Hello. Welcome to the Chipotle Mexican Grill Q1 2023 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then 1 on your telephone keypad. To withdraw from the question queue, please press Star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Head of Investor Relations and Strategy, Cindy Olsen. Cindy, please go ahead. Hello, everyone, welcome to our Q1 Fiscal 2023 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. Our actual results could differ materially from those 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-Q for a discussion of risks that may cause our actual results to vary from these forward-looking statements. Our discussion today will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the presentation page within the investor relations section of our website. We will start today's call with prepared remarks from Brian Niccol, Chairman and Chief Executive Officer, and Jack Hartung, Chief Financial and Administrative Officer, after which we will take your questions. Our entire executive leadership team is available during the Q&A session. With that, I'll turn the call over to Brian. Thanks, Cindy. Good afternoon, everyone. 2023 is off to a great start with Q1 sales and margins ahead of our expectations. For the quarter, sales grew 17% to reach $2.4 billion, driven by a 10.9% comp. In-store sales grew by 23% over last year. Digital sales represented 39% of sales. Restaurant level margin was 25.6%, an increase of 490 basis points year-over-year. Diluted EPS was $10.50, representing 84% growth over last year. We opened 41 new restaurants, including 34 Chipotlanes. These results demonstrate that our focus on running great restaurants with exceptional food and exceptional people is driving performance. Additionally, we benefited from exciting new menu innovations, including Fajita Quesadilla and Chicken al Pastor. Transaction trends were positive throughout the quarter, and the strength has continued into April. I would like to note that beginning this quarter, we are returning to our pre-COVID practice of providing annual comp guidance and anticipate comparable sales to be in the mid to high single-digit range for the full year. We will also continue to provide quarterly comp guidance for the remainder of this year and anticipate Q2 comps in the mid to high single-digit range. Now, I would like to provide an update on our five key strategies that will position us to win today while we create the future, which include, number 1, running successful restaurants with a people accountable culture that provides great food with integrity while delivering exceptional in-restaurant and digital experiences. Number 2, making the brand visible, relevant, and loved to improve overall guest engagement. Number 3, amplifying technology and innovation to drive growth and productivity at our restaurants and support centers. Number 4, expanding access and convenience by accelerating new restaurant openings. Number 5, sustaining world-class people leadership by developing and retaining diverse talent at every level. First, starting with our restaurants. We recently held our field leader conference, which included all field leaders, team directors, and regional vice presidents, as well as leaders from our restaurant support center. The message was clear: We are focused on developing exceptional people and preparing exceptional food. It was truly inspiring to see over 600 highly motivated leaders aligned to deliver Chipotle standards of excellence, and I am proud of the progress our restaurant teams are making. We had another outstanding quarter for turnover, with both hourly and salary metrics being some of the best I've seen in 5 years. The stability of crew and managers and a return to shoulder-to-shoulder training is helping to translate Project Square One into results. As our teams are getting more experienced, we are continuing to see improvements in each of the Project Square One focus areas, including throughput on the front line, on time and accuracy on the digital make line, being prepped and ready with our delicious food, and the overall customer experience. Specifically on throughput, while we are making progress, we see opportunities to do better. One area we are focused on is deployment on the front make line and the digital make line during peak periods. We have noticed that when the digital make line gets busy, our managers tend to pull a crew member from the front line to help, which is impacting throughput. We are currently testing changes to the smarter pickup times logic based on different sales and deployment levels in several markets, and early results show that we are increasing throughput on the front line and increasing on time on the digital make line without impacting sales. Leveraging our stage-gate process, we will continue to fine-tune our testing before rolling it out in phases across our restaurants. We have also added an additional incentive for our teams as we recently rolled out digital tipping across our restaurants as part of our ongoing effort to enhance our crew member benefits. This will enable our teams to be rewarded for their efforts in preparing delicious food and providing a great experience for our guests. Overall, our focus on being brilliant at the basics and reestablishing our standards of excellence is resonating well. Our teams love to be held to a high standard because when you achieve it, you feel like you are part of a winning team with the ability to be rewarded through bonuses and growth within the organization. We are starting to feel this again in our culture and in our people. When operations are running better, it helps all other drivers of sales to perform better, such as menu innovation, which brings me to our brand. As we often discuss, we continue to look for ways for the Chipotle brand to be more visible, more relevant, and more loved, and we had a couple of very exciting new menu innovations that did just that. We responded to a real-time opportunity to support our passionate TikTok fans who wanted Fajita veggies and Chipotle honey vinaigrette as options for our digital exclusive Quesadilla. We worked with two popular TikTok food reviewers who made the idea go viral at the start of the year and leveraged our strength in digital marketing and culinary to create an exciting new menu item utilizing all existing ingredients. The results have been outstanding. During the launch, we nearly doubled our Quesadilla business and had two of our top digital sales days of all time. We have decided to make this a permanent menu item as the addition of Fajitas to our Quesadilla, along with dipping it in a combination of our honey vinaigrette and sour cream, is really delicious. The best part is that it's made of all existing ingredients, which limits additional complexity in our restaurants, and we continue to see incremental Quesadilla sales because of this launch. We also launched Chicken al Pastor as a limited-time offer. Al Pastor has been gaining mass appeal in recent years, and we tapped into these consumer trends to offer our own spicy spin on al pastor with our freshly grilled chicken. As we mentioned last quarter, this is also operationally simple to execute as it is our existing Adobo chicken cooked on the plancha and then mixed in an al pastor marinade. This has allowed for an exciting new menu item while still maintaining our focus on Project Square One. This is the first time we've launched a new menu innovation globally as it was rolled out in the U.S., Canada, and Europe. The launch has been a success, early indications show that it is outperforming Pollo Asado, which was our most successful protein LTO ever. Turning to rewards. We now have 33 million rewards members. We saw a nice pickup in enrollments as we rolled out Freepotle, which was designed to deliver a strong value proposition and attract new members to our transaction driving rewards program. Throughout the year, members will receive 10 personalized free rewards, ranging from a side of guac to a bag of chips to a free fountain drink. In addition to driving enrollments, we also saw an increase in member engagement as Freepotle gained traction throughout the quarter. Shifting to amplifying technology and innovation. We continue to leverage technology to improve our in-restaurant and digital experiences. As we mentioned last quarter, we began testing a new grill to improve the overall cooking process for our chicken and steak. The grill is much faster, allows for more consistent execution, and maintains our high culinary standards as it cooks the chicken and steak to perfection with the same sear and char. Feedback from our teams and our guests has been tremendous, and we are currently in the process of rolling out the grill to 10 additional restaurants as a part of further validation through our stage-gate process. During the quarter, we also rolled out our advanced location-based technology for our app, which allows for a more seamless process for scanning rewards as it prompts reward members to scan while they are waiting in line. This has resulted in more rewards members scanning for points in our restaurants, which drives further engagement in our rewards program. For digital orders, it also alerts app users when it appears they are ordering from or heading to the wrong location as one of our most frequent refund requests is due to guests arriving at the wrong restaurant. Since rolling out this feature, we have seen a meaningful reduction in those refunds. We are also investing in technology and innovation through our Cultivate Next fund to help us scale and advance our Food with Integrity mission. We recently announced two new investments, including Local Line and Zero Acre Farms. Local Line is a leading local food sourcing platform, connecting local producers with buyers and helping them digitize their operations and sell products. We believe Local Line will help Chipotle increase the amount of local food for our 3,200 restaurants. Zero Acre Farms is a food company that is focused on healthy, sustainable cooking oils made by fermentation that are more environmentally friendly. Additionally, we recently announced our new responsible restaurant design, which includes features like rooftop solar panels, all electrical equipment and systems, LED lighting, cactus leather chairs, and electrical vehicle charging stations at select locations. While the pilot will go through the normal stage-gate process, we believe it will enable us to take successful elements and incorporate them into future restaurant formats. These investments and initiatives will help to further our purpose of cultivating a better world and reflects our commitment to inspire real, sustainable change with a potential impact far beyond our company. This brings me to expanding access and convenience with a long-term target of 7,000 restaurants in North America. We remain on track to grow new restaurants 8-10% per year for the foreseeable future, with at least 80% including a Chipotlane. The expansion of Chipotlanes adds additional convenience by adding our unique order pickup channel, which comes with a larger digital penetration driven by the order ahead business. In Canada, we opened our first Chipotlane in Ontario, and we also expanded access and convenience with our recently announced partnership with SkipTheDishes, which is Canada's largest food delivery network. Finally, new openings in small towns continue to be a success with the recent opening of a restaurant in a small town in California that had the second highest opening day sales ever. In fact, within the last year, we had our top five openings in the company's history, of which four were in small towns. I'll turn now to sustaining world-class people leadership by developing and retaining diverse talent at every level. Our recent field leader conference was a time to celebrate the achievements and career progression of our teams, and I'm always amazed by all the inspiring stories of our leaders. In fact, one of our field leaders from the Arizona sub-region, who won the award for best throughput, has been with Chipotle for 20 years. She's clearly doing a terrific job leading her patch of restaurants. However, what is even more incredible is that she has two sisters, one a team director who has been with Chipotle for 24 years and is consistently a top performer in her region, and the other is a recently promoted field leader who has been with Chipotle for 18 years. Each has a unique story, all three sisters started as crew members and said that Chipotle changed their lives for the better and gave them the ability to develop and grow others within the organization. When you combine our industry-leading benefits with our tremendous growth, performance culture, and then layer on top exceptional leaders who will help to grow and develop our future leaders, Chipotle really is a special company. In closing, I want to thank our restaurant and support center teams for all their hard work in delivering a great quarter. Our focus on getting back to the basics and reestablishing Chipotle's standard of excellence is beginning to drive strong results. We will continue to develop exceptional people and prepare exceptional food and, of course, treasure our guests. In doing this, I strongly believe we can make Chipotle better than ever. With that, I will turn it over to Jack. Thanks, Brian. Good afternoon, everyone. Sales in the Q1 grew 17% year-over-year to reach $2.4 billion as comp sales grew 10.9%. Restaurant level margin of 25.6% increased about 490 basis points compared to last year. Relative to our guidance, restaurant level margin benefited from leverage from higher sales, labor efficiencies and lower avocado prices. Earnings per share was $10.50, representing 84% year-over-year growth. The Q1 did not have any material unusual expenses, so our GAAP earnings and non-GAAP earnings are the same. As Brian mentioned, we are going back to our pre-COVID practice of providing annual comp guidance. We anticipate comps in the mid to high single-digit range for the full year, assuming we do not see further deterioration in the macro environment. As a reminder, for Q2 and the full year, our comps stepped down when we lapped the menu price increase we took in late March of last year, and we anticipate comps will step down again when we lap the menu price increase we took in early August of last year. We'll continue to provide quarterly comp guidance for the remainder of this year, and we anticipate comps in the Q2 in the mid to high single digit range as the transaction trend for the Q1 has continued into April. I'll now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 29.2%, a decrease of about 180 basis points from last year. The benefit from last year's menu price increases and lower avocado prices more than offset a mix headwind from the Garlic Guajillo Steak limited time offer, which ended in mid-February, as well as higher prices across several items, including queso, beans, rice, salsa, and tortillas. For Q2, we expect our cost of sales to remain in the low 29% range. The mixed benefit from the Chicken al Pastor limited time offer and lower dairy costs will be offset by higher costs in other areas, most notably avocados. We anticipate avocados to increase from the current favorable levels, which are some of the seasonally lowest we have seen in the past few years. Labor costs for the quarter were 24.6%, a decrease of about 170 basis points from last year. The benefit from sales leverage was partially offset by wage inflation. For Q2, we expect our labor cost to remain in the mid 24% range as continued labor inflation will be offset by leverage from seasonally higher sales. Other operating costs for the quarter were 15.3%, a decrease of about 110 basis points from last year. This decrease was driven by sales leverage and a decline in delivery expenses due to lower delivery sales, partially offset by higher costs across several expenses, including natural gas and maintenance and repairs. Marketing and promo costs for the quarter were 3.2%. In Q2, we expect marketing costs to step down to the mid 2% range with the full year to come in right around 3%. In Q2, other operating costs are expected to be in the low 14% range. G&A for the quarter was $148 million, which includes $119 million in underlying G&A, $19 million related to non-cash stock compensation, and $10 million primarily related to payroll taxes and equity vesting and exercises, higher performance-based accruals, and costs associated with our field leader conference. We expect our underlying G&A to be around $122 million in Q2 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 $22 million in Q2, although this amount could move up or down based on our performance. We also expect to recognize about $4 million related to performance-based bonus accruals and payroll taxes and equity vesting exercises, bringing our anticipated total G&A in Q2 to around $148 million. Depreciation for the quarter was $77 million or 3.2% of sales. We expect depreciation to increase slightly each quarter as we continue to open more restaurants. Asset retirement stepped up to $8.4 million in the quarter. This includes charges related to the replacement of equipment such as fryers, grills, rice cookers, and other restaurant equipment as we have been more proactive under Project Square One in preventing ingredient outages. In the near term, we expect asset retirements to remain around this level as we continue to prioritize the guest experience and focus on great ops. Our effective tax rate for Q1 was 22.5%, which benefited from option exercise and share vesting at stock prices above the grant values. We continue to estimate our underlying effective tax rate will be in the 25%-27% range, though it may vary each quarter based on discrete items. Our balance sheet remains strong as we ended the quarter with nearly $1.5 billion in cash, restricted cash and investments with no debt, along with a $500 million untapped revolver. During the Q1, we repurchased $132 million of our stock at an average price of $1,553. We increased our level of stock repurchases during the quarter when our share price fell with the overall market. We'll continue to opportunistically repurchase our stock. At the end of the quarter, we had $282 million remaining under our share authorization program. We opened 41 new restaurants in the quarter, of which 34 had a Chipotlane. We remain on track to open between 255 and 285 new restaurants this year, with at least 80% including a Chipotlane. We continue to experience challenges including utility installation, component and raw material shortages, and permitting and inspection delays, which have extended our development timeline. While we anticipate these challenges to persist throughout the year, our pipeline remains strong and we expect to move toward the high end of the 8%-10% of openings range once these timeline challenges subside. In closing, 2023 is off to a great start as our focus on strong operations and treasuring our guests is driving an improvement in sales and margin trends. While we are proud of the progress our teams have made in a short period of time, we recognize there is still opportunity for us to be even better. We believe that these efforts will position us to successfully navigate through macro uncertainty, and more importantly, strengthen our foundation for sustained long-term growth. With that, we're happy to take your questions. We will now begin the Q&A session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. That all may have a turn, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Dennis Geiger with UBS. Please go ahead. Great. Thank you, and congrats on the strong results. Brian, I want to ask a little bit more about throughput and the operations opportunity. Could you help frame up a little bit more, some of the gains that maybe you're starting to see, over this past quarter from Project Square One and some of the other initiatives that you spoke to? Then kind of more importantly, just thinking about the opportunity from here based on initiatives currently in place and maybe even some of the technology that you guys have highlighted in recent months. Thank you. Look, Project Square One has been something we've been working very aggressively for probably, I guess now we're going on almost nine months. Our operators have done a terrific job. You know, Scott and the team have really, I think, retrenched on getting back to the basics. Some of the things where we make great progress on are just being, you know, in stock with great culinary. We were experiencing too many times where we were out of guac, we were out of chips, we were out of chicken. We made tremendous progress on that front. We also have made a lot of progress on keeping both lines open from open to close. Both of those reasons that we've improved dramatically are driven by, I think, more stability in the restaurant with better training, and then holding people accountable to those standards. On the throughput side of things, you know, we've made some progress on the front line. We've definitely made some progress as it relates to being on time and accurate digitally, but we still believe there's a lot of room for improvement. I think you heard in our prepared remarks, we're still working through, I would call it better deployment in managing during peaks so that we service the DML business effectively without jeopardizing the service of the people that are right in front of us in the restaurant. We still believe there's a lot of runway in front of us on great throughput. We won't get to great throughput, though, if we don't have great stability, great culinary, having both lines open from open to close, and we've made tremendous progress on those foundational elements. Really proud of where the team has moved the organization, but I'm really optimistic about where they can get to. Appreciate that, Brian. Then just a quick follow-up on that. Just some of the tech stuff that maybe is still a little bit early days, how exciting is that for you and what that can do either for throughput as well as maybe some cost efficiencies as we think about the potential there? Yeah. No, thanks. I forgot to answer that part of your question, so thanks for the reminder. Yeah, look, tremendously excited. That's why we're investing in it, right? These clamshell grills that we're rolling into 10 restaurants now make the job easier, make the culinary better, and make the culinary more consistently better. I think I've talked about this. It makes the cooking time dramatically go down. Chicken goes from 12, 13 minutes to, you know, 2, 3 minutes, and you get perfect sear, you know, perfect char, just really delicious culinary. That's a big unlock for us because the grill position is one of the hardest positions to train. If we can make that job easier, and then we also free up more space on the plancha, it just eliminates any potential bottleneck for our future growth. The other thing that's a huge exciting one for us that's a little further out is Hyphen. We've talked about this quite a bit, which is automating the digital makeline. You know, that will enable us to be even more accurate, I think probably go a little bit faster and, I think give people more consistent experiences. All these things are driving towards hopefully better guest experiences, but also a better work environment for our employees. Obviously with that, I think we'll be more efficient in both cases. Really excited about both initiatives. Obviously, the clamshell grills are a little bit closer in. Hyphen's a little further out. We've got some other exciting initiatives on making our prep easier, right? Frying chips or cutting and coring avocados. We're making a lot of investment and, you know, we're gonna continue to experiment. Not all of it will work, but I'm confident, having innovation in this space is a big unlock for our brand in the long run. Great. Thank you, Brian. The next question comes from David Tarantino with Baird. Please go ahead. Hi. Good afternoon. Jack, I have a question on the margin outlook. I think based on your guidance for the Q2 and what you delivered in the Q1, it looks like maybe the business is doing about a 26% restaurant margin for the first half of the year, or at least that's what you expect. Is that the right run rate to think about for the year at the current sales levels, or is there anything, you know, maybe on the horizon in the back half that might, I guess, surprise one way or another? Yeah. Yeah, David. In the first half, you're thinking about it, right. We definitely expect our margins to step up from here. Q2 from a seasonal sales standpoint is a stronger quarter for us. We typically see higher margins in the Q2. We also have relatively lower marketing in the Q2. There's some offsets, you know, like a little bit of inflation in the labor line, but still, you're thinking about it right for the first half of the year. What's unknown in the second half of the year is inflation. We're still thinking there's gonna be continued labor inflation in the mid-single digit. Even though our commodity has been largely tame or we've had some pluses and minuses that have largely offset each other, we think in the second half of the year, there's still the possibility of inflation. For example, we don't necessarily expect we'd love avocados to remain at this level for the rest of the year, but we're being realistic and thinking that may not happen. There may still be inflation on beef. We haven't seen it really yet in what we buy, but there's that possibility as well. It's really a wild card about inflation. If inflation is tame in the second half of the year, that will obvious lead to even better margins in the second half of the year. I think you're thinking about it right. Great. The follow-up is about your pricing philosophy. I don't know if Brian or Jack, you wanna take this one, but I guess, how are you currently thinking about your pricing, you know, as you think about the inflation you just referenced? I think, you know, now that you've rolled over the pricing in April, you're running 1 of the lowest year-over-year price increases in the industry. Just, just wondering how you're thinking about, you know, when you pull the lever on pricing again. Yeah. Hey, David, it's Brian. You know, we're staying the course on our approach to pricing, which is, you know, if we see inflation that warrants us needing to take additional pricing, we'll take it. I think we've now demonstrated we do have pricing power, we have a really strong brand, and, you know, we don't wanna be in front of the inflationary environment, but we also don't wanna fall behind. You know, the good news is we're in a really strong position that when we're ready and we believe it's necessary to pull that pricing lever, we can, and we continue to have a really strong brand, to do it with. You know, we have not made any definitive plans on pricing for the balance of the year, but we're gonna stay the course on the approach we've taken over the last, I'd say, 18, 24 months. Great. Thank you very much. The next question is from Sara Senatore with Bank of America. Please go ahead. Thank you. A question on labor and then just a follow-up on loyalty. Can you maybe talk a little bit, labor was, I think, better than you had expected, or we had anticipated, certainly. I was wondering if you could just talk, is that just because transaction growth was better? You know, I don't know if you can decompose the same yourselves for us. Is it the lower turnover? Just trying to understand where the improvement came from. The question on loyalty is, you mentioned kind of improved, you know, signups. I guess when I look at loyalty membership growth year-over-year, it looks like it's still kind of in that 20% range. Do you have any thoughts about, you know, how big that could be or what share of your, you know, unique customers you're seeing are members of loyalty? Just trying to understand, like, sort of the run rate for that as a comp driver. Thank you. Yeah. Yeah. I'll take the labor piece first, Sara. First of all, it was most of the benefit that we saw was sales driven in the quarter. We saw our transaction turn positive. We're still running, you know, menu price increase compared to last year in about a 10% range. When you have that kind of a flow through where transactions are flowing and menu prices are flowing as well, that was a significant benefit in the quarter. We did have some labor inflation, so that was an offset to it. We did see some efficiencies. We did see, really for the first time, the labor scheduling tool we put into place last year, was really starting to pay off. The fourth thing I would just say is normally this time of year, as our sales begin to increase seasonally, that is a time where our labor tends to be more efficient. It tends to happen where the weather starts to get warmer, our sales start to grow, and our managers are trying to keep up on the schedules, but they end up, you know, basically driving a little bit of efficiency. They always seem to be maybe a step or two behind. The good news is, as Brian mentioned, operationally, we feel like the restaurant ran really well, and we drove that additional labor efficiency. Got it. Thank you. Then just on the... Yeah. Yeah, I was gonna say on the loyalty, your question there, you know, what we've definitely seen is we see people higher enrollments when we make it easier to be engaged in the digital system. A couple of things happened, right? I mentioned this in my earlier remarks. The team improved your ability to redeem rewards by alerting you so that you don't forget to scan for them. We also improved, you know, your ability to end up going to the right restaurant for your order, which, you know, was a big deal. That's one of the biggest misses we seem to have with customers, where they didn't realize they were ordering from a different restaurant than where they were intending to go. Those types of things make the engagement easier for people, which then they stay in the program. Doing things like Freepotle, the Fajita Quesadilla, digital-only, just attracts new people to come into that space. You know, that is what we want to do. We wanna continue to have acquisition, and then we wanna dial up the personalization and make it super easy to stay active and engaged. Because we know the more engaged you are, it plays out in more purchase frequency and higher tickets. You know, we'd love to get $33 million-$40 million. You know, I don't know where the ceiling is on this thing, but we're gonna continue to push towards getting as many people involved and then work very hard to turn it into a very personalized program that keeps them engaged. Thank you very much. The next question comes from David Palmer with Evercore ISI. Please go ahead. Thanks. I wanted to double-click on that labor productivity stuff. In the past, you've talked about the number of orders you could do in a 15-minute block during those peak hours in the front makeline. Could you give us a sense of where you are now and where you think that can go realistically over the next 1 or 2 years, and then what that would mean to your sales if you got there? I mean, I'll cover a couple of stats and then, and then Brian, you can add on as needed. First of all, in terms of the Q1, we did push past our 15-minute, you know, max, compared to last year. It was nice to see as our transactions turned positive during the quarter, that we did push past last year. We actually at the end of the quarter, and as we moved into April, we you know, actually pushed past where we were in the Q2 of last year as well. We're seeing nice progress, but we're still in that, you know, low 20s, you know, range, David. We think we can get into the mid-20s. you know, the mid-20s is comparable to what we were doing in 2019, you know, before the pandemic, if you adjust for the shift in our digital business. Beyond that, if you go back even a few years before that, we don't think there's any reason why we can't get back into at least the high 20s or maybe even into the low 30s as well. Now, that will take a few years, but we think this one project that Brian mentioned, this idea of experimenting with how can we make sure that we've got, you know, basically the labor deployment, and we've got the cadence of orders coming through to the DML, to be set such that our teams can with confidence, they can run both lines without feeling this pressure to pull from one line to the other. Typically, what happens is the DML, if the orders are coming through pretty hot on the DML, there's a tendency to pull somebody from their front line. I think we're, you know, basically seeing some good early results, to tell us that we think there's gonna be a way to break through and allow our teams to really execute it at a really high level on both lines. I think that's potentially an unlock to get to some of these higher numbered 15-minute, you know, throughput figures. You know, if, you know, if I look back a decade, your labor as a percentage of sales was in the 23% area. I know a lot's changed in the labor market since then, but you're working on a lot of stuff, not just the focus and the, and the training, but also the double-sided grills and hopefully some breakthroughs with Hyphen. I mean, do you think you could get back there? Is that the sort of, you know, labor productivity that's possible you can imagine over the next few years? You know, it's theoretically possible. I think the one thing, David, that is different now is labor rates are much, much, much higher, and our menu pricing hasn't really stayed caught up all the way with the labor over the last few years. In fact, the biggest, you know, move that we made in the Q2 of 2021, we basically raised wages by 15% and only raised prices by 4%. We basically offset the dollar value of that. We didn't try to protect the margins and certainly didn't try to protect the labor line at all. I think there's been a bit of a dislocation there. Having said that, we do have a very efficient labor model. We do have a lot of investments in technology. We do have a lot of things that, you know, I could see over time as we grow to 3 million volumes and then 3 and a half million dollar volumes and as we really create solutions so that our teams can be more efficient, I think it's certainly possible. It's not necessarily a goal of ours, but we could land there someday. Thank you. The next question comes from Lauren Silberman with Credit Suisse. Please go ahead. Thank you very much. My question's on transactions. Great to see the positive transactions in the quarter. Within the mid-single to high single-digit comp guide for the year, what are you embedding for transactions? What do you see as the most meaningful drivers of positive traffic growth through the rest of the year? Look, I think the drivers for traffic growth are gonna start with Project Square One. We have to have great operational execution. You know, we have to keep the staff trained, deployed, lines open, from open to close and giving people great experiences. That's initiative number one to keep the traffic moving in the right direction. You know, obviously doing things with our loyalty program or our CRM database. We continue to talk about how we're on that journey of continuing to engage with our customers at another level. We'll continue to invest in there, continue to experiment, and continue to execute. You know, as I've talked about these in our strategies, you know, having the brand visible, for what makes Chipotle truly unique, you know, its purpose around Food with Integrity, that resonates with our customers. It resonates with our team members, because our employees feel great about the food they're serving, and our customers, this is the food they wanna be eating. You know, and great examples of that are just some menu innovation things that we've added, right. The Fajita Quesadilla. Right now we're doing Chicken al Pastor. We made the Fajita Quesadilla program permanent. We'll continue to do, you know, menu news, I think we talked about this, one or two a year. It's the combination of all those things that will continue, I think, drive great traffic. I don't want to walk past the fact that we continue to have tremendous value scores. When you look at what you get from Chipotle for what you pay relative to your alternatives, we continue to get feedback that we're one of the best. Whether you're comparing to other restaurants in our space or even the grocery store. We love our value position, and then we love the initiatives that we've got in place. Great. Just to follow up on the traffic, where is it coming from? Is it primarily your existing customers, newer lapsed customers? Anything notable to share in terms of what you're seeing across income cohorts? Thank you very much. Yeah, you know, I mean, fortunately, it's broad-based. We're seeing new customers come in, and we're also seeing existing customers increase their frequency. The operational focus, combined with kind of the marketing menu innovation, is doing exactly what we would want it to do. Thank you very much. The next question comes from Andrew Charles with TD Cowen. Please go ahead. Great. Thanks. Brian, would you be able to talk a little more about what you attribute the sales strength in March and April to that exceeded your guidance at a time when the fast-casual industry slowed? You know, if you had to tease it out, just, you know, not looking for specific numbers, of course, but just you know, direction of magnitude. Is it the improved staffing? You know, was it Chicken al Pastor? Is it something else that perhaps externally we may not be appreciating? You know, look, I, you know, I hate to just kind of repeat myself, but I'm going to repeat myself here, which is Project Square One and getting the foundational elements of Chipotle's execution back to Chipotle's standard of excellence. I can't emphasize enough how important that is. You know, to have our digital make line open from open to close, to have ingredients on that line from open to close, to being staffed and trained on the front line so that you get people down the line really fast with exactly what they want. I can't emphasize enough how important that is because everything then builds from there, right? Our digital personalization program builds on that. Our menu innovation builds on that. Talking about a brand with purpose builds on that. You know, I, I just think a myriad of things worked really well. You know, the Fajita Quesadilla program was received really well. The Chicken al Pastor program was received really well. I know they wouldn't be as powerful if we didn't have Project Square One driving behind it. You know, I think we've talked about this a lot, Andrew. One of the things that makes Chipotle really special is its operational ability to achieve tremendous throughput with unbelievable culinary and unbelievable customization. We got to nail that, and we have to nail it both on the front line and in the digital experience. That's helpful. You know, one thing I wanted to revisit as well is just the international opportunity. You know, obviously, a lot of the focus of the last five years has been on domestically and recognizing how much strength you guys have domestically, as well as opportunities, you know, to further spread the domestic momentum and further enhance the domestic momentum. You know, what do you need to see to lean in more on international, whether it's accelerating development, you entering new markets, potentially testing out franchising? Would love your thoughts as we think broader beyond Canada. Yeah, sure. Well, you know, I don't want to just walk by Canada. We're getting ready to expand into Alberta. We'll open probably 10 plus restaurants up there, which is, you know, like a 50% increase. Anat and the team in Canada are doing a fabulous job. We're going to continue to drive that market. Specifically on Europe, you know, Jim and the team have done a great job. You know, our U.K. business is got great momentum. You know, not surprising, there's a lot of inflation in the P&L there, and we have not priced for it, because we think a lot of it is temporary and we're still establishing ourselves in those markets. You know, I'm optimistic because if you can get the top line, usually the rest works itself out. You know, we're putting into place the digital system, the operational excellence, the great culinary. You know, I'm optimistic we're going to get there where, you know, we'll move this thing out of the stage-gate process. We're going to take our time because, you know, we want to get it right. We don't want to just be fast. That's what the team's after, and they're making great progress. Appreciate it. Thanks for the help. The next question comes from John Ivankoe with J.P. Morgan. Please go ahead. Hi. Thank you. I was hoping, you know, that if you could give a little bit more transparency in terms of, especially the month of April, you know, what's happening on a customer cohort level. I mean, are you seeing more higher income customers come? Are you seeing some lower income customers maybe coming a little bit less or changing, you know, their order patterns? Some people would say, you know, maybe attach is a little bit lower than it used to be or the consumer is becoming a little bit more price sensitive, clearly that wouldn't be the case in the traffic numbers, you know, that you've talked about in April, similar to the Q1. Just wanted to, you know, just get a sense if there's anything kind of happening, you know, beneath the surface that you can talk about or maybe some shifting customer behaviors that actually might be positive for you longer term. Yeah. You know, actually 2 things happened for us. One, the higher income consumer continued to come and arguably came at a little bit faster pace, from a frequency standpoint. We did see some, I would call it recovery in the lower income consumer. Still not all the way back to where it was, you know, call it a year ago, but an improvement from where it was over the last 6 months. You know, we've seen nice improvements across all of our income cohorts, and we continue to see great strength in the higher income. Interesting. Secondly, if I may, in terms of personalization on, you know, Chipotle Rewards, you know, where are we in that journey? I mean, how do you feel, you know, that you're doing? Are there any, you know, near-term opportunities or some near-term functionalities, you know, that you're going to add as the system continues to learn and get better on an individual customer basis? Yeah. Thanks for the question. This, I think is a big opportunity for us 'cause we're still very much in the early days on this. You know, I think the teams have done a great job of turning the data into action, you know, through, call it like CRM programs. We're just starting to tip our toe into the personalization opportunity. I think you're gonna see really kinda CRM evolve into personalization at meaningful scale. I think there's a lot of opportunity to be had on this space. I'm proud of the work that's been done to date and where we currently are, but, you know, I just think there is tremendous opportunity going forward, assuming we can get this personalization program right. Thank you. The next question comes from Brian Harbour with Morgan Stanley. Please go ahead. Yeah, thank you. Good afternoon. In the past, you've commented just on kind of delivery sales and what that looks like for the quarter, and then maybe also just kind of what the mix component of your same store sales for the quarter was. Would you be able to provide some color on that? Delivery was still right around 20%, right? Yeah. Yeah, like high teens. Yeah. Yeah, high teens. You know, we saw a nice strength in our digital business, a little bit of a rebound in the delivery business, more so probably in the marketplace. You know, we're feeling really good about how we're positioned in all those access channels, you know, order ahead, delivery, and coming into the restaurant. Okay. Thank you. Seeing how the, you know, the Fajita Quesadilla did quite well, are there kind of other opportunities like that where you know, lean into just existing menu items and do something akin to that? You've obviously done very well with kind of protein LTOs, but, you know, what else could be further afield that kind of continues on that success? Yeah. Look, you know, we are really delighted by how well the Fajita Quesadilla performed for the very reason you just mentioned, right? It's all existing ingredients. It required some work on the digital side of things, but for the most part, you know, this was a really easy one for operators to execute. You know, the team is doing some work to figure out are there other opportunities like that within our menu that maybe could apply for both the front line and the digital line. You know, I do believe there still are a lot of hidden gems within the Chipotle menu. I think we have the opportunity to talk about them in a more visible way. More to come. I know Chris and the team are working through, you know, can we find something that can perform as well as a Fajita Quesadilla following those kind of requirements. Thank you. The next question comes from Sharon Zackfia with William Blair. Please go ahead. Hey, good afternoon. I was hoping to get an update on Chipotlanes. I think around this time last year, you gave us some ROIC metrics on Chipotlanes versus non-Chipotlanes and kind of the sales lift and digital mix component. I'm just curious now that we're a year later, how those compare the Chipotlanes versus the non-Chipotlanes. Jack, did you actually give us kind of what mix and traffic were in the quarter? That would be helpful to have. Thank you. Well, I'll do the first one or the second one first. I'm surprised it didn't get asked before. No, we didn't provide it yet. We almost. I just thought I spaced out and missed it, Jack. We almost snuck in, Sharon. Yeah, listen, transactions were in kind of that, you know, for us kind of mid to, you know, low single digit. A nice turnaround from what we saw in the Q4. We saw a check. The net check was 7%, that gets you to that kind of 10.9%. Of the check, it was about a 10% pricing and a 3% mix. Just as a further clarification, the 10% pricing is about 8.5% is in our in-store and our order ahead business. On top of that, there's a 1.5% for delivery. On Chipotlane, Sharon, largely the same. I mean, Chipotlane still perform higher from a sales standpoint, higher from a margin standpoint, and then higher from a return standpoint. I think we have mentioned in the past, the comparisons aren't as great anymore. In other words, a few years ago, we would open up restaurants that could have a Chipotlane but didn't, as we were kind of executing the strategy. Today, when we have 80-85% of our restaurants have a Chipotlane, the 15% or 20% that don't, can't have one, meaning it's an urban location, it's an inline location, so it's really a different trade area. We're starting to see that some of the sales comparisons are getting a little bit, you know, not necessarily relevant. We're still seeing the Chipotlanes perform at a higher level, but it's a little bit like comparing an apple to an orange, but still margin return and from a sales standpoint, they're still great. It still does generate higher digital mix. By several hundred basis points. There still is a shift where delivery takes a step down from something in the high teens into the, you know, the mid or low teens. Order ahead steps up quite a bit from something about the low 20% up to the high 20s or even a 30%. All the same kind of directional things that we've seen, all the benefits that we've seen with Chipotle are continuing to show up. Thank you. The next question comes from Jon Tower with Citigroup. Please go ahead. Great. Thanks for taking the question. Curious, Brian, you mentioned earlier in the call that your smaller market stores are coming in strong, perhaps even better than you had anticipated. I'm curious. I know you've recently offered the 7,000 store TAM for North America, but, you know, given the success you're seeing as well as some of the new technology like the clamshell grills that you're still testing or even Hyphen on the horizon, does that maybe alter that opportunity for new stores over time? I mean, look, obviously, as we get closer to that 7,000 number, we'll have a much better idea of whether or not we can grow beyond the 7,000. The good news is we've not seen any slowdown in our performance. All the restaurants we're opening, they're opening with strength. You know, obviously we look at this every year as we kind of take another look at our market planning. The good news is we're opening restaurants in, for Chipotle, I would say, you know, somewhat penetrated markets, and they continue to perform really well. That gives us confidence because then we can kind of start thinking through like, well, if you start extrapolating that across the country, you could see how you could get beyond 7,000. Not ready to take the number up just yet. You know, I love seeing great performance. It's great to see the small towns do really well. It's great to see, frankly, the restaurants do really well in urban and our more penetrated markets. You know, lots of opportunity in front of us on the new restaurant opening frontier. Great. Thanks. Just one more follow-up. Do you have any more planned LTOs for 2023? You know, we always think through kind of something in the front half and something in the back half. You know, we haven't definitively made a decision on what we're gonna do in the back half yet. The good news is our pipeline is really strong and, you know, we've got some flexibility, but, you know, we wanna see where the consumer is, the strength of Project Square One, and that'll inform what we choose to do in the back half of the year. Got it. Thank you. The next question comes from Peter Saleh with BTIG. Please go ahead. Great. Thanks for taking the question. Brian, I want to ask about the Hyphen automation. I think you mentioned that's for the digital make line. When you're thinking about this, and I, and I know it's still early, is this more for new restaurants or can you fit this into your existing footprint in some of your existing locations? Yeah, no, one of the things that's great about this is it would fit in our existing locations. You know, it's almost a pull out the current line, put in the new line, kind of idea, which is really exciting. You know, probably the first place you'd see us do it will be with new units, just because it's easier to implement. You know, the good news is Curt and the team are designing this so that it will work with our existing restaurants. Great. Just one question on the Chicken al Pastor LTO. Sounds like it's performed exceptionally well. Is it bringing in new guests to the brand that, previously haven't come to Chipotle? Is there a level at which an LTO, has so much success that it becomes a permanent item, or do you always consider it as an LTO? Well, the good news is Chicken al Pastor has been broadly appealing, so both to new users and existing customers. You know, the decision to make it permanent would be something we would do after, you know, we finish this LTO run. You know, we haven't come to the conclusion that we would make this permanent, but your statement's correct. It's definitely performing really well. And crew member feedback is this is an easy one for them to make, and customer feedback has been really positive as well. You know, we did decide to make the Fajita Quesadilla permanent in our digital platform. But, you know, that's a little different than making Chicken al Pastor permanent. For this one, it's definitely planned to be an LTO. We'll execute it as an LTO, and then, you know, we can always revisit whether we make it a permanent menu item down the road. Thank you. The next question comes from Jeffrey Bernstein with Barclays. Please go ahead. Great. Thank you very much. Two questions. The first one just on the comp guidance. The fact that you're resuming guidance for full year, I would assume that's an indication of stabilization that you're seeing maybe more week-to-week or month-to-month or your visibility. Just wondering if you can share why that has returned and maybe what are the components you're assuming in that mid-to-high single digit in the 2Q and full year. Just trying to gauge what the pricing would be if you took no further and what the traffic assumption is. I just had 1 follow-up. Yeah, on the guidance, it assumes we don't take any additional pricing. You know, similar to the comment that Brian made before. You know, right now we're staying the course. What it assumes is we continue the same transaction trends that we've seen in the Q1 continue into Q2, it recognizes that we took some menu price action last year, and those will roll off. That's in essence what we put together for the full year guidance. The idea here, Jeff, is that we don't know if we're gonna continue like beyond the next few quarters and give quarterly guidance all the time. You might remember, a few years ago, we used to give just the annual, not talk about what the quarterly guidance is. What we're doing right now is, we're kind of doing both for a while, we'll see how the trends unfold. We'll see what happens to the macro, we'll make a decision in terms of what our guidance is going to be. We actually think about our business in terms of a longer term approach than quarter to quarter. We think the guidance ought to match that as well. That's the reason for the change. Understood. Then just on the marketing front, I think you said the mid 2% range for the Q2. I know it was in the 3s in the Q1. I'm wondering, talk about the thought process around marketing, whether this is a conscious pullback for any particular reason or how you measure the returns, kind of your, how happy have you been with the marketing you've had thus far and the outlook going forward? Thank you. Look, we've been, you know, really happy with how the brand has shown up and the initiatives that we've rolled out. You know, on the percentages, I think that has more to do with just timing than anything else. It is. It's timing. It's been planned. Yeah. We tend to spend more in the Q1, first part of the year and then in the back half of the year. Just to typically to support these LTOs. I think if Chris were here, he'd also say too, like, the summer months aren't the best time for broad-based media. Right. I think that's part of the timing. Thank you. Today's last question comes from Jake Bartlett with Truist Securities. Please go ahead. Great. Thank you so much for taking the question. Jack, I had a question on commodity inflation. I was wondering whether you could kind of handicap the likelihood of deflation in the back half. It feels like there's some big chunks. You know, poultry, dairy, seem to be, you know, likely solidly deflationary. Just kind of wondering what the moving pieces are in your mind, how much visibility you have, and just what you think the chances of deflation are in the back half. It's a good question. It's not our base case. Our base case is to see modest inflation in the back half of the year. We're predicting somewhere in the low to mid-single digits. We've been really, you know, pleasantly surprised by, you know, what's happened so far. We have had a number of miscellaneous items where we've seen inflation, like some of our oils, tortillas, some of our salsas and things like that. But they've been offset by lower than expected avocado costs. That's why our food cost has been steady for 2 quarters in a row. It's been a number of quarters that that's happened, where we haven't seen any net inflation. I do think it's a possibility. You know, it depends on what the Fed does. It depends on what happens to inflation broadly. you know, the wild card there is, you know, if inflation disappears, you have to also then wonder, okay, what's happening with the macroeconomy? What's happening with unemployment and consumer demand as well? Right now, we kinda like the environment we're in right now, where consumers have jobs, they have money, they're visiting restaurants. and the inflation that we're seeing is pretty modest. That base case that we put together and how we plan the rest of the year feels pretty good to us. We wouldn't mind inflation going down, but we'd love it if it didn't also be accompanied with a softness in demand. Great. You know, and that answer kind of flows into my next question, which was, I think as you, as you talked about the annual guidance for same store sales, you talked about the macroenvironment staying as it is now. I just wanna kinda make sure I understood what your kind of base case is for the macroenvironment in the back half of the year. You know, should we think of the range, kind of, you know, slight recession on the low end? You know, how should we think about the macro outlook and your, and your guidance and maybe, you know, how you think you're positioned, I mean, if we do see a deceleration in the consumer? First of all, in our prepared comments, we did say our guidance assumes that there's not a meaningful change in the macroenvironment. Okay. Obviously all bets are off if that happens. In terms of our outlook, our outlook does not, our base case does not include a recession or certainly not a meaningful recession. Again, it looks like unemployment is holding up really well. It looks like consumer spending is, you know, is strong right now. I mean Brian mentioned our. You know, we saw a softness in the second half of last year, especially the Q4 in lower income consumer. We saw those consumers come back almost at the same rate as our higher income consumers. We see that as a positive sign, a positive macro sign. We're cautiously optimistic about what's gonna happen in the second half of the year. Now, if there is a recession, we feel like we're really well prepared. We own all of our restaurants. We don't have any debt, so we don't have, you know, the possibility of franchisees under pressure if they have debt payments and if there is a softening of demand. We don't feel like we have to run the business based on a quarter by quarter mentality. If we need to ride a couple tough quarters here or there, we certainly think we have the financial wherewithal and, you know, we have the long-term view to do that. Again, we're cautiously optimistic that the economy will hold up. Great. I appreciate it. Thank you. This concludes our Q&A session. I would like to turn the call back to Brian Niccol for any closing remarks. Okay, thanks. Thanks, everybody, for joining the call and all the questions. Obviously, we're very proud of the work that has gone into achieving these results. You know, I think I mentioned this before, you know, Chipotle has got one of those special brands strengths when you look out there. You know, there aren't many companies, I think, that are growing top line, expanding margins, and building new units to the tune of 8%-10%. When you combine that with the strength of the balance sheet, the strength of our economics, you know, we're very confident in the strategies that we're continuing to execute. You know, we are not slowing down, though, on Project Square One, we're not slowing down on providing digital access, and we're not gonna slow down on making the brand visible and loved. You know, at the foundation of all this is when we have great people with great culinary, we usually end up with great experiences for our guests. We're staying the course, and we believe the strategies and these focus areas are gonna deliver results for the long term. We're optimistic about our long-term future of getting to those 7,000 restaurants and AUVs well beyond $3 million. Thanks again for taking the time, and we'll talk to you in a couple months, if not sooner. Thanks. Bye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.