Good day, and welcome to the Chipotle Mexican Grill Second Quarter Fiscal 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Cindy Olsen with Investor Relations. Please go ahead. Hello, everyone, and welcome to our second quarter fiscal 2022 earnings call. By now, you should have access to our earnings press release. If not, it may be found on our investor relations website at ir.chipotle.com. I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements. These statements are based on management's current business and market expectations, and our outlook, and our actual results could differ materially from the projections in the forward-looking statements. 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. In our discussion today, we will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the presentation page within the investor relations section of our website. We will start today's call with prepared remarks from Brian Niccol, Chairman and Chief Executive Officer, and Jack Hartung, Chief Financial Officer. After which, we will take your questions. Our entire executive leadership team is available during the Q&A session. With that, I will turn the call over to Brian. Thanks, Cindy, and good afternoon, everyone. We are pleased with our second quarter performance during a period of inflation and consumer uncertainty. For the quarter, sales grew 17% to reach $2.2 billion, driven by a 10.1% comp. In-store sales grew by 36% over last year. Digital sales represented 39% of total sales. Restaurant-level margin was 25.2%, an increase of 70 basis points year-over-year. Adjusted diluted EPS was $9.30, representing 25% growth over last year. We opened 42 new restaurants, including 32 Chipotles. I would like to spend a couple minutes providing insight into current trends and our outlook. Regarding Q2, through mid-May, comparable sales were on track to reach the top end of our guidance range. Since then, the underlying trend has decelerated and we anticipate mid- to high-single-digit comps for Q3 with planned pricing in August. There are a couple key things we have learned during the quarter. Our pricing power is strong and the brand is resilient. Our culinary and Food with Integrity commitment is a key point of difference. Our restaurants are staffed with terrific people despite a difficult hiring and retention environment, and our people are still getting up to speed on running a growing multimillion-dollar digital business as well as a growing multimillion-dollar in-restaurant business. To accelerate this learning curve, we are instituting an ops initiative focused on being brilliant at the basics. We did this in 2019 and saw a positive impact on the business right up to the pandemic in 2020. I will discuss this in more detail later. Finally, we are focused on the right strategies. It is as important as ever that we remain focused on our five strategies that help us to win today while we create the future. Now, let me provide a brief update on each of these strategies, which include, number one, running successful restaurants with a people accountable culture that provides great Food with Integrity while delivering exceptional in-restaurant and digital experiences. Number two, amplifying technology and innovation to drive growth and productivity at our restaurants and support centers. Number three, sustaining world-class people leadership by developing and retaining diverse talent at every level. Number four, expanding access and convenience by accelerating new restaurant openings. Number five, making the brand visible, relevant, and loved to improve overall guest engagement. Let's start with discussing running successful restaurants. I'm happy to say that I've seen lines out the door and mobile pickup shelves full in Boston, Philadelphia, Denver, Austin, Ann Arbor, Dallas, Cincinnati, London, Paris, and Los Angeles. I think everybody gets the point. Fortunately, we were staffed with terrific employees, and they were working hard with smiles on their faces and great attitudes. I'm very proud to say that our restaurant teams have successfully grown average unit volumes to about $2.8 million, with 39% being digital. Our general managers and teams have adapted well to our growing digital and growing in-restaurant business. However, customers were waiting on digital orders and the front line was moving, but it could have been quicker. I know we can do better. This is why we have launched an ops initiative focused on retraining our crew members on the fundamentals of our business. These fundamentals include having great culinary prepared and ready to serve, open to close in a food safe environment. Ensuring that restaurants are staffed and appropriately deployed across both the digital make line and front make line. Improving order accuracy and timing for the digital business, and increasing throughput and hospitality for the in-store business. Additionally, we completed the rollout of our new labor management tool that helps put the right people in the right place at the right time. We believe the combination of being brilliant at the basics with the new labor management tool will drive meaningful productivity in our restaurants. Along with our labor management tool, our technology roadmap remains robust. I think it is worth highlighting how we are investing in technology to support strong execution of the basics. We just installed new customer-facing pin pads that offer faster and contact-free payment options. We've deployed a new learning management system that enables immersive ways for our employees to experience training and provides digitally enhanced e-learning courses, videos, and resource materials. We also are in the process of updating our POS hardware across the system, which should be completed by this year, and we have made DML enhancements that aid accuracy and throughput. These recently completed or in-flight programs will all be positive for our restaurant teams and guest experience. Additionally, we will continue to invest in possible technology for the future, like Chippy, the autonomous robot we are testing that integrates culinary traditions with artificial intelligence to help our teams make tortilla chips, freeing up their time to serve and support our guests. We are exploring an automated real-time kitchen production system that ensures high-quality food is always available to meet the needs of our guests. This brings me to our Cultivate Next venture fund, which is off to a great start and is giving us a front-row view of emerging food technologies. We are interested in a breadth of innovations, including sustainable farming, supply chain advancements, restaurant operating efficiencies, and ways to elevate the employee and guest experience. We have received a lot of interest with over 200 inquiries for investments. As you may have heard last week, we announced our first investments in Hyphen and Meati. Hyphen is a food service platform that automates the assembly of meals on a make line and could help fulfill our promise to deliver on time, accurate orders for our digital guests. We look forward to sharing more investments in the future that will help us drive meaningful change at scale. I do want to take a moment to discuss our people. Despite a challenging labor market, I am proud to say our staffing levels remain above 2019 levels. Our purpose of cultivating a better world with Food with Integrity has created a brand that people are proud to represent and be part of. We continue to offer a world-class employee value proposition that includes industry-leading benefits, attractive wages, specialized training and development, access to education, and a transparent pathway to significant career advancement opportunities. We believe these efforts, along with our growth and purpose, are helping to attract and retain great employees. Our people development program is important in order to accelerate our new restaurant openings. The real estate pipeline remains strong and supports our target of 8%-10% new restaurants per year, with more than 80% including a Chipotlane. We now have 430 Chipotlanes, and results continue to exceed our expectations with Chipotlanes generating higher average unit volumes and higher restaurant level margins. In fact, a recent opening of a Chipotlane in a small town in California had one of the highest opening day sales in the company’s history. In addition to the U.S., we are also excited about our progress in both Canada and Europe. Canada has hit its stride with AUVs and returns that are at the same level as the U.S., and Canadian comparable sales trends remain strong. We currently have 29 locations in Canada, and longer term, we see room for several hundred, which is included in our target of 7,000 restaurants in North America. Europe continues to move through the stage gate process. We have made significant progress in improving the economics in Europe, driven by operational efficiencies, adding our digital systems, and opening smaller formats that resemble the U.S. restaurants. We have opened five new restaurants in the U.K. over the last eighteen months, and results have been strong. We are gaining confidence that Europe could be another layer to our growth story in the future. This brings me to making the brand visible, relevant, and loved everywhere we operate. Our Real Food for Real Athletes campaign focuses on helping athletes across all levels perform their best by providing proper nutrition through real food and real ingredients. As an official sponsor of the NHL, we activated this relationship through traditional media and creative promotions to highlight Chipotle, including having our logo in the ice for every game of the Stanley Cup playoffs. Additionally, we have partnered with U.S. Soccer to create behind-the-scenes content that showcases how Rose Lavelle and Sophia Smith overcame the challenges of competing at the highest level of women’s soccer. Later this year, we will follow the U.S. Men's National Team via our sponsorship and with advertising during the World Cup. We also continue to appear in non-traditional channels to drive differentiation, culture, and ultimately a purchase. We recently launched Burrito Builder on Roblox on National Burrito Day. The first 100,000 players to successfully roll a virtual burrito at a virtual Chipotle earned a free entree on our app. This led to one of our best digital sales days and marks the first time a brand enabled Roblox player to earn and exchange virtual Roblox currency for real-world items. Okay, moving on to the menu. Our pipeline remains robust. Building upon the brand's recent success with menu innovations, including Smoked Brisket and Pollo Asado, we have tested and successfully validated Garlic Guajillo Steak, and this steak is ready for rollout in the future. Shifting to our digital experience, we now have a digital business tracking toward $3.5 billion in sales, and we currently have over 29 million rewards members. We are mining the data every day for insights while leveraging the information to influence behavior and drive greater frequency. We are also working aggressively on greater personalization across the customer journey and have gained valuable insights on which incentives provide the greatest ROI. Additionally, we're excited about the recent launch of the rewards program in Canada, which will provide another way for Canadian guests to engage with the brand and provide Chipotle with the ability to further delight its Canadian rewards members. Finally, our digital ecosystem is rolling out in the U.K., and France will follow shortly thereafter. To conclude, there is much uncertainty we are all dealing with, but what I am certain about is Chipotle and its people will remain committed to leading and growing. I'm certain that over time, we have the ability to grow our average unit volumes and achieve at least 7,000 restaurants across the U.S. and Canada. I'm certain that we will move our purpose of cultivating a better world forward in a meaningful way. I'm certain that Chipotle provides one of the best value propositions in the industry. I'm certain that we have the right teams with the right focus to navigate whatever comes our way and that our culture will continue to offer our crews terrific career opportunities. Finally, I am certain that we are well positioned for long-term growth. Lastly, and very importantly, I wanna thank our restaurant teams for their hard work and contributions to making Chipotle one of the best restaurant brands in the world. With that, here's Jack to walk you through the financials. Thanks, Brian. Sales in the second quarter grew 17% year-over-year to reach $2.2 billion as comp sales grew 10.1%. Restaurant level margin of 25.2% increased about 70 basis points compared to last year, and earnings per share adjusted for unusual items was $9.30, representing nearly 25% year-over-year growth. Second quarter had unusual expenses related to certain legal proceedings, our previously disclosed 2018 performance share modification, transformation costs, as well as a restaurant asset impairment and closure costs, mostly offset by an unrealized gain on investments, which negatively impacted our earnings per share by $0.05, leading to GAAP earnings per share of $9.25. Regarding our sales trends, as Brian mentioned, we were on track for comparable sales to reach the upper end of our guidance range for the first half of the quarter. Since then, we've experienced a step down due to a combination of macro pressures, our ability to handle the growth with relatively new workforce, and a return to normal summer seasonality for college-based restaurants. For perspective, about 15% of our restaurants are in college towns, and we've not seen normal seasonality in three years. Looking ahead to Q3, with pricing from last year rolling off, our current trends in July are running in the mid single digit range. Assuming current sales trends continue, we expect our comp to be in the mid to high single digit range, which includes our planned August pricing increase of about 4% to help offset incremental inflation pressures, especially in dairy, tortillas, and packaging, as well as pockets of wage pressure throughout the country. I'll now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 30.4%, about flat to last year. The benefit of menu price increases offset elevated costs across the board, most notably in avocados, packaging, dairy, beef, and chicken. In Q3, we expect our cost of sales to be about 30% of sales as the benefit from the menu price increase will be partially offset by the higher cost of dairy, tortillas, and packaging. Labor costs for the quarter were 24.8%, an increase of about 30 basis points from last year. This increase was driven by our decision to take a meaningful step-up in wages last May, which is partially offset by menu price increases. In Q3, we expect our labor costs to be about 25% due to leverage from our menu price increases, offsetting pockets of wage pressures across the country. As Brian also mentioned, we have now completed the rollout of our labor management tool. While our teams are still learning how to use the tool, we believe it has the potential to lead to better deployment to both make lines during peaks, which we think will eventually lead to better throughput on our front serve line and better on-time results for the DML. Other operating costs for the quarter were 4.143%, a decrease of about 90 basis points from last year. This decrease was driven by menu price increases as well as a decline in delivery expenses, partially offset by higher costs across several expenses, most notably utilities, including natural gas. Marketing and promo costs for the quarter were 2.5%, 10 basis points above last year. In Q3, we expect marketing costs to remain in the mid-2% range, with the full year to average right around 3%. In Q3, other operating costs are expected to be in the mid-14% range. G&A for the quarter was $141 million on a GAAP basis, or $130 million on a non-GAAP basis, excluding $7 million due to the settlement of certain legal matters, $3 million related to the previously disclosed modification to our 2018 performance shares, and $1 million related to transformation expenses. G&A also includes $106 million in underlying G&A, $25 million related to non-cash stock comp, and a $1 million benefit related to lower performance-based bonus accruals, partially offset by payroll taxes and equity vesting and exercises. We expect our underlying G&A to be around $111 million in Q3 and continue to grow slightly thereafter as we make investments in technology and people to support ongoing growth. We anticipate stock comp will be around $25 million in Q3, although this amount could move up or down based on our performance, bringing our anticipated total G&A in Q3 to around $136 million. Depreciation was $70 million, and we expect it to remain at this level for the rest of the year. Our effective tax rate for Q2 was 25.3% for GAAP and 25.1% for non-GAAP. For fiscal 2022, we estimate our underlying effective tax rate to be in the 25%-27% range, though it may vary based on discrete items. Our balance sheet remains healthy as we ended the quarter with $1.2 billion in cash, restricted cash and investments with no debt, along with a $500 million untapped revolver. During the second quarter, we repurchased $261 million of our stock at an average price of $1,350. We increased our level of stock repurchases during the quarter when our share price fell with the market overall, and we'll continue to opportunistically repurchase our stock. During the quarter, the board authorized an additional $300 million to our share authorization program, and at the end of the quarter, we had $320 million remaining. We opened 42 new restaurants in the quarter, of which 32 had a Chipotlane. The performance of our Chipotlanes continues to be strong, maintaining record high new store productivity. In terms of development, we continue to navigate various challenges, including construction and permitting delays and material shortages. However, our team has done an outstanding job of anticipating these challenges and mitigating delays where possible, and we still anticipate opening between 235 and 250 new restaurants in 2022, with at least 80% including a Chipotlane. As I mentioned last quarter, once we've moved beyond these development challenges, we expect to be able to accelerate openings and get closer to the high end of the 8%-10% opening range. In closing, I've experienced Chipotle's resiliency over the past 20 years through both great times and challenging times, and I share Brian's confidence in our ability to navigate the current environment. Looking forward, I'm excited about the growth opportunity ahead of us with a runway to more than double our restaurant base and grow AUVs beyond $3 million with a 40% flow through. I wanna thank our 100,000 employees in our restaurants and in support roles for their continued effort and commitment to Chipotle. With that, we're happy to take your questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble the roster. The first question will be from Nicole Miller with Piper Sandler. Please go ahead. Thank you. Good afternoon. Hoping you could talk a little bit more about labor in terms of staffing. In the context of AUVs, you know, being up versus 2019, more than 20%, just because you had mentioned that in regards, staffing levels in regards to 2019 today, are you suggesting that, you know, it needs to be more efficient in terms of labor or that you need more bodies in terms of staffing? Like, how does it compare to the context of the AUV increase, if that's applicable? Yeah. Hi, Nicole. The way to think about it is, obviously, our labor model reflects our increase in transactions and sales. We look at it as, is the restaurant staffed at model given the volume and transactions that the restaurant has? What we're referring to is the percentage of restaurants that are staffed correctly is better than where we were in 2019. You know, that's what we're referring to. What we're talking about is, obviously, a lot of the people that have joined our company over the last two years, they really haven't experienced the front line and what it means to grow that in restaurant business while also growing the digital business. You know, that's why Scott and the operators are focused on ensuring that everybody's brilliant at the basics, to execute our growing two lines of business. Okay. Just, can you briefly discuss in terms of last year's 15% comp, how things tracked in July, August, and September so we can understand a little bit about what to think about compares from the prior year period? Yeah. Yeah, Nicole, this is Jack. You'll remember that in the second quarter of last year, we did have a staffing challenge, and that's when we took the significant increase. We did compare during part of the quarter to a little bit of a softer comparison. As soon as we announced in May, I think it was like around mid-May that we were increasing wages. Right at that moment, we started paying the higher rates as new people were coming in. The announcement that we made at that time was also a signal to our existing teams that you're gonna get a raise in early June. We saw staffing stabilize, and then we saw, you know, our sales recover. We did have a you know, a several week period during the quarter where we did have a little bit softer comparisons. Okay. How about July, August, and September of last year? You know, the comp was 15% last year, right? In the third quarter. Yeah, those. Is there anything? How did that look? Those were. I would call those normal comparisons. By then, our staffing had stabilized, and so those are, you know, those are tougher comparisons. Okay. Each month was kind of 15%. There was no notable difference between the months. Yeah. You know, listen, they vary month to month, but you know, there was nothing during the quarter that I would tell you makes that comparison, you know. I would say, if anything, Nicole, just compare to Q2, it's just a little tougher of a comparison. Okay overall. Each month was fairly in line. It didn't bounce all over the place. It didn't bounce all over the place. Yeah. Okay. Thank you. The next question is from David Tarantino from Baird. Please go ahead. Hi. Good afternoon. I wanted to ask you a couple of questions about the comp trend. I guess I first wanted to understand how you're thinking about the slowdown you saw towards the end of the quarter. I know you rolled over some pricing, so maybe had some less pricing contribution. You seem to be also pointing out some operational challenges that may have caused that. I guess, you know, how do you determine whether it's that versus maybe just a general slowdown in consumer spending, if you will? Yeah. Hey, David. You know, obviously, it's hard to tease out some of the macro pressures versus what we're seeing as far as people, you know, peeling off the line or potentially not being happy with the digital order time. What we've definitely seen, as you know, I've been out visiting, Scott's been out visiting restaurants, and when we talk to our leaders in the field, is we've got a lot of new people that are still getting trained up on, frankly, the basics of great throughput. I know I feel like this is rinse and repeat, but that's what our business is a little bit, which is we gotta have our aces in places. You know, you gotta have the expediter, you gotta have the linebacker. You can't work around those things to try and service the business. We just have a lot of new people that don't understand how important some of those roles are, as well as general managers, too. Like, you know, a lot of these managers have gotten promoted over the last, you know, 18-24 months. We know there is upside in taking a combination of this new labor tool, deploying people correctly, and then ensuring that those people are trained and actually experience what great throughput looks like. You know, that's the other biggest thing. You know, a lot of these folks haven't experienced how fast the line can move. I think in some cases, folks think they're moving pretty quick when in fact we could be moving a lot faster. Got it. Jack, could you help us understand what your transaction levels or growth was in the second quarter and what your third quarter guidance implies on that metric? Yeah, David, the transactions were up in the quarter between 3.5% and 4%. We also had a mix shift. You know, we've been talking about that for a number of quarters now, as our business has moved more towards in-restaurant. The mix shift was about -6%. The average group size dropped by about 4.5%, and that drop is mostly a drop from, you know, the business moving from digital into in-restaurant. As we move to Q3, we do expect that, you know, because of the, you know, the downturn that we saw, the macro effects in the second quarter, we do think that transaction comp will ease a bit, but we also think that the negative mix shift should ease a bit, as well. Jack, one clarification. When you say ease, do you think it'll stay positive, I guess? Or does your guidance assume it's positive or are you thinking- It's David, it's gonna be right around slightly positive or right around flattish, you know, right around in that, in that range. Okay. Thank you very much. Thanks, David. The next question comes from John Glass from Morgan Stanley. Please go ahead. Thanks very much. My first question is just to maybe clarify a little bit more. Why seek more pricing now? It seems like your margins are where you thought they should be. You know, you're sort of balancing the inflationary impact versus pricing, and you're also now confronting a weaker consumer. Why now versus maybe letting some pricing lapse and maybe waiting longer and just out of the abundance of caution? Maybe your thoughts on that, please. Yeah. What we've seen is, unfortunately, a lot of things have stuck versus, you know, gone away as far as inflation. Then we've got some key items that have frankly continued to be, you know, inflationary. I think Jack highlighted them, right? We've got avocados, we've got dairy, tortillas, some packaging. Unfortunately, we were hoping we'd see some of the stuff pull back. We haven't seen that. But there are other parts of the business that we have seen plateau, which, you know, gives us optimism that hopefully, you know, we won't have to continue to pull the pricing lever. I think you've seen this with us. We really do try to wait until we truly understand what feels like is something that's an ongoing cost that we need to handle with pricing, versus, "Hey, we're gonna wait this one out and see if it pulls back." We figured best to share where our heads are on this one now. I appreciate that. On you know, thinking about you know, your softness that you experienced post-May, was there any particular part of the business that it showed up in first? I'm thinking did the delivery channel, for example, exhibit weakness? What piece of the business decelerated more than others? Was there any signal in that in terms of the behavioral change of the consumer? Yeah. You know, I think what we saw was probably not all that different from what people have been saying. The low-income consumer definitely has pulled back their purchase frequency. Fortunately for Chipotle, you know, that is not the majority of our customers. The majority of our customers are the higher household income consumer. We've actually seen, you know, their frequency increase and potentially not, you know, experience, I'm guessing, some trade down from other areas where they were choosing to get their eating occasion. You know, probably the first indicator was in our, I would call it our rewards data, you know, where we saw some of these low-income consumers starting to slow down on purchase frequency. Not necessarily impacting the delivery channel specifically, which one might think of as being expensive channel. Yeah. No, no. You know, actually, that's been pretty stable throughout. Okay. Thank you. The next question is from David Palmer with Evercore ISI. Please go ahead. Thanks. Just a question, a follow-up question on the topic of mix, and the impact of essentially n-number of people per order. One casual dining company out there said that families seem to be getting back to pre-COVID summer behaviors. Perhaps that family orders that happened last summer are going away as they get back to doing some of those other activities. Is it, I don't know, possible for you to see that in the numbers or in any of your insights data that perhaps there's almost a seasonal headwind that's gonna be particularly bad here over the summer and it coincided with that, not just economics? I mean, David, the other thing that we saw was even the group size in restaurant did decline a little bit. It didn't decline as much. Overall, the decline was in that 4.5% range, and it was, you know, bigger. The bigger piece of that is a shift from digital to in-restaurant. Even within the in-restaurant customers, the group size did shrink a little bit. I don't know if I would connect those dots, but if you're seeing other evidence that, you know, families are returning to, you know, the way that they would dine three years ago, where they're not all getting together and dining together, that could be at play. You know, we also, for the first time in three years, saw a kind of normal college seasonality, meaning the college restaurants really performed exceptionally well during the school year because they were all, you know, in person. We saw a normal kind of seasonality that we haven't seen in three years, where the college students go back home, and they tend to eat less. I don't know if that's more mom's home cooking, but when we track the individual customers, they tend to visit Chipotle to a lesser degree when they're away from college than at college. We're definitely seeing some normalization under the overall trends. You know, in the past, you've talked about an incremental margin framework, maybe something like 35%-40% would be normal. Obviously, the first half has been below that, particularly in the first quarter. Maybe catching up to it a bit here in the second quarter. With the four points of price you're talking about, do you feel like you're gonna be getting back to that sort of incremental margin from here on out? That's right, David. In fact, that's exactly why, you know, why we did what we did. We still have some additional inflation that we're gonna see carry into Q3 for tortillas, dairy, packaging, and some known increases related to beef that we've known for a while. All those roll into Q3. Really what this allows us to do is when we get up to this, we've talked about a $3 million average volume, and then our margin should be somewhere in the 27% range. That gets us back to that kind of a situation. The pass-through for every incremental sales dollar we get in should be right back to that 40%-ish flow-through that we talked about in the past. Thank you. The next question will be from Sara Senatore with Bank of America. Please go ahead. Thank you. I wanted to ask about throughput. I know a lot has changed as we think about, you know, transaction, you know, baskets. But, you know, historically you've given some estimates about peak hour throughput, and I just wanted to see if you could give some context around where you are now, especially now that you have a second make line, you know, whereas previous peak would have been mostly the front make line. Is there a way to kinda quantify what improving throughput could do for transactions? You know, to your point about not losing people off the end of the line, you know, is there sort of a framework we can think about that says, you know, one transaction per hour is equal to a point of comp or something like that? I'm just trying to understand if, you know, as we think going forward, the guidance for transactions contemplates any improvement in throughput. Yeah, I mean, here's one of the things that we have done, because you point out that we've now got, you know, this multi-billion-dollar digital business, multi-billion-dollar in-restaurant business. We've separated out the metrics for the front line and the digital make line. We've gotten very specific. On the digital make line, it's about being on time and accurate. On the front line, it's about, you know, throughput. We believe on that front line, we can get back to where we were. Well, let's check, like 2014, 2013, where we were in the high 20s, low 30s o n a 15-minute basis. On a 15-minute basis. Yeah. You know, that's what we're going back after. That's why it's so important. We really kinda did this exercise back in 2019, and we were starting to see it pay dividends in kind of early 2020, and then unfortunately COVID hit. We're confident that if we can get our team members to understand what it means to be, you know, call it rush ready, in their places and ready to go, there's no reason why we can't get back to those high 20s, low 30s on a per 15-minute basis. I don't know if we've talked about exactly how the transactions translate into sales. I don't know if you wanna go that far. Here's what I would say about that, Sara. It's hard to tease out and find out when you increase. Let's say you move, you know, from like 22 to 27, okay? That's a five entry increase. As a perspective, every time you add five transactions, that's 1% of comp, okay, for that day. We're measuring the fastest 15-minute period. What we believe is that when you go faster in one 15-minute period, you're gonna go faster in multiple 15-minute periods. The opportunity to add, you know, quite a bit of comp is there. To Brian's point, we just need to get more reps. We have a lot of folks that really haven't been on the front line. They haven't even managed a restaurant when we had, you know, the in-store business coming back the way it is today. We believe that there's definitely the opportunity to add some meaningful comp here. That's super helpful. Thank you. Sorry, just one follow-up on mix. Was there any sort of lower attachment or anything like that, or it's strictly the sort of lapping the order aggregation? No, I mean, the only thing I would clarify on that, Sara, is there is a higher attachment rate to digital. When you see people move from, you know, digital to an in-restaurant, you know, visit, then you also see a return to, you know, less attachment. We're also, by the way, seeing higher drinks. The fact that, you know, we've got more people coming into the restaurant, we are seeing more drinks. Just to give you a perspective, about 40% of our transactions in-restaurant included a drink. Only about 20% or slightly less than that of a digital transaction. As we've seen this shift, there's been a positive shift as well, but not enough to offset the lower group size. Thank you so much. The next question is from Jared Garber from Goldman Sachs. Please go ahead. Thanks for the question. I wanted to just ask about menu innovation. Brian, I know you mentioned that the Guajillo Steak is sort of past its stage of the process and ready for launch whenever that may be. But wanted to also get a sense if you could update us on the other item that's in test, which is the Cilantro-Lime Cauliflower Rice, and how you think about maybe a more permanent menu item as a plant-based for consumers over time. Yeah. Obviously, we're very interested in that new way of eating. You know, I think we mentioned this in our earlier comments. You know, we've invested in a plant-based company called Meati. You know, the idea is how can we continue to find you know, plant-based items that are consistent with our food ethos that also are delicious and from a culinary standpoint. You know, we've obviously done the cauliflower rices, we have the Sofritas that's on our menu all the time. I'm optimistic that, you know, hopefully we can find another center of plate or call it center of bowl solution that's plant-based, which we haven't done to date, right? It's really been the Plant-Based Chorizo, the cauliflower. These things have been more perceived as, I would say, a piece of your bowl versus the centerpiece of your bowl. That's what we're working towards, and I'm excited to see what we learn as we partner up with Meati and obviously our culinary team continues to work aggressively in the space. Thanks. That's helpful. Then just one follow-up on the throughput, which seems to be a little bit of the topic of the day. Is there anything similar across maybe either geographies or store bases that you're seeing throughput as more of a challenge? Maybe that's an urban thing or a suburban thing. Just curious what you guys are seeing in terms of any read-across or tie-ins across the geography. Thanks. Yeah. No, really you're not seeing that. I'd say, you know, probably the experience is where we see the biggest difference. You know? We have restaurants that are doing, you know, $6-$7 million that team has been together for years. You know, when as soon as kind of all the COVID restrictions went away, they went right back to running Chipotle really successfully. That's why we're so confident in so much opportunity in just getting people the reps, getting them trained up on the basics, and then frankly, just for them to experience the success that they'll have by following these basics. You know, ultimately, what we're really after is the better throughput actually results in a better employee experience as well. You know, we probably should talk about that a little bit more because our employees then are more successful, and then obviously they give a great experience to our guests. Yeah, I'd say the biggest thing, and fortunately we have experienced managers all over the country, so we don't see any variability from like region or suburban, urban. It's more along the lines of we just gotta get more people trained up. Great. Thanks for the color. The next question is from Andrew Charles with Cowen. Please go ahead. Great. Thanks. Brian, can you talk a little bit more about how Chipotle plans to flex value in the menu in the current consumer backdrop as you run double-digit pricing while lapping what looks like about 10% price in the back half of 2021? You know, I know early in your career, you know, snacking and looking at the shoulder periods between 2 P.M. and 5 P.M. was an opportunity. Is that something that you think applies to Chipotle just given, you know, the background for lower income consumers? You know, I really believe the value proposition in what we sell today is our strongest proposition. You know, we look really hard at this. When you look at a chicken burrito, steak burrito, and you compare that to your alternatives, the value is there. If I think we execute great accuracy in being on time and we execute great throughput, that's our winning formula. That is the value proposition that wins. That's why we're very much focused on executing our basics. The basics drive our value. You know, great culinary, customized, you know, and then with Food with Integrity is a winning value proposition for all income levels. My follow-up question is just on another one on culinary. Just talking a little bit more just around Pollo Asado and the ability to keep that on the menu. I know it's a higher margin, obviously tested very well, and it's done very well for you guys. Is the plan to keep that permanently? It's gone a little bit longer than a typical, you know, limited time offer would run. No, the plan is not to keep it permanently. You know, I think we've talked about this. Ideally, we like having menu news, you know, two-three times a year. If we get some that can carry longer, we stay with them longer. That will eventually be coming out here in the next, you know, couple months. You know, hopefully we'll have some other menu news that gets people equally as excited. Looking forward to it. Thank you. The next question is from Lauren Silberman from Credit Suisse. Please go ahead. Thank you for the question. On unit growth, so on track to accelerate unit growth to 8%-10%, can you talk about what you expect with respect to cannibalization and just the trade-off between unit growth and comps? Yeah. Yeah, Lauren. You know, we measure the impact, and we've never seen impact go above a 1% comp impact. You know, we've seen it be up to, you know, 0.7, 0.8, something like that. So it's still very manageable. Every time we do a deal, we go through a routine where we have an algorithm where we measure what we think the impact's going to be. Our team does a really good job of measuring that. It's still an estimate. It's part art, part science, but we look to do deals that are gonna give us a superior after impact return. So we're not looking to put restaurants right on top of each other and cause excessive impact. There's just a lot of white space out there still. You know, with this idea of getting from 3,000 to 7,000 restaurants, we've modeled that after our three, or four or five most dense markets. Those are markets that we already have the density that represents what we would be on a national basis at 7,000 restaurants. Those restaurants are very high volume and very high return restaurants. Great. Thank you for that. Just upon potential AUVs, their AUVs are now running at $2.8 million, high end of restaurant peers. You've talked about the opportunity for increased throughput, you know, 40% of sales going through the secondary digital make line. How are you thinking about peak AUV levels and where that can go? Is there a level where it makes more sense to open another restaurant? Yeah, look, I think one of the things that's, you know, truly special about Chipotle is we are not capacity constrained with our frontline or our digital make line. You know, I mentioned, right, there's restaurants doing $5 million, $6 million, you know, $7 million. You know, obviously, it presents an opportunity for us to build a lot more restaurants without having really any meaningful impact. I think it also just demonstrates the four walls that were already running Chipotle has tremendous upside as well. You know, I'm feeling really confident we're gonna get past $3 million, and I'm sure we'll probably be talking about how we get to $4 million, you know, at some point. I'd first like to get past the milestone of $3 million. We can celebrate that milestone, and the good news is, I don't see any capacity constraint that would prevent us from saying $4 million is next up. Great. Thank you so much. The next question is from Dennis Geiger from UBS. Please go ahead. Thank you. Brian, a quick follow-up on a throughput question again. You know, is there anything else to share on sort of that opportunity to get back to 20-30 in throughput for 15 minutes? You know, can you do that in the current staffing environment or is it really more about training the ops initiative that you mentioned as well as the experience, I think, of the teams working there? Just trying to get a sense for how generally quickly gains can happen across a large system as we think about throughput. Any way to kind of frame that up for us? Yeah, look, I think the good news is we have lots of opportunity to execute what we know are the basics of great throughput, right? Like, unfortunately, I've gone into a lot of restaurants and we don't have our expediter in place. You know, that is a key piece of the puzzle. You know, and the good news is our operation leadership is very much focused on explaining to people how important that expediter role is. Because, you know, if you're new, you can see why you would think, "Oh, maybe I can flex that person," when in fact, that's the last person you wanna be flexing if you wanna really achieve great throughput. Look, the good news is staffing is not a barrier. Frankly, the barrier we have to overcome is getting people to experience what it's like to run a restaurant with everybody in the right place, doing the right role through a peak. You know, obviously, it'll take a little bit of time, but, you know, that's something that we can train, people can experience. Like I mentioned, we saw a lot of progress on this when we did this back in 2019. So I'm confident we can, you know, get focused and get the reps and then get the execution that then results in, you know, the comp growth. That's great. Then you spoke to this some, but I just wanted to ask a little bit more on resiliency, sort of your expectations for resiliency in increasingly difficult macro environment. You know, the brand meaningfully outperformed in 2008 and 2009. Obviously, you've been extremely resilient and spread strength over the last several years. Anything you could kind of highlight, maybe, you know, differences or similarities now versus, you know, prior tough economic periods where the brand has outperformed. Just broadly, anything additional that you could add on sort of, you know, resilience for the brand from here. Thank you. Yeah, sure. Well, look, I think probably the thing that's common when you look back to what we're seeing right now is the strength of our higher income consumer. You know, that's a common factor. Even though the lower income consumer, you know, is slowing down, we've not seen that happen with our higher income consumer. Fortunately for Chipotle, we overindex with higher income consumers. You know, I think the other piece of the puzzle too is now we've got a database of about 29-30 million people where we can, you know, hopefully be on the front end of what is happening out there so that we can hopefully pivot and communicate correctly with our customers. What we've heard over and over again is our value proposition is probably our greatest strength. Meaning terrific food or terrific culinary, you know, unbelievable customization. If you want it digitally, it's on time, right? It's accurate. If you come into our restaurant, you love the customization and the speed at which you can get it. Good news is it's a lot of similarities of what we've seen in the past. The one thing I know for sure is something will be different. That's why I think it's important to talk about just how resilient the organization is to also handle whatever unexpected headwind we'll deal with. Thank you very much. The next question is from John Ivankoe from JPMorgan. Please go ahead. Hi. Thank you. Hopefully a slightly different take on the throughput question. Is your throughput, you know, constrained at, you know, the 12 to 1 and 6 to 7, you know, kind of the classic times that you used to be busy or, you know, are there kind of pockets throughout the day, I guess, you know, kind of the first main question. Secondly, you know, if there are just certain hours where you're throughput constrained because of staffing, you know, I guess, what does the store manager, what does the system do? I mean, people obviously don't want to come in and work, you know, for an hour shift or even a two-hour shift. You know, does the brand have the flexibility, does the model have the flexibility, you know, to bring people in for four-eight hours to maybe, you know, cover a couple of busy hours? Just, you know, kind of walk us through, you know, I guess, the practicalities of actually staffing, you know, that store that, you know, that front make line or the second make line, you know, during those, you know, 15-minute windows or those hour windows as it were, where you really are capacity constrained. Yeah. Well, first, just so you know, we're not capacity constrained at 12:00 P.M.-1:00 P.M. or 6:00 P.M.-7:00 P.M. or 1:00 P.M.-1:30 P.M. You know, the good news is we've got capacity in every 15-minute increment. You know, now your question about how do you best deploy so that you have the right amount of people in place ready to go, that's really the reason why we've implemented this new labor tool. It's gonna do just that, right? It's gonna go ahead and take a look at like this restaurant is slammed from 11:00 A.M.- 11:45 A.M. This restaurant is slammed from 12:00 P.M.- 2:30 P.M. This restaurant has a really big dinner business. It takes that into account so that we deploy the right amounts of people against those peaks. We're not capacity constrained, so if we can get the people at the right time in the right position, our throughput is going to go up. For a second there, John, I thought you worked for Kronos. You know, Brian, by capacity constraint, it's capacity constraint for the given number of employees that- Right. You have on that given shift, not for the overall box itself. I get that. Okay. Yeah. Well, that's exactly what this is supposed to help us address so that you don't end up with, you know, you're understaffed from 11:00 A.M.- 11:45 A.M., and you're overstaffed from 12:45 A.M.- 1:30 P.M. The idea is we get our people in the right places at t he right time. That's the tool that we just rolled out, and now we're training against the tool to ensure people are in their place so that we execute the maximum throughput we can in each of those 15-minute increments. You know, just to add on, Brian, the tool also recognizes, like, where is the business? Like, how much is digital, how much is front line? Oh, yeah. 2.2. Our old tool wasn't that sophisticated, so if one restaurant had 20% digital, you know, our Chipotle lanes have 55%-60% digital. The staffing model is very different for those two things. Our ability to really put exactly the right people with the right skills at the right times throughout the day to drive throughput has never been better. Now this is a brand-new tool. You know, it's like learning how to drive a Ferrari. You know, when you first get in the car, you know, it's a very highly sophisticated tool, so we're learning how to use that. The capabilities are much higher than what our previous tool allowed. Thank you for that. If I can, you know, obviously, this wouldn't be rolled out in the system unless it obviously went through the extensive operational stage gate system. I mean, how big of a pilot did you do for the system before you decided on a system-wide rollout, and how effective was it in that collection of pilot stores? Yeah. Yeah. Look, we've been piloting this for over two years, and we did really the bulk of the rollout for the last, call it, six months, across our restaurants. You know, it's a new tool for our teams. The good news is it's not a new tool for our organization to manage, train against, and get people to use it to its best ability. You know, look, there is a change management process though in anything. No matter how good it is, sometimes people really like the old approach better, even though the new approach is going to help them perform better. We're going through the change management process as any organization would. The good news is we've done the due diligence on the front end so that as we learn things, and you know, we're dealing with 100,000 people, so I'm sure we will learn some things even beyond our pilot. We have the know-how, though, to pivot accordingly and maximize the tool. Thank you. The next question will be from Chris O'Cull from Stifel. Please go ahead. Thanks. Good afternoon, guys. I had a follow-up on the value question that was raised earlier. It seems like a potential scenario could be where commodity prices start to ease, traffic continues to soften for the industry, and that would cause some chains to be more aggressive with either price-led value promotions or even maybe new value menus to kind of reset their pricing. I'm just wondering how Chipotle might respond if discounting or menu resets like that were to start to impact that value gap it has with the competitive set. Yeah. Look, obviously if our value proposition changes dramatically, we'd have to reevaluate how we're providing our customers value. I haven't seen it happen yet. When you go back and look at, you know, the 20+ years of the company, the thing that drives the best value with our customers is this commitment to Food with Integrity. It is this commitment to culinary, and then it's this commitment to getting you exactly what you want. You know, I'd be hard-pressed to believe we would wanna abandon what makes us Chipotle. My experience, as well as what I've seen in the company, is our value proposition is very strong. So long as that is the case, we're gonna keep doing what we know drives value with our customers. Fair point. Jack, I apologize if I missed this in the presentation, but can you speak to the level of inflation you're seeing in construction costs? Maybe describe some of the most common challenges you're seeing with hitting project timelines. Yeah. The timeline, you know, it's a myriad of challenges. Sometimes it's permitting. Sometimes it's contractor labor. Like, if somebody has call-outs or exclusions because of COVID exposures, that will slow down a deal as well. Materials as well. I mean, some of the electronics, like for some of our HVAC walk-in coolers, things like that, have been a real challenge. It's been a myriad of challenges. The pipeline is really strong. That's what gives me great confidence that not only will we hit between the range this year, but when these things ease, our pipeline is still there, and we'll be able to accelerate from there. You know, in terms of the inflation, you know, it's at least in the several percent range, maybe even more than that. You know, the deals have varied throughout the country, but definitely our investment costs this year are much higher than they have been in the past and higher than we expected them to be. Great. Thanks, guys. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Brian Niccol for any closing remarks. All right. Thank you. And thanks, everybody, for joining and all the questions. Obviously, we're very proud of our results. I think it speaks, again, to the resiliency of both the Chipotle brand, all of our, you know, employees out in every restaurant, their ability to execute, you know, great culinary, great throughput, and I also think it speaks to the strength of our value proposition. So, you know, I know there's a lot of uncertainty out there. I said this in my earlier remarks. The thing we spend our time on are the things that we can control, the things that we're certain about. What I am certain about is, you know, Chipotle's got great people running restaurants that do food in a different way. You know, we continue to give people great access through digital and great throughput on the front line with good hospitality. I think we'll continue to be rewarded with more business. You know, we're proud of where we are, and we're really excited about where we're going. Obviously, we'll see what comes next, but I think we're ready, and we'll continue to do what we know how to do best, which is make great burritos, great bowls, and, you know, hopefully we continue to delight our customers so that they come back over and over again. Thank you for taking the time, and we'll talk to you all in three months. Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may disconnect.