Yahoo Finance

And we opened 47 new restaurants, including 43 Chipotlanes. The strength in our business has continued into April, and as a result we are increasing our annual comp guidance and now estimate comps in the mid to high single digit range for the full year. Now let me shift to an update on our five key strategies that help us to win today while we grow our future. These strategies include sustaining world-class people leadership by developing and retaining diverse talent at every level. Running successful restaurants with a people accountable culture that provides great food with integrity, while delivering exceptional in restaurant and digital experiences. Making the brand visible, relevant, and loved to improve overall guest engagement, amplifying technology and innovation to drive growth and productivity in our restaurants, support centers, and in our supply chain.

And finally, expanding access and convenience by accelerating new restaurant openings in North America and internationally. I'll begin with our world-class people leadership. Last month, we held our All Manager Conference, where we brought together 4,500 of our restaurant and support center leaders to celebrate their success, as well as amplify our focus on exceptional people, exceptional food, and exceptional throughput. The conference included over 3,200 general managers, 100 apprentices, 450 field leaders, 60 team directors, and 11 regional vice presidents. For the first time, we also included crew members who have worked with us for over 20 years to celebrate their commitment and dedication to Chipotle. In fact one of our general managers in attendance from Denver, Colorado has been with Chipotle for 23 years and she also had four crew members from her restaurant who have each been with the company for over 20 years.

Collectively, that is over 100 years of Chipotle experience, all at one restaurant, which is just incredible. And it's no surprise this restaurant has fantastic operations with throughput that is outperforming the overall company. At our conference, we highlighted the growth opportunity at Chipotle. To reach our long-term target of over 7,000 restaurants in North America, we showed our teams that we will need to double the number of field leadership positions we have. And as we target over 90% internal promotions, the majority of these future leaders will come from the GMs and apprentices at this conference. This was a powerful and motivating message and one that is unique to Chipotle given our scale, growth, and company-owned model. And in connection with our 50 to 1 stock split, we also announced that all of our GMs, as well as crew members who have been with Chipotle over 20 years will receive stock grants once the split is effective.

This will allow them to participate in the financial success of the company. Bottom-line, Chipotle is changing lives for the better. In fact, one of our restaurateurs and certified training managers, spoke at the conference and shared that her experience at Chipotle helped her to overcome financial hardship and that she was even on the verge of Homelessness before she joined Chipotle. She started as a crew member over 10 years ago and has thrived, making her way to the highest level GM and is now on her way to becoming a field leader. She was able to leverage her education benefits to earn a college degree, the first in her family, And utilizing the stock she received as a restaurateur, she was able to purchase her first home. She was also one of our team members that are behind the Foil commercials, as she really is a great example of the exceptional people that make Chipotle.

In addition to our world-class people, exceptional food and exceptional throughput are key areas of focus and are both critical to running our successful restaurants. We spent time at our All Manager Conference reminding our teams about Chipotle's culture of food with integrity and how there's a direct connection between how food is raised and prepared and how it tastes. We showcase Chipotle's food with integrity journey and our strong partnerships with our farmers and suppliers who take special care in assuring they are growing our food with the highest standards. We also emphasize the importance of teaching and tasting Chipotle, which means that our restaurant teams taste the food they prepare multiple times a day to assure it is delicious and meets our high standards.

You see Chipotle was founded on this idea of real food and real culinary, it's not a marketing slogan or a short-term initiative. It's in our heritage, it's in our DNA. Our restaurant teams take pride in our food and our healthy, high-quality eating experience adds value for our guests. In addition to our delicious food, exceptional throughput, or the speed of service in our restaurant, also adds to the extraordinary value proposition we offer. I am thrilled to share that the momentum and throughput continue to build in the first quarter as we improve by nearly two entrees in our peak 15 minutes compared to last year with each month showing an acceleration. At our All Manager Conference, we also focus on coaching the nuances of great throughput or executing what we call the four pillars.

This includes expo, or the crew member between [saucing and cash] (ph) to help expedite the bagging and payment process. Linebacker, typically the manager on duty who supplies both lines with freshly prepared food so that the crew on our line can continue to serve our guests without interruption, [meat and plus] (ph) or another way of saying that everything that is needed for a lunch or dinner peak is ready and in its place, and it is in their places, or having the best trained crew deployed in each position for lunch and dinner peaks. We're in the early innings of consistently executing the four pillars, but when we do, it creates a flywheel effect in our restaurants. The restaurants run more smoothly as our teams are properly trained and deployed, which allows them to keep up with demand without stress.

This leads to more stability and therefore, more experienced teams that execute better every day. And this can be seen in our latest turnover data, which is at historically low levels. And for our guests, faster throughput results in shorter, faster moving lines and hotter, fresher food, strengthening our value proposition and driving incremental transactions. Our restaurant in the financial district in Boston is a great example where a year ago they were doing mid-20 entrees in their peak 15 minutes. And today they are doing over 40 entrees in their peak 15 minutes with days that can reach as high as 80, which is among the highest in the company. The restaurant has low turnover and outsized transaction growth, which clearly demonstrates they are creating a better overall experience in the restaurant.

Now turning to marketing. Our marketing team has started the year-off strong with outstanding brand advertising and menu innovation. We've continued our successful Behind the Foil brand campaign, showing our real teams, prepping our delicious fresh food by hand every day, reinforcing a key differentiator for Chipotle. This ran across all media channels, including high-profile placements in television, such as college football and the NFL playoffs. We also began to promote our delicious barbacoa, as we leveraged our consumer insights that told us that many of our guests did not know that barbacoa was Braised Beef. So we renamed it Braised Beef barbacoa and emphasized the culinary recipe, which is slow cooked, responsibly Braised Beef, seasoned with garlic and cumin, and hand shredded.

It was Chipotle's best kept secret and is now growing in popularity. The campaign was a success driving incremental transactions and spend, and it was simple for our operations team to execute since it was an existing menu item. This is a perfect example of how our marketing team continues to make Chipotle more visible, more relevant, and more loved. During the quarter, we also brought back one of our most requested new menu items, Chicken Al Pastor. Our guests loved our spin on the Al Pastor using our adobo chicken, morita peppers with a splash of pineapple, fresh lime, and hand chopped cilantro. Similar to Carne Asada, when we bring back a past favorite, we are able to improve the entire experience as we leverage our know-how across culinary, supply chain, marketing, and operations to make it more delicious with seamless execution.

Chicken Al Pastor is off to a great start once again, driving incremental transactions into our restaurants. Moving on to technology and innovation. Our marketing and digital teams continue to grow and evolve our rewards program, which recently celebrated its fifth anniversary. It is exciting that we now have a digital reach of about 40 million rewards members that we can leverage to increase engagement. Through our marketing initiatives, we continue to find successful ways to drive enrollments, and we are leveraging our digital team to create a seamless app experience and deliver more relevant journeys for our rewards members. The goal is to drive higher engagement in the program, which results in higher frequency and spend over time. In our restaurants, we continue to explore technology tools that could drive higher productivity and improve the overall experience for our teams.

This includes things like forecasting and deploying labor, recruiting new crew members, preparing our fresh food, and automating the preparation of digital orders. In fact, at our All Manager Conference, we showed our teams the latest version of our automated digital make line and Autocado, which cuts cores, and peels avocados. And as we discussed last quarter, we are excited to get both into a restaurant later this year as part of the stage gate process. Our final strategic priority is expanding access and convenience by accelerating new restaurant openings in North America and internationally. We remain on track to open 285 to 315 new restaurants this year, mostly in North America. We continue to see strength in openings across geographies and location types, including urban, suburban, and small towns.

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

Moving to Europe, as you may recall, we brought over one of our top operators about a year ago who helped to identify areas of opportunity, including better aligning our training tools, systems, and culinary with our North American operations where it makes sense and is feasible. We have made nice progress aligning the culinary and are beginning to better align the operations, including a recent change in leadership structure as we expand the role of our Canadian leader to oversee both Canada and Europe. Over the last five years, Canada's economics have improved to be on par with the US. In fact, Canada is leading our company in many key operational KPIs, including throughput. The successful approach of aligning the local strategy with our overall operational vision and diligently overseeing execution of Chipotle standards has set up Canada for rapid expansion.

We see many similarities between the European operation today and the Canadian operation five years ago. The new leadership team in Europe, including two top operators from the US, will take a similar strategic approach to improve economics and unlock Europe's growth potential. In closing, the strength in our business, including transaction-driven comps, is due to the collective hard work of our 120,000 employees who are results-driven, passionate about our purpose of cultivating a better world, and excited for our growth opportunities ahead. At our All Manager Conference, I highlighted the importance of people development as it represents one of our greatest strengths. Seeing our leaders all in one place was inspiring, and their personal growth stories are a real and a key ingredient to Chipotle's success and future growth.

This makes me more confident than ever that we have the right people and the right strategy to achieve our long-term goals of more than doubling our restaurants in North America and expanding internationally. As I've said in the past, I believe the next Chipotle is Chipotle. And with that, I will turn it over to Jack.

Jack Hartung : Thanks, Brian, and good afternoon, everyone. Sales in the first quarter grew 14.1% year-over-year to reach $2.7 billion as sales comp grew 7%, driven by over 5% transaction growth. Restaurant level margin of 27.5% increased about 190 basis points compared to last year. Earnings per share adjusted for unusual items was $13.37, representing 27% year-over-year growth. The first quarter had unusual expenses related to an increase in legal reserves. As Brian mentioned, based on our strong underlying transaction trends, we are raising our full year comp guidance to the mid to high single digit range. We anticipate second quarter comps to be the highest of the year, which includes a benefit of an extra day from the Easter ship.

And we anticipate comps to continue to be driven by transactions in the back half of the year. We do have some challenging rollover components, including Chicken Al Pastor, ending, lapping our menu price increase from the prior year, and rolling over the very successful Carne Asada campaign. With that said, we have a strong plan in place for the back half, both in terms of operations and marketing. Additionally, in April, minimum wage in California for restaurant companies like ours increased to $20 an hour. As a result, our wages in California went up by nearly 20%, and we subsequently took a 6% to 7% menu price increase in our California restaurants just to cover the cost in dollar terms. This will add almost a full point to total company pricing beginning in Q2.

California restaurant cash flow is below the company average, so this increase will allow us to maintain cash flow. However, it will have a negative impact to overall company restaurant-level margin by about 20 basis points. I'll now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 28.8%, a decrease of about 40 basis points from last year. The benefit of last year's menu price increase was partially offset by inflation across several ingredient costs, primarily beef and produce, and a protein mix headwind from the successful Beef Barbacoa marketing initiative. For Q2, we expect our cost of sales to be in the mid 29% range due to higher prices across several items, but most notably avocados, as we anticipate a step up from the low levels we have seen over the past several quarters.

We anticipate cost of sales inflation will be in the mid single digit range for the remainder of this year. Labor cost for the quarter were 24.4%, a decrease of about 20 basis points from last year as the benefit from sales leverage more than offset wage inflation and the higher performance base compensation. For Q2, we expect our labor costs to stay in the mid 24% range, with wage inflation stepping up to about 6% as a result of the minimum wage increase in California. Other operating costs for the quarter were 14.3%, a decrease of about 100 basis points from last year. The decrease was driven by sales leverage, lower delivery expenses, and lower marketing and promo costs. Marketing and promo costs were 2.9% of sales in Q1, a decrease of about 30 basis points from last year.

In Q2, expect marketing costs to be in the low 2% range with the full year to come in just below 3%. In Q2, other operating costs are expected to be in the low 13% range. G&A for the quarter was $204 million on a GAAP basis or $191 million on a non-GAAP basis, excluding a $13 million increase in legal reserves. G&A also includes $126 million in underlying G&A, $34 million related to non-cash stock comp, $21 million related to our successful All Manager Conference we held in March, and $10 million related to higher bonus accruals and payroll taxes on equity vestings and exercises. We expect our underlying G&A to be around $129 million in Q2 and step up each quarter as we make investments in people and technology to support ongoing growth. We anticipate stock comp will be around $36 million in Q2, although this amount could move up or down based on our actual performance.

We also expect to recognize around $6 million related to higher bonus accruals and employer taxes associated with share that vest during the quarter, bringing our total anticipated G&A in Q2 to around $171 million. Appreciation for the quarter was $83 million, or 3.1% of sales, and we expect appreciation to step up slightly each quarter as we continue to open more restaurants. Our effective tax rate for Q1 was 22% for GAAP and 22.1% for non-GAAP. And our effective tax rate benefited from option exercises and equity vesting above grant values. For fiscal 2024, we estimate our underlying effective tax rate will be in the 25% to 27% range, though it may vary based on discrete items. On March 19th, we announced that our board of directors approved a 50-for-1 stock split, one of the largest in New York stock exchange history.

We believe this will make our stock more accessible to our employees, as well as a broader range of investors. Pending shareholder approval in early June to increase the number of authorized shares, the stock will begin trading on a post-split basis at the market open on Wednesday, June 26. Our balance sheet remains strong, as we enter the quarter with $2.2 billion in cash, restricted cash and investments with no debt. As a result of the timing of our announcement of the stock split, we were unable to repurchase shares for most of the quarter, which limited our share repurchases to just $25 million, an average price of $2,320. At the end of the quarter, we had nearly $400 million remaining under our share authorization program, and we will be able to resume opportunistically repurchasing our shares when the window reopens in a few days.

We opened 47 new restaurants in the first quarter, of which 43 had a Chipotlane. And we continue to anticipate opening between 285 and 315 new restaurants in 2024, with over 80% having a [Chipotlane] (ph). And we remain on track to move toward the high end of the 8% to 10% range by 2025, assuming timeline conditions do not worsen. To close, I want to reiterate the message I shared at our recent All Manager Conference, [fully] (ph) started over 30 years ago with a young chef who thought just because food is served fast doesn't mean it has to be a typical fast food experience. That evolved into our food integrity journey, defying the traditional fast food model by investing more in our ingredients and shaping our economic model to help fund that investment.

And today we have a special brand and unique economic model that allows us to spend more on our ingredients, yet remain one of the most affordable meals in the industry, while also maintaining industry-leading margins. These three characteristics are incredibly difficult to replicate. Premium ingredients, affordable prices, and attractive margins. And this is a huge competitive advantage. And as we continue to protect and strengthen our economic model, the future looks very bright for Chipotle. And with that, we're happy to answer your questions.

See also

20 Most Powerful Drag Queens In The US and

20 Biggest Gold Companies in Australia in 2024.

To continue reading the Q&A session, please click here.