Speaker Change: Thank you. Um, just to follow up to an earlier question. So, uh, thank you for sharing some of the key metrics around the impact of Summer of extras. Would you consider making this as kind of a more regular engagement in the summer? And do you see potential kind of increase to marketing? Spend going forward versus kind of the high 2% that you're expecting for the year? Thank you.
Speaker Change: Yes, and you're thinking about the right way and so, we are learning what's working right now as we speak and that will inform our strategy as it relates to digital going forward. And so you could see some modifications, uh, not wholesale changes. But as we continue to think about how do we approach digital in the most meaningful way, whether that's driving new users into that Channel or solving for some of the challenges as we have some attrition within the bucket.
Speaker Change: Send the dollars.
Speaker Change: The next question comes from. Andrew Charles with TD Cowen, please go ahead.
Andrew Charles: Great. Thank you, Adam. I'm curious now that you've had the high efficiency equipment, um, in market for enough time, uh, in the pilot, uh, that you're rolling. This now, it's all new stores and retrofits are going to begin. What are you seeing just in early stages with the sales volumes and marginal flips relative to the uh relative to the remainder of the uh restaurant Fleet.
Andrew Charles: Yeah, hey Andrew. So, it's a little early to put numbers to any of those yet, especially given that we've had, you know, maybe about 40 or so installs. And like Scott said, we're, we're ramping up, um, but I can give you a few tidbits and and we've talked a little bit about this in the past, but in terms of what we're expecting to see, just right off the bat is a a labor efficiency, you know, in order to to Really justify the expense here. And that's probably going to be in that like 2 to 3 hour range, uh, on an average restaurant other than an average day. Um, and that's just, you know, the the straight off efficiency which I believe will drive a pretty nice return on this. Um, it doesn't count the fact that all the other benefits that's got is detailed, I mean the Improvement and uh the consistency of our quality of our culinary. I mean I I think that that's going to be a huge step change that could definitely affect the top line. I think that allowing our teams to be more efficient at prep uh will allow them to deploy better and increase uh, our Max 15 to
Andrew Charles: I was to, you know, really drive better throughput. I think that can have to the Top Line benefit as well as potentially unlocking additional growth platforms. Like we mentioned earlier with catering and doing that test and having the high efficiency equipment package and before we do that test to really see if it can unlock that. So just several things I can do to not only help the team members but also the guests. So still early but we're really excited about the returns that this could potentially have
Speaker Change: That's helpful. Maybe just 1, quick follow up, just as a result of the delays of prep that I know can cause, um, operational hiccups. And cause sales hiccups, is there a way to quantify what you're seeing today in the business or in recent quarters, just from the headwinds there that this is going to help solve.
Speaker Change: I mean, I I think the best indication of that is just our ability to deploy. So, the fact that we shared in the prepared comments that 70% or so of our restaurants, are able to get Expo in place. That's driving a step change in throughput. And so we'll be able to continue to push that further. It's a little less than that on getting all 4 pillars in place. We're probably somewhere in that 50% range in terms of the amount of restaurants that are able to have all 4 pillars in place during their busiest 15-minute period. So, as we're able to get this equipment in place, including the produce slicer and really get uh, you know, proficient with it. We expect those numbers to rise which will then yield to a higher Max 15 which will then be able to a higher comp. So I think there's some really good benefits there that that's coming our way.
Andrew Charles: I appreciate the thoughts, thanks. Yeah, thanks Andrew.
The next question.
Speaker Change: Is from Lauren.
Lauren: Very much. I wanted to just follow up on the same store, sales Trends, 2 year around 8% exiting June 7th 8% July, can you just help level set? What you're seeing on a 1 year basis in July, and I think Compares make it tough tougher As you move through the quarter. So do you expect the 1 year comp to moderate or just, what should we be thinking there? Which I think would get you to about a 2% comp for the quarter?
Lauren: Yeah, no, I think you're thinking about it the, the right way. I mean, it, it's somewhat consistent, July August and September. Um, especially that we're, you know, embedding that we have a really strong plan to lap brisket in September. Um, and so, you know, if you're getting somewhere in that, like low single digit range for the quarter, that's about where we're at in July.
About positive uh comps but also positive transactions so far in July, despite kind of that choppiness, but I think you're saying that you're thinking about it the right way.
Lauren: There's some mixed headwind that's going on.
Yeah, I would assume the mix headwind which was about a minus 1, um, in the second quarter to continue for the rest of the year, that's still driven by lower group size. Uh, there's also been a little bit of a shift to lower price entree, so think of that, as, you know your stake in Barbacoa, customers shifting a little bit more to chicken than we've seen kind of in the past. But we're still seeing strength and sides on a per entry basis, like extra meat, for example,
Especially around Chipotle honey. Chicken has been really, really strong and then the dobo ranch really stepped up, but that was kind of late in the quarter. So when we got a couple of weeks of that and then the other items like Glock queso chips, even drinks are actually holding really nicely and so net. Net sides are still providing kind of a partial offset to that group, size decline, but we expect that minus 1 to continue for the rest of the year.
Speaker Change: Food basis. Is there any reason you think Chipotle is more susceptible to macro today than you have historically? Or do you think you're getting sufficient credit from consumers on your strong value proposition?
Thank you.
Yeah. Um to answer that question very bluntly. I don't think we're getting credit with the consumer today and so what I've talked to the team about internally is how do we better communicate our value proposition and center around the core equities of the brand and so there's a lot of activity going on to talk. How do we do that in a unique way? That is that is authentically Chipotle that is not targeted at the targeted at the competition. Uh, and that is not price pointed, right? I think we've got to figure out a way we can communicate value for the consumer and showcase the value. We are to qsr and fast, casual, I think there's more work to do there and that's work ruling into in the back half of the year.
Speaker Change: Thank you.
Speaker Change: The next question comes from. Brian, Harbour with Morgan Stanley, please go ahead.
Speaker Change: Yeah, thanks. Good afternoon guys. Maybe just to to clarify those, um, seems for sales comments, too. So I I guess the way you're thinking about it is sort of
um,
Speaker Change: similar from from June July, sort of similar Trends holding through the balance of the year. And would you say that, you know, the things you're doing with, um, rewards marketing, kind of ranch have have all had some contribution over the last couple of months and so you're sort of assuming no real change in um how those things Drive seems for sales for the balance of the year.
Speaker Change: Yeah. No I think that's a good way to look at it because again, in may we saw softness it was a couple hundred basis points. Those drove us back to get to that roof 8, you know, percent to your account. And that's what we expect to continue on into the second half of the Year, obviously, as the summer marketing initiative, start to wear off. That's where the fall campaign comes in. And we're really confident with what we've got lined up for the fall and all the other things that Scott mentioned that we'll be able to maintain that, if not build upon that throughout the rest of the year.
Speaker Change: Okay. Thanks. The the food efficiencies that you called out. I mean, I I assume cuz cuz I think the slicers are probably just now starting to have an impact. So I guess I might infer that that was from other initiatives, could you sort of talked about, you know, what else it is? That's that's driven some of that food costs favorability.
Speaker Change: Yeah, yeah. So I'll go into some detail on that. So as, you know, I mean, a little history lesson as you guys already know, we had about a 60 basis point portion investment a little over a year ago. It dropped towards the end of the year to probably closer to about 40 or 50 basis points with some outlier management that we discussed, you know, several quarters ago. But we have more than offset it uh through really 2 main initiatives, 1 is in restaurant initiative. So think of this as our restaurant teams, doing a remarkable job, really focusing in on what we call the flow of food. And that's, you know, as many steps throughout the restaurant, but it goes from everything from, you know, receiving and logging orders to ensure that we're only paying for food that actually showed up at the restaurants, from our DCS to managing their inventories, effectively properly prepping properly, cooking. I mean, we've given this example, many times in the past. I mean, if you overcook chicken a minute,
Speaker Change: To the yield loss of that can be pretty substantial across the entire uh, Fleet of restaurants and then it goes all the way to ensuring that we're, you know, correctly, ringing everything up on the front line. And I think as we're better deployed and have Expo in place, we're more likely to be much more accurate in making sure that we're charging for, you know, stake instead of chicken that we're getting all of the sides in that communication is doing the, you know, it's going really well on the line. So that's part of it. The other part is supply chain initiatives and I think we've pointed to some of this in the past, but we found a lot of success with our team and supply chain around supplier diversification. And and specific categories especially like, tortillas, as well, as you know, some fine-tuning and Logistics and removing, you know, some
Speaker Change: Necessary intermediaries. All of those combined were actually met about a 30 to 40 basis. Point game on a go forward basis from that investment that we made, uh, just over a year ago and then on labor, when it comes to the produce lasers. We're starting to see some really nice execution, come through, we didn't remove any hours when it came to produce slicers. We invested that back into the restaurant, so that they could really make sure that we're doing everything done at prep, um, so that they can take their meal breaks and be fully deployed at lunch. But the efficiencies that they're driving is allowing these teams to get much better on their labor execution, and that drove around 20 basis points of efficiencies in Q2 alone. So we expect some of that to continue going into the future. So it's a really good story around this margin initiative across the board and not only offset that investment we made. Um, but to really overshoot it by about 30, or 40 basis points, just on cost of sales alone.
Speaker Change: Thank you.
The next question comes from, Jeffrey Bernstein with barklay, please. Go ahead.
Speaker Change: Questions on the the more recent comps load on your noted and I think consumer environment was the issue consumer. Looking for more price point. Certainty. Clearly others in the industry are being more aggressive. Those price points, I'm just wondering beyond that kind of consumer environment. Do you think there's anything?
Speaker Change: Specific in terms of or the headwind. Um, maybe you can use Maze. And example, it didn't seem like, pure sort of thing be a pullback. So I'm just wondering beyond the macro. If there's anything that's been self-inflicted that you could perhaps address, uh, that would give reason to believe strength should get better in the back half, and then I have 1, follow-up.
Yeah, Jeffrey great question. Um, all the consumer metrics that we look at through our brand tracker and how we think about the Chipotle customer shows positive progress still yet. And I know I talked about the 15% perceptual attributes that we were top 3 in on the last call. Uh, we remain pretty consistent quarter over quarter. Uh, and, and we remain consistent on on some of the consumer metrics. We measure in restaurant as well as team member measurements, whether that's turnover, um, Staffing or app, model or development, all remain very consistent and believe me. We've unpacked this thing, 10 ways.
Speaker Change: Um, to understand. Is this a self-inflicted problem? Uh, or is this just a more of a macro problem? Now, we have our opportunities, don't misunderstand that statement, but there's nothing glaring. There's No Smoking Gun here. That says we've had a misstep and that gives us confidence that stay on strategy, innovate, where we can try to meet the consumer where we, where they are in our own unique Chipotle way, but more importantly, is really continue execution. In the restaurant, delivering great, team member experiences and great guest experience.
Understood. And then just the follow-up. As I think about the restaurant, margin side of things, uh, just wondering your confidence or your line of sight to return to margin expansion over time. You know, if the comps weren't necessarily to return to a single digits. So if it was more low, single digit, your ability to expand, margins from here,
Speaker Change: I think you noted your goal of getting to that 4 million Au and obviously you're talking about a return to the mid single digit comp. But
What restaurant margin would come with that. Um, if you worked to return to a mid single digit, I know there used to be talk of a 30% type margin. Um just wondering how you think about the margin Outlook depending on whether the comp is low or mid single digit going forward. Thank you.
Speaker Change: Yeah. Yeah, so I can start on this 1 so, you know, no change to the the flow through uh as we look longer term that 40% flow through on incremental transactions. And so when you're at a mid single digit comp and you're opening restaurants at the pace that we're opening, you know, no problem seeing that as we approach 4,080 V, we can get to that 29 30% range on restaurant level margin, and that does not include any additional benefits that we're able to find in the business like the high efficiency equipment package, or anything else that we're able to drive and then in terms of margin expansion. I mean, really looking at the second half of the year, we expect margin will increase at that typical flow through, um, with additional transactions because if you think about it, the impact of tariffs, which like I said, I'm prepared comments was, it's probably going to be somewhere around 40 basis points in Q3 and a little bit more than that in Q4 that's going to begin. We also have higher add promo. Spend in the second half of the Year, probably around 20 basis points or so on a year-over-year. But that's going to be offset by the lower cost of sales from the margin initiatives that I just discussed, as well as lapping the portion.
Speaker Change: Investment. So, all of that offsets to where we should see a nice increase in our restaurant level margins based off of the transactions that we're able to drive and then next year, build upon that as well. And so the very the margin story is still very much intact and our restaurant teams again are doing such a great job on execution, both on the cost of sales size, but on the labor side to, to really make sure that that happens.
Speaker Change: Thank you.
Speaker Change: The last question today comes from Jacob Atkins Phillips with mellie's research. Please go ahead
Hi. Good afternoon. Um, so I I just wanted to ask about a bit more about digital, so like your recent commentary earnings seems like you. Right? Rightfully emphasized operations, Hospitality equipment Innovation but Chipotle has been really good at scaling, the digital. And I'd argue that to get back to Mid single digit comps. You have to lean more into that digital.
You prioritize Investments?
In Tech or equipment Innovation versus in digital.
Speaker Change: Yeah. Um, great question.
Speaker Change: So today we continue to innovate in the digital channels curtain and his team are um, some of the most creative thinkers in the industry as far as I'm concerned, we can continue to work on creating an end-to-end frictionless, user experience within the app. We've made a couple of recent Innovations on the app to remove friction from The Experience already. They can continue to look for ways to do that. Um, they're driving top of funnels so this I think I said earlier that we're up 14% year-over-year on signups, uh, for digital for our loyalty program. And then we continue to work with our third-party, um, Partners on creative ways to drive more demand into the channel. And so, there's constant pressure to really move the needle on the digital experience and create a great experience for the consumer. And so that's a forever, evolving and Evergreen approach to, again, creating a seamless experience for that consumer as we think about prioritizing spend, um, we are very fortunate at Chipotle to have an extra
Speaker Change: Ordinary balance sheet and we have the cash. We need to innovate, uh, and be creative in the channels. We need to whether that's operations, marketing, Andor digital. And we'll continue to use those dollars to drive the highest return.
Speaker Change: That great. And then just on International like you've done great work in Canada and doing great work in Europe, any like color on. At what point you reach a level of like self-sustaining growth or accelerating growth, in new newer markets?
Yeah, I'll tell you and not in her team. Have done remarkable.
Speaker Change: In Western Europe. And so, and leveraging really working on getting 100% recipes aligned, and then 100% aligned on menu. Believe it or not, we didn't have kids meals, or we didn't have tractor. We didn't have soda fountains and they're making a lot of progress on creating, um, a, uh, delivering the Chipotle experience, the way it was intended. Uh, we are driving Topline. We are driving margin Improvement in Western Europe today. We've already unlocked Central, London, and Germany for additional restaurant growth. We think we can have hundreds of restaurants in the existing markets. We're in today, potentially thousands in Western Europe over time.
Speaker Change: Um, that said, you know, about our deal with Al Shia, they'll accelerate development and growth in the back half of this year, Allah will open their first restaurant next year. Uh, and then we're looking at other opportunities and and we have a framework, which we're leveraging to understand, you know, weighing the opportunity size operational, complexity, partner quality, and the economic model. And I think I've said this before, but it's important to repeat and we will leverage the strengths of the Chipotle brand, and the markets we enter in, and we'll be flexible on that market entry strategy. Whether that's, you know, partnership, wholly owned or JV and so, you know, it's it. We are early early, early, early Innings on what international will be for this brand, but we fully believe it will be a pretty significant growth. Lever lever for us, uh, in the years to come.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Scott Boatright for any closing remarks.
Hey, I just want to say thank you, uh, to our support center teams and our restaurant teams for their hard work. Um, I really believe that the brand strength and the core equities of. This brand are still intact. Uh, we still are driving consumer fandom and delivering, great experiences, and large part to our operators, in the field, who work tirelessly every day to deliver the experience. I've said it before, it's worth repeating their, the absolute backbone of this great organization. And a large reason why we maintain our profitability and our EPS couldn't be.
Speaker Change: Be prouder of the performance, we will get back to Positive Growth here in the second half, and we'll accelerate in 2026. What I believe to be a best-in-class marketing. Calendar with Innovation and creativity from both, uh, digital, as well as marketing. That said, thank you all for listening in and uh, have a great quarter.
Speaker Change: This is now concluded. Thank you for attending today's presentation. You may now disconnect