Good day, and welcome to the Chipotle Mexican Grill Third Quarter 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 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 touchtone phone. 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, Head of Investor Relations and Strategy. Please go ahead. Hello, everyone, and welcome to our Third Quarter 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, and our actual results could differ materially from those projected 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, and good afternoon, everyone. Our focus on exceptional food and exceptional people continues to drive strong results, including positive transaction trends that accelerated throughout the quarter. For the quarter, sales grew over 11% to reach $2.5 billion, driven by a 5% comp. Digital sales represented 37% of sales. Restaurant level margin was 26.3%, an increase of 100 basis points year-over-year. Adjusted diluted EPS was $11.36, representing 19% growth over last year, and we opened 62 new restaurants, including 54 Chipotlanes. Trends remained strong in October, and we anticipate comps in the mid- to high-single-digit range for the fourth quarter, which includes our recent pricing action. Before updating on our strategic priorities, I'm thrilled to share that Laura Fuentes has joined our Board of Directors. Laura is Executive Vice President and Chief Human Resources Officer of Hilton Worldwide, with extensive experience in global hospitality and people leadership and will be pivotal in helping Chipotle deliver against our five key strategies that position us to win today while we grow our future. These include running successful restaurants with a people-accountable culture that provides great Food with Integrity while delivering exceptional in-restaurant and digital experiences, sustaining world-class people leadership by developing and retaining diverse talent at every level, making the brand visible, relevant, and loved to improve overall guest engagement, amplifying technology and innovation to drive growth and productivity at our restaurants and support centers, and expanding access and convenience by accelerating new restaurant openings and laying the foundation for international expansion. Beginning with running successful restaurants with a people-accountable culture. It was exactly a year ago that we made a big effort internally to get back to Chipotle's standard of excellence, and I'm proud of the progress our restaurant teams have made over the course of the year. This includes staffing and turnover that are back to or better than pre-pandemic levels, restaurants that are prepped and ready, resulting in fewer outages, improvements in on-time and accuracy on the digital make line, and continued progress on throughput. Our focus on ops is strengthening a core piece of our value proposition, which is customized, delicious culinary served quickly with great hospitality. As a result of improvements in operational execution, along with keeping our menu pricing accessible, our value proposition has never been stronger. This is certainly translating to great results with transaction comps positive all year and up over 4% in the third quarter. While we are sitting on a strong foundation, we see an opportunity to be even better, particularly when it comes to throughput. We have two key initiatives that we recently rolled out that we believe will drive further improvement. The first is adjusting the cadence of digital orders to better balance the deployment of labor, eliminating the need to pull a crew member from the front make line to help the Digital Make Line during peak periods. The second is a renewed focus on throughput training in our restaurants by bringing back a coaching tool that we had in place prior to the pandemic. Feedback from our restaurant teams on these two initiatives has been very positive, and we are seeing that restaurants that have the right cadence of orders on the digital make line and that are executing the four pillars of throughput are seeing an improvement of four to five entrees in their peak 15-minute period. As I mentioned in the past, we hold our teams to a high standard because when they achieve it, they feel like they are part of a winning team with the ability to be rewarded through bonuses and growth within the organization. For our crew members, throughput is a key performance factor in the crew member bonus plan. It is also a component of the bonus measure for general managers, field leaders, team directors, and regional vice presidents. As we coach and make progress on throughput, it will enable more restaurants to achieve their quarterly bonus and, importantly, will drive a better overall experience for our guests and our teams. Speaking of our teams, we recently brought back our Behind the Foil campaign, which features our crew members giving a glimpse into daily preparation using real ingredients and classic culinary techniques, a key differentiator for Chipotle. The fact is, we don't have freezers in our restaurants, and our teams begin preparing at 6 or 7 o'clock in the morning to be able to serve our delicious food by the time we open at 10:30 A.M. This includes grilling Fajita Veggies and Adobo Chicken on the plancha, slicing and dicing onions, jalapeños, and cilantro by hand. Also, hand-mashing avocados to make our signature guacamole, and making our chips fresh every day. This campaign is a great way to put a spotlight on our talented teams and their hard work to prepare our exceptional food. One of our team directors that was featured in Behind the Foil started as a crew member, and within seven years, moved his way up to team director, managing a sub-region of 49 restaurants at just 29 years old. His passion for the brand and helping to deliver an excellent customer experience has driven his success. In fact, he has one of the best performing sub-regions across the company. He truly believes in Chipotle's purpose and wants to position his team to be able to replicate the same opportunities that have been given to him. Our people are our greatest asset, and developing future leaders is critical delivering on our growth goals of reaching 7,000 restaurants longer term and surpassing 90% internal promotions. We will continue to find ways like our Behind the Foil campaign to celebrate our team's growth, hard work, success, and passion for Chipotle. In addition to this campaign, our marketing team has done an outstanding job in finding authentic ways to make the brand more visible, more relevant, and more loved. Last month, we brought back our fan favorite and highly requested Carne Asada as a limited time offer, and the reception has surpassed our expectations. Carne Asada is a delicious combination of responsibly raised premium cuts of steak, seasoned on the grill with a blend of signature spices, that's finished with freshly squeezed lime and hand-chopped cilantro. We also introduced an entirely new way to try Carne Asada with the Carne Asada Quesadilla, and it's just truly delicious. I'm really proud of the cross-functional effort it took to make sure we could bring back this popular LTO, which is especially impressive, given that we estimate only about 5% of U.S. beef meets our Food with Integrity standards. In sports, as college football season kicked off, we leveraged our Real Food for Real Athletes platform to partner with players and teams to showcase their inspiring journeys, their love for Chipotle, and how our food can help them perform their best by providing proper nutrition. We also leveraged creative gaming integrations as a fun way to connect with some of our biggest fans. We brought back Chipotle IQ in August as a one-of-a-kind digital trivia game, testing the knowledge of Chipotle's real ingredients, leading food standards, culinary techniques, sustainability efforts, brand history, and community engagement. Shifting to amplifying technology, we're making progress on a couple innovations that ultimately could help to improve the overall experience for our restaurant teams and our guests. The first is our automated digital make line, which we recently installed at our Cultivate Center to test and learn on. Through our partnership with Hyphen, we've been testing the Hyphen make line, which fits into our existing digital make line footprint and automatically makes bowls down below, with the ability for our team to build tacos, burritos, kids meals, and quesadillas on top. There are many reasons why we are excited about automating the digital make line, such as increased capacity and improved speed and accuracy, which could further help with the balance of labor between the front make line and the digital make line. Additionally, Autocado, which cuts, cores, and scoops avocados, is also at our Cultivate Center, and our restaurant teams are providing feedback to be included in the next phase of the prototype. As we mentioned last quarter, Autocado could save time and eliminate a less favorable task, but still allow for one of their favorite parts of the job, which is to add in freshly chopped onions, jalapenos, and cilantro, season with some citrus and salt, and hand-mash our signature guac. While we still have some iterations to make to Hyphen and Autocado before they are ready to be tested in a restaurant, I am excited about the progress the team is making, and we will continue to provide updates on the path through the stage gate process. Finally, moving to expanding access and convenience. We are on track to reach our guidance range of opening between 255-285 new restaurants this year, which will mark a record for the company. We surpassed 700 Chipotlanes this quarter. As we look out to 2024, we anticipate opening between 285-315 new restaurants, with at least 80% having a Chipotlane. This month, we opened our first location in Calgary. This was the first entrance into a new market in Canada since we entered Vancouver in 2012, and it is clear there is strong demand for Chipotle, with opening day sales hitting a new company record. The team in Canada has done an outstanding job with company-leading throughput on the front line and on time and accuracy on the digital make line. AUVs margins and returns are on par with the U.S., and I remain very confident in Canada's long-term growth potential. Outside of North America, we have outlined a plan for Europe to deliver economics that would support accelerated growth. This includes improving our operations by aligning our training tools, systems, and culinary with our U.S. operations, where it makes sense and is feasible, as well as building brand awareness. Similar to our strategy when we first entered new markets in the U.S., we are building brand awareness in Europe through more local initiatives, like partnering with local universities, local sports teams, and focusing on activities which gets our food into the hands of potential guests. The good news is our restaurants are staffed, stable, and the talent we have coming through is exciting. Finally, in the Middle East, we are collaborating with Alshaya Group across development, culinary, supply chain, and food safety to support a successful opening of our restaurants next year in Kuwait and Dubai. In closing, I remain really excited about all the growth ahead of us, both in the U.S. and internationally. I want to thank our restaurant and support center teams for all their hard work and dedication to Chipotle. Our results demonstrate that we have a winning team that sets high standards and delivers. We have a lot of opportunity in front of us, and we will continue to push the boundaries of what is possible in terms of running great restaurants with exceptional people, exceptional food, and fast throughput. I am more confident than ever that we have created the foundation to achieve our aggressive growth goals and further our purpose of cultivating a better world. With that, I'll turn it over to Jack. Thanks, Brian, and good afternoon, everyone. Sales in the third quarter grew over 11% year-over-year to reach $2.5 billion, as comp sales grew 5% with over 4% transaction growth. Restaurant level margin of 26.3% increased about 100 basis points compared to last year, and earnings per share, adjusted for unusual items, was $11.36, representing 19% year-over-year growth. The third quarter had $1 million in unusual expenses related to corporate restructuring. Looking ahead to Q4, based on the trends we've seen so far in the quarter, including mid-single-digit transaction comps, we anticipate comps in the mid to high single-digit range, which includes our recent price increase of about 3%. As a reminder, in the fourth quarter, we will reevaluate estimated loyalty breakage for points projected to expire, which may require a catch-up adjustment that could have a negative or positive impact on our comps, and that's not factored into our guidance. We continue to forecast full-year comps in the mid- to high-single-digit range. I'll now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 29.7%, a decrease of about 10 basis points from last year. The benefit from last year's menu price increases was mostly offset by inflation across several food costs, most notably beef and queso. For Q4, we expect our cost of sales to be right around 30%, as the benefit of the menu price increase we just took will be offset by the mix shift from Chicken Al Pastor to Carne Asada, as well as higher cheese and avocado prices. Labor costs for the quarter were 24.9%, a decrease of about 20 basis points from last year. The benefit from sales leverage was mostly offset by wage inflation, and for Q4, we expect labor costs to be in the mid-25% range as the benefit of the menu price increase will be offset by continued labor inflation. Within our guidance, we anticipate a similar level of paid time off and other benefits that we experienced in the fourth quarter of last year. Other operating costs for the quarter were 14%, a decrease of about 50 basis points from last year. This decrease was primarily driven by sales leverage. Marketing and promo costs for the quarter were 2%, and in Q4, we expect marketing costs to step up to the mid-3% range, with the full year to come in just below 3%. In Q4, other operating costs are expected to be in the low-15% range. G&A for the quarter was $159 million on a GAAP basis, or $158 million on a non-GAAP basis, excluding $1 million related to corporate restructuring expenses. G&A also included $120 million in underlying G&A, $34 million related to non-cash stock compensation, $3 million related to higher bonus accruals and payroll taxes on equity vesting and exercises, and $1 million related to our upcoming all manager conference, which is scheduled for Q1 of next year. For Q4, we expect our underlying G&A to be around $125 million and to grow slightly thereafter as we make investments in technology and people to support ongoing growth. We anticipate stock comp will be around $33 million in Q4, although this amount could move up or down based on our actual performance. We also expect to recognize about $3 million related to performance-based bonus accruals and payroll taxes and equity vesting exercises, and $2 million related to our all manager conference, bringing our anticipated total G&A in Q4 to around $163 million. We anticipate pre-opening expenses to be around $15 million in Q4 due to the cadence of new restaurant openings. As a reminder, about half of pre-opening expense is non-cash pre-opening rent related to straight-line accounting rules. Depreciation for the quarter was $79 million, or 3.2% of sales. For Q4, we anticipate depreciation expenses step up by $4 million-$5 million due to a larger number of expected new restaurant openings. Asset retirement was $7.2 million in the quarter, and in Q4, we expect asset retirement to be around $8 million as we continue to focus on proactive equipment replacement as we prioritize the guest experience through great operations. Our effective tax rate for Q3 was 24.2%, which benefited from higher than expected tax credits. 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 over $1.9 billion in cash, restricted cash, and investments with no debt. During the third quarter, we repurchased $226 million of our stock at an average price of $1,914, more than 2.5 times our Q2 purchases, as the market softened. At the end of the quarter, we had $368 million remaining under our share authorization program. We opened 62 new restaurants in the third quarter, of which 54 had a Chipotlane. We remain on track to open between 255-285 new restaurants this year. As Brian mentioned, we plan to open between 285-315 new restaurants in 2024, of which at least 80% will have a Chipotlane. We anticipate that our timeline will remain extended, which is preventing us from reaching the higher end of our 8%-10% new restaurant opening guidance range in 2024. We continue to see permitting and inspection delays, utility installation delays, along with developers delaying projects due to macro pressures and rising interest rates. Considering our current pipeline and timeline, and assuming conditions do not worsen from here, we believe we can approach 10% new restaurant openings by 2025. To conclude, I want to once again thank our 114,000 employees for treasuring our guests and earning every single customer visit. We have exceptional people working hard every day to serve exceptional food to our guests, and that shows through these terrific results. As Brian mentioned, we have a lot of opportunity in front of us and as we continue to make meaningful progress in improving the guest experience through faster throughput in our restaurants. This will further strengthen our brand and industry-leading economic model and continue to position us for long-term growth. 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 key. To withdraw your question, please press star then two. Please limit yourself to one question and one follow-up question. At this time, we will pause momentarily to assemble our roster. Our first question comes from Sara Senatore with Bank of America. Please go ahead. Thank you so much. I just wanted to ask about unit growth, if I may, both the U.S. and then Europe. You know, Jack, you noted that you could get to the high end of that 8%-10% for 2025. I guess, I'm curious how or what you're doing to sort of address the construction permitting delays that I think should probably continue. You know, are you sort of widening the funnel in terms of the sites that you identify and the kind of work you do to start? I guess I'm trying to understand sort of the confidence in getting back there, assuming the environment doesn't change that much. For Europe, you talked about getting economics you could support accelerated growth. Do you need to get AUVs higher, or are the sales volumes there, but it's really about kind of operational efficiency and the training that you talked about? Thanks. Yeah, so I'll start with within U.S. You know, when we talk about getting to the high end of the 8%-10% range by 2025, that actually assumes that we don't get better in terms of the timeline. It assumes that things stay as they are. What that tells you is just every year, our teams are doing a great job of building a very robust pipeline, and so that pipeline is really filling up, and as these timelines have been extending, that pipeline just keeps getting bigger. And so if you just assume we have the same timelines going forward for the next, you know, couple of years, we should get close to that 10% range. Now, having said that, we've also challenged our teams. We've challenged our teams to take a look at what is causing some of the delays. What can we do from a mix standpoint? Are there simpler, simpler deals that we can go after that would shorten the timeline? Can we work with developers? If developers are getting cold feet in terms of if that's what's slowing things down because of high interest rates, we have a strong balance sheet. Not that we want to give away the farm, but there are things that we can do from an economic standpoint that might accommodate that. We challenge our teams to shorten the timeline, but in terms of us getting to 10%, our, frankly, our pipeline, we think, can get us there, even if the timelines stay the same. And then, Brian, I don't know if you want to comment on Europe. Yeah, sure. So on Europe, Sara, you basically, in your question was the answer. So, you know, the top line looks really good. We're working hard on how we get that to flow to the bottom line. So some operating efficiencies and just getting better at managing the business is really what we're focused on. Great. Thank you very much. Our next question comes from David Tarantino with Baird. Please go ahead. Hi, good afternoon. My question's about the traffic performance you're seeing. I think, Brian, you mentioned that it accelerated as the quarter went on and stayed strong in October. And we've been hearing, I guess, more broadly, that the consumer spending environment may have done the opposite. So I was wondering if you could maybe unpack the drivers that you think drove the divergence that you're seeing in your trends versus maybe what others are seeing. And specifically, was hoping that you could, you know, talk about the comparison related to Garlic Guajillo Steak, and also, you know, what you're seeing on the throughput side, as a contributor to that. Thanks. Yeah. So yeah, David, our transactions actually throughout the quarter, every month, showed improvement, and we continue to see that transaction strength, where we are today. So, you know, the things that we've been focusing on is, you know, look, get staffed, get trained, get deployed, and, you know, kind of the way we describe this is: you got to have great people, great culinary, great throughput. And I think we're seeing that come through in our results. Combine that with the fact that, you know, we just launched, Carne Asada, and the foundation of operational performance, I think, is critical in making Carne Asada be, you know, probably a performer that will outperform what we saw with Garlic Guajillo Steak. I know that was a favorite of yours, but, you know, I'm sorry to say that Carne Asada is probably gonna outperform it. But, you know, regardless, I think what's really important is our operators have done a terrific job of getting back to the basics of staffing, training, deploying, and then holding ourselves accountable to great throughput. And we're seeing every month, some improvements in throughput, and, and that continues to be the case as we enter the fourth quarter. And, you know, I think that's why we continue to see really good traffic results. And, you know, we're gonna protect the value proposition, and we're gonna protect the brand position that we have. And I think we'll get rewarded with, hopefully more than our fair share of transactions. Yeah, and the only thing I would add, Brian, to that is, we're reading the same things, David, that you are, and the consumer is clearly under pressure, with inflation over the, you know, the past year and pretty much everything with gas and groceries and, really across the board, high interest rates. We continue to do well, not just across our income levels, but with the lower income. They're holding up really well. They're really hanging in there at about the same level as our medium and high income levels. So I think the Chipotle value, where we haven't raised prices in over a year until this latest action, I think is coming through, and people are choosing to, you know, to dine at Chipotle because we are very affordable. Yeah, I'm sorry. One other thing, because this is a favorite topic of ours here, is we do love the fact that our growth is being driven by transactions. W hich I do think is really important to ongoing health for our business and our opportunity to grow going forward. So, really proud of the teams, really proud of the result for this quarter. Right. Thank you very much. Our next question comes from Dennis Geiger with UBS. Please go ahead. Great. Thank you. Wondering if there's anything else to highlight on the strength of the margins in the third quarter, and I guess more importantly, how that's shaping how you're thinking about next year and specifically, Jack, if kind of 27% margin is at, at a $3 million AUV, if that's kind of still the right way to think about the margin AUV dynamic? Yeah, s o we're like, I would describe our margin right now, we're not quite at $3 million, but we're knocking on the door. We should get there next year, and we're knocking on the door of 27%. We're not all the way there yet. We're at 26.5% year to date, and 26.3% for the quarter. Fourth quarter typically is a lower margin quarter for us, so we'll be closer to 26% than 27%. I would call that knocking on the door. Just to give you an idea, we're not gonna do this, but if, for example, we were-- we, we chose to take an extra 1% or 1.25% in pricing, our margin would be at 27%. Now, we're not gonna drive our margin based on that. We're really using menu pricing just to offset inflation. But it gives you an idea with a little bit of extra pricing or with a little break in terms of some of the commodity costs, the ingredient costs next year. We've had multiple years of inflation, if those ease a little bit, if labor inflation eases a little bit as well. There's a number of ways, you know, to get there, and I would use the algorithm as more a long-term guidepost rather than something we're gonna look to be right on the money every single quarter or every single year. So I feel like our economic model is really, really healthy. We're really knocking on the door of that 27%, and with a break here or there, I think we will, you know, hopefully get there next year. That's great. Thanks for that. Then just appreciate the strong traffic number in the third quarter. Can you just provide the price and mix breakdown in the third quarter, Jack? And if you care to talk at all about how to think about those components into the fourth quarter level, thinking about that mix in particular. Thank you very much. Yeah. Yeah, sure. The price we're running in the quarter was in the high 2s, you know, call it right around 2.8-ish, something like that. And remember, that's all from pricing we took last year. We didn't take any additional pricing until just recently. And mix did ease a little bit. Mix was more in the 2% range. So you add that on top of a better than 4% transaction, you know, comp during the quarter, and that's how you get there. You know, looking forward into Q4, with the 3% we just took, remember, we took it in the second half of October, so that'll average out to about a 2.2%, call it a low 2s menu price increase. We are starting, or we did start to see the mix, negative mix component ease during the quarter. And if that continues, we would expect that the mix component would be still a drag, but it would be hopefully closer to a drag of 1% than the 2% that we saw in this quarter. And then, of course, you know, Brian, Brian mentioned, we continue to see strong mid-single digit transaction comps, you know, in the fourth quarter so far. Thank you. Our next question comes from Andrew Charles with TD Cowen. Please go ahead. Great. Thanks. Jack, just a quick clarification. Do you consider the recent 3% price increase to brace yourselves for AB 1228 next year, or are you planning a separate California target price increase, to be utilized sometime around April to help, you know, mitigate the impact of the higher California wages? Yeah, this does not consider anything, any part of the California wages that'll happen next year. We've been studying that, Andrew, as you can imagine, already. It's gonna be a pretty significant increase to our labor. Our average wages in California are right around 17%. So to get the minimum up to 20, and to make sure that we take care of compression as well, we're gonna have to increase wages in the, you know, call it the high teens to 20% or so. We haven't made a decision on exactly what level of pricing we're going to take, but to take care of the dollar cost of that and/or the margin part of that, and we haven't decided yet where we will land at that. It's gonna be, you know, a mid- to high-single-digit price increase. But we are definitely gonna pass this on. We just haven't made a final decision as to what level yet. Gotcha. Okay, that's helpful. And then, Brian, question on menu innovation. You know, it looks like there's no menu innovation in the stage-gate process, as obviously you're prioritizing operations in Project Square One. I'm curious, what do you need to see to resume, you know, new menu innovation, in particular, if it's reaching a number of transactions per peak 15-minute or, or some other measure you're looking at to resume, you know, new menu innovation, piloting? Yeah, so the teams are still working and iterating on menu innovation. One of the things that they uncovered, which I'm really excited about, is we have an opportunity to just talk about our core menu. So there's very little awareness and understanding of what barbacoa or carnitas are, and you'll probably be seeing our teams doing some work on how do we bring to life what we currently have on our menu so that customers can understand and truly enjoy everything that we currently offer. At the same token, they're still doing some work on, you know, what are some new menu items, and we're also doing work on bringing back some menu innovation that we've done in the past that has really rung the bell. So I'm feeling really, really good about where our menu stands and the pipeline that we have for news over the next, you know, call it 18-24 months. Awesome. Looking forward to it. Thank you. Yep. Our next question comes from David Palmer with Evercore ISI. Please go ahead. Thanks. Question on labor productivity. I'm wondering how you're thinking about t he drivers and getting back to something like you've done in the past, that 23% or so labor margin, you know, what are the key unlocks from here? You're obviously finding some traction on just paying attention to how you deploy labor and some of the things you're doing, even with computer vision and whatnot. Then there's the other side, which might be the bigger leap stuff with equipment. I'm wondering how you're thinking about the timing of these things, and how-- I'm really obviously thinking about 2024 and what drivers you see there. Yeah, David, I don't know that we'll see 23%, at least not in the near future. We've taken on some significant labor inflation over the last few years, and, you know, this California Act that, you know, we just talked about, California is only 15% of our restaurants, but that's all by itself. Next year, that's gonna add 2.5%-3% inflation to our overall company inflation in labor. I don't know that we'll see 23, but the essence of your question is: What are we gonna do to continue to be efficient with labor? I think you hit on all the key pieces. For what we have in our restaurants today, we're really efficient. It doesn't mean we don't have some opportunity, but our teams are doing a great job, and for the most part, they're using the labor that they need to throughout the day. I think the unlock is that we have the labor deployed properly, you know, Brian mentioned this during his prepared comments, so that we have the right people that are staying on the front line, so we could drive better throughput. When we drive better throughput, we know with a 40% flow-through, and we know with our ability to lever labor, that that labor percent will go down. And then over the, I'll call it the medium term and long term, with things like Autocado and, you know, with Hyphen, I think there's opportunities for us to try to offset some of the labor inflation. But I just don't know that we would be able to get all the way down to 23%. That would be—I mean, that'd be an 8% deflation, and that'd be, I think, difficult to accomplish. But you know, rest assured that there's a lot of things that, as we're working on investments that can make, not just reduce hours, but also make the jobs of our crew easier, better, and free them up so they can provide better customer service, we're definitely gonna invest in that. Well, yeah, if it makes you feel any better, I think anybody has 23% in their models or anything, but- Okay, good. Just wanted to make sure. Yeah. I, I-- when you mentioned the 4%-5% - four to five entrees, in that peak 15-minute window improvement, what is the benefit to same store traffic and/or just labor productivity you're, you're getting from that? Can you put that into perspective? Yeah, I mean, in terms of, like, comps, for example, we need about five transactions in a day to get a 1% comp. If you get three, four additional transactions in that 15-minute period and do that for multiple periods, you can easily add up the math, and you can get a 2%, 3% additional comp, you know, in all those restaurants that are seeing that additional flow-through. In terms of leverage, David, I'd have to go through the math. Generally, you know, generally, as you add two, three additional transactions, you're gonna see tens of basis points. You're not gonna see 100 basis points or anything like that. You're gonna see tens of basis points of leverage on the labor line. So it's certainly nice, but it's not gonna get you, you know, down to anything in the, you know, the sub 24% range. But keep in mind, the important thing from a margin standpoint, every single additional transaction we bring in, there is a 40% pass-through down to the cash flow line, and that's, you know, that's how we want to grow our margins. Thank you. Our next question comes from Lauren Silberman with Deutsche Bank. Please go ahead. Thank you. I also wanted to ask about throughput. So one of the key initiatives being the right cadence of digital orders. To what extent have you rolled out that specific initiative across the system? Or what percentage of the system do you see opportunity to improve that labor allocation? You're referring to the digital make line and the our smart pickup signs? Yes. More than half. Yeah, it's in, i t's about half of our restaurants right now. And, you know, we're seeing great outcomes from that. You know, we're being more on time, more accurate with our digital business. And where we have the correct deployment or aces in places on the front line, we're seeing some nice improvement in entree, number of entrees per 15 minutes. So, we still have work to do, though, on executing the deployment on the front line so that people don't leave their position. But for the most part, we're seeing really nice progress on the on-time and accuracy on the DML, and we're seeing some throughput gains on the front line. But I think there's opportunity for us to get even better as we keep people in position during the entire peak that they're faced with. Great. You've historically, I believe, talked about peak throughput being high 20 or low 30 orders per peak 15-minute period. As you work to return to those levels, is there room to exceed prior peak throughput as you now utilize the second make line to a much greater level? Is there any constraint at that high 20, low 30 order level across the restaurant? Thank you. Yeah, the good news is there's no real constraint. You know, we've got the opportunity to exceed that. Obviously, when we were doing those numbers, that was when the entire business was off the front line. So the good news is, no bottleneck. The other real piece of good news is, if that does occur, we've got a significantly bigger business than what we have today. So, and we think there's a lot of room for growth. We just got to execute this throughput program with excellence on the front line. And, you know, I was just with all of our team directors, frankly, this morning, and it's the number one initiative on everybody's mind. You know, great people, great food, great throughput. We do those three things, we're gonna continue to drive growth from our operations. Great. Thanks so much. Our next question comes from John Ivankoe with JP Morgan. Please go ahead. Hi, thank you very much. Yeah, the question is related to throughput, but I think it's more specifically on unmet demand. You know, I was wondering, you know, if your data, you know, specifically on the digital make lines, you know, side, you know, showed how much unmet demand, you know, that you actually may have based on the wait times that are quoted to customers. In other words, you know, they get to the end of the transaction, they see a wait time, and, you know, they just don't complete the transaction. Is that something you can measure? And related to that, you know, do you have a sense of how many stores actually are at capacity? Maybe still in Midtown Manhattan and in some other places where people do walk by a line that has 15 or 20 people in it, perhaps, and, you know, just go to a place that, you know, that, that's less. So is there a way to kind of quantify, as you see it today, you know, the amount of unmet demand that, you know, that you would serve if you could serve? In other words, if you were, you know, kind of faster, if the order times were less, what have you, you know, just the, you know, just the opportunity on your current store base. Yeah. Yeah. Hey, John, we don't have the ability today for the in-restaurant, although we're talking about it. We're talking about some of the new tools that there may be some ways for us to capture the data, not only in terms of, like, how many customers are waiting at the end of a 15-minute period, which that would be the opportunity, you know, as well as how well we're executing on the front line. So we're talking about, you know, developing those tools. We do know historically, though, when we drive faster throughput, that we do flow more people, not just through the 15-minute period, but we get a lot of incremental transactions as well. So historically, we know that people do. They walk away from our lines. You can see it anecdotally. When you're in the Midtown restaurant, when you see a long line, and you see somebody walk by, open up the door, and then walk away, that's a lost transaction. We're not able to quantify that specifically, but we know it happens, a lot. Do you, I mean, well, do you know that on the digital side? I mean, your transactions that kind of get, you know, to the final, like, you know, percentage of transactions that maybe, you know, is, you know, that maybe aren't just completed, that are right, you know, right at the point of payment. I don't know if that's exactly the way to look at it, but there must be, you know, it must be a leading indicator to some degree. We do that, have that on the digital side. Your related question was, how many of your restaurants are at capacity? We were able to flex capacity in the restaurant by adding staff. We will have between one and four people on the DML, and if you have a very, very busy restaurant on the digital line, you will have as many as four people on that line, including one dedicated person that's gonna run orders back and forth. We have very few restaurants and very few individual periods within our restaurants that are maxed out from a digital standpoint. Okay, and clearly, you can see the faster you are, the more customers, you know, you serve. This, your current set of data prove that once again. Thank you so much. Yep. Our next question comes from Brian Mullan with Piper Sandler. Please go ahead. Thank you. Just a question on loyalty. Could you talk about some of the key near-term objectives the team is focused on with the program over, say, next 12-24 months, you know, on the path towards, I think, the ultimate long-term goal of greater personalization over time, which, Brian, I think you've referred to in the past, that's still a big opportunity? Yeah, sure. So yeah, the team is focused on taking all the analytics and the insights that we obtain and figuring out how we commercialize those learnings in a way that's very personalized for the individual. So a simple example, the suggestive sell. You know, when you get ready to check out, if we know historically you do buy a Mexican Coke and we don't see Mexican Coke in your basket, the suggestive sell will be for Mexican Coke. And then we see, you know, when we do that, we get a higher take, obviously, on the suggestive sell. So it's simple things that actually we know we can commercialize, done in a very personalized way. That's what the team is centered on: How do we do this throughout the user experience, from the moment you enter your ordering process to the moment you're trying to pay on your way out? The good news is the team's got a lot of analytics that we're cranking through, and we're knocking off the things that we think are the highest leverage points over the next, you know, call it 18-24 months. Okay. Thank you. I wonder if you could just update us on the dual-sided grills, maybe how many locations have that been rolled out to, and are the benefits proving to be what you might have hoped inside the stores? If so, you know, when could this be rolled out more broadly? Yeah. So we're still in 10 restaurants, and, you know, this is why you use the stage-gate process, because we've definitely... One of the things we've learned is the energy needed to run these dual-sided grills is going to require some electrical upgrades that we originally hadn't planned on. So we've got to understand exactly what is the cost of the equipment, not only to purchase, but then to actually install. And so we're still working through how do we make the economics of this make sense. The crew likes it, the culinary turns out to be great, but we have to do some work on the economics of it. Thank you. Our next question comes from Brian Harbour with Morgan Stanley. Please go ahead. Yes, thank you. Could you maybe just comment on the delivery channel and then also just kind of, you know, mobile order and pickup and, you know, some of the things you're doing with timing or orders per 15 minutes, if that's kind of affected volumes at all? So, you know, kind of a general question there. So I'll see if this maybe answers your question. But what we see is the delivery business is pretty stable. You know, the order ahead and pickup business continues to be something that we are very much focused on being on time and accurate. And that's why we've implemented the Smarter Pickup Times, where we are moving how many orders we allow in per 10 minutes, as well as the buffer, so that our crew can execute those digital orders with excellence without having to impact giving the frontline a great experience. And, you know, we're seeing nice progress on both fronts, which I mentioned earlier. We're more on time, more accurate, and we're seeing gains on the throughput side of things on the frontline, and we're not seeing a step back in any conversion rates in that digital business as well. So, you know, it's full steam ahead, and we got to execute the operating platform. Okay. Just on Chipotlanes, are you still seeing kind of the same, you know, unit volume uplift that you've previously talked about for those, kind of the same impact on returns? Is it in fact going up? Any comments on how we think about the Chipotlane impact, especially as we kind of think about next year? Yeah, the Chipotlane volumes have gotten closer to the non-Chipotlane volumes. And keep in mind, a lot of these were open during the pandemic when, you know, the Chipotlane was really a premium access channel, a preferred access channel during that time. But keep in mind, we're comparing a little bit of apples and oranges, too, because in the early days of Chipotlane, we had a lot of trade areas that could accommodate Chipotlane, and yet we weren't putting a Chipotlane in every single restaurant. Now, the only restaurants that don't have a Chipotlane tend to be a downtown area, an in-line location where you can't have a Chipotlane. So we're comparing a little bit of apples and oranges. Having said that, the margin is much better because you've got a lot more, you've got more of your, your business that's going through the digital channel, which is a more efficient channel for us. The other thing that happens is you still have about a 10% shift, where your delivery is dropping by eight to 10 points or something like that, and your order ahead is increasing by, you know, eight to 10 points or so. Our customers are choosing the convenience channel, which also is a value channel, which is also an efficient, a very efficient channel for us to run in that order ahead, and they're deselecting the delivery channel. Thank you. Our next question comes from Sharon Zackfia with William Blair. Please go ahead. Hi, good afternoon. I guess going back to throughput, I know in the past you've quantified kind of where you are relative to 2019 on peak throughput, and I was hoping perhaps we could get an update on that. And then I guess I'm also wondering, is 2019 really the right benchmark anymore, just given how the business has shifted? I mean, you're doing double digital versus 2019, and we know that's causing some tension between the front and back lines. So is that the right bogey? I mean, do you have a slice of restaurants that have exceeded 2019 peak throughput, or is that not the right answer anymore? Sharon, it's a great question. When we use 2019 as a benchmark, we actually adjusted it for the fact that today's volume is at, you know, basically 60%. 62% of the business goes through the frontline, versus back in 2019, it was about 80% or 81% or 82% or so. So we've adjusted for that volume. So for example, the average throughput in 2019 was in that high 20% range, 28%-29%. When you adjust it for 62% of the volume going through the frontline, that bogey ends up being, on an adjusted basis, more like 25 to mid-20s. And so we do have the right targets for our teams because we did volume adjust it. In terms of where we are, we've been making incremental improvements. We're now at right around 22, but we're still thre transactions below, 2.5-three transactions before our goal. The good news, as Brian mentioned, we're seeing a lot of progress in terms of the right deployment. We're seeing that a lot of our restaurants are executing four core, Core Four, meaning they've got at least four folks, if not more, on the front line. Previously, we saw most restaurants would have three or sometimes even less than that. And now our teams are focusing on, okay, what are the habits that drive great throughput? Because having four people on the front line is an enabler, but it doesn't mean you're going to deliver great throughput. You have to stay on their front line, and then you have to have all the tricks that we're not going to go through right now, and all the techniques to deliver great throughput. We're starting to see individual restaurants or patches of restaurants that are executing Core Four, and their throughput numbers are three to four or more transactions greater in a 15-minute period than restaurants in the same patch that are not executing the Core Four. So we're seeing really encouraging results. And it's that three or four transactions, Sharon, that gets you from the 22 up to the mid-20s. So we do feel like we're triangulating around the right target. Okay. Then, I guess a question on the guidance for the quarter on comps. I know you had kind of some weather and some disappointment around the holidays last year. I mean, Jack, are you factoring that in to the guidance for this year, or are you just kind of steady stating? What we've done, Sharon, is taken our current trends from October, and then pushing them forward. We do take into account what we did last year, but rather than taking into account last year, is that gonna affect our comp either up or down? We really take our current trends, which includes Carne Asada, and includes the menu price increase, and includes the current underlying transaction trend. We use that trend to trend out for the rest of the year. Compared to last year, to the extent that there was some weather, if we see individual days or weeks where there's weather, our comp is gonna bounce up during those periods. But we didn't use last year's weather to say it's gonna be any better or worse. Okay, great. Thank you. Thanks. Our next question comes from Danilo Gargiulo with Bernstein. Please go ahead. Thank you. First of all, a quick clarification in light of your comments on the Chipotlane. So I'm assuming that the 40% flow-through is the average in your system. So are you seeing any mixed benefits in the 40% as you're getting more and more stores with Chipotlanes and in new trade areas? So could we be talking about 42%, 43% flow-through in the near future? Yeah, that, that, that's correct, Danilo. In a Chipotlane, the margins are better, and then the incremental margins are better, so you should see a few ticks up when we have incremental transactions in a Chipotl ane, definitely. Great. And then, with potential increase in value offerings from some of your large peers, do you think that the industry is moving toward a more elevated level of promotional intensity to attract and retain traffic? And if so, are you expecting Chipotle to be able to leverage the same pricing power that they did last year? You know, I mean, what we center on is providing a great experience, and what we've seen is that results in superior value. And fortunately, we aren't doing it through price promotion, rather, we're doing it through great culinary, lots of customization, terrific speed, and that's where our value, you know, for the consumer really shines through. And then, you know, given the scale that we have, we're able to buy ingredients and provide people, you know, a clean eating experience that frankly, you can't get anywhere else for the price at which we charge it. So, you know, very affordable and very customizable, super high quality is resulting in really strong value scores from consumers. And then when we look at our relative price position to competitors, we're, you know, we're anywhere from 15%-30% discount on an everyday standard. You know, something that was kind of interesting that the team did, just to kind of dimensionalize this, they took a look at, you know, 18- to 34-year-olds that actually have student debt, right? And what we found is Chipotle was the best value proposition among that universe. So, you know, one of the things we're seeing is, whatever situation you're in, whether it's low income, higher income with some student debt, we continue to be a strong value proposition regardless of where you look across the consumer segments. Excellent. Thank you. Our next question comes from Jeffrey Bernstein with Barclays. Please go ahead. Great. Thank you. Two questions. First, Brian, I'm sure you're getting this question periodically. I think I saw some headlines on CNBC earlier about it, but just the topic of anti-obesity drugs as a headwind. I think you had mentioned that you're not seeing anything to date, but it would seem like you're perhaps more vulnerable than others just 'cause maybe you have a slightly higher income cohort. So I'm just wondering how you'd assess whether there was any impact or what you might do differently if that was a future headwind, maybe get ahead of it with focus on the healthier offering that we know you have. Just how you think about how it's being impacted and how you would respond. And then I had one follow-up. Sure. Yeah, that's right. We've not seen any material impact from it. As I understand the drug, and when I've spoken to people that know a whole lot more about the drug than I do, you know, our food is a good solution because it's clean, it's not fried. You know, it allows people then to customize the meal that would fit their diet that they're trying to achieve, whether they're on GLP-1 drugs or whether they're on a keto diet or a Whole30 diet or, you know, insert the lifestyle diet that they're on or the lifestyle drug that they might be on. The good news is we're positioned to be able to customize that diet for you with clean food, done in a very healthy way. You know, longer term, I think we're positioned really well. We'll see how this continues to unfold, but to date, we've seen no real impact. You know, the best thing we can do is make sure that we stay committed to Food with Integrity and providing those customized solutions at speed. Got it. And then, Jack, just in terms of the fourth quarter, or maybe more importantly, looking to 2024, your commodity and labor inflation, what's kind of the forecast you're assuming when you talk about kind of approaching that 27% restaurant margin? I know you talked about how California labor alone is 250-300 basis points, but just wondering what assumption you have for inflation on commodities and labor for next year. Thank you. Yeah. I mean, Jeff, you know this, predicting anything, especially inflation the last few years, has been very, very difficult. Right now, it looks like inflation is settling for both our ingredients and for labor in that, call it 3%-ish, maybe between 3% and 4%, something like that. That's a very normal environment. If it stays at that 3%-4% range, I think that's, I think that's just fine. We can operate, you know, very effectively in that environment. ... Would we be able to get all the way to 27% without taking any additional pricing? That'd be tough unless our transactions accelerate, and we can, you know, you know, leverage, throw some more leverage along our fixed line item. But if it's in that 3%-4% range, we just took a 3% price increase. I think we'll just, you know, be just fine. But if it continues at a higher level, obviously, that'd be a little, you know, a little tougher. Anyway, that's if it ends up in that 3%-4% range, if people keep their jobs and if people still wanna dine out, we like our chances that they'll keep coming to Chipotle, especially based on the most recent trends that we've seen. Thank you. Our final question comes from Peter Saleh with BTIG. Please go ahead. Great, thanks. Thanks for taking the question. Brian, I want to come back to your comments on the Hyphen make line. I think you said it increases capacity, better accuracy, and better speed. What are the challenges and some of the hurdles that you think you need to overcome at this point to move it to the next stage in the stage-gate process? Yeah. So, thanks for the question. You know, so we had our first prototype at our Cultivate Center, and, you know, the team did a great job of kind of pressure testing all aspects of it. You know, we learned a lot, right? There's work to be done on how you expo things. There's work to be done on how you clean it. There's work to be done on how we actually provide portions. And, you know, the good news is, this is why we use the stage-gate process, so that we learn, we iterate, and then, you know, hopefully, we get to a faster solution. So I'm excited to see what the next prototype holds, but the team is working on some of those key things that we learned on. But yeah, look, all signs are really promising that as we continue to work on this in the stage-gate, you know, what we're after is, you know, accuracy, speed, and then the ability for the team member to execute this, both at the expo station and then keep it clean and food safe. So, you know, we're working through those things, but for a very first prototype, the team did a great job, and, you know, I loved everybody's passion to learn so that we get to an even better second-generation prototype. Great. Just my last question would be, have you seen any difference in sales performance for the urban versus suburban stores these days? Is the return to office, are you seeing any improvement there? Just any clarity around that would be helpful. Thank you. Yeah, the comps have gotten a lot closer. You know, the urban still outperformed the suburban by about 100 basis points or something like that, so it's much, much, much closer. But I would say the central business district are still behind in terms of an absolute sales basis. If you look at, you know, pre-pandemic and where we are today, the central business districts are still behind. But from a comp standpoint, they're performing in the same general range. Thank you very much. Thank you. This concludes our question- and- answer session. I would like to turn the conference back over to Brian Niccol for any closing remarks. Yeah, thank you, and thanks, everybody, for the questions and joining the call. Obviously, we're very proud of our teams and the results that we delivered in the third quarter. You know, it's very exciting to see our efforts on throughput, driven by having, you know, the team's staff trained and deployed correctly, continuing to make progress. And then, with our strong value proposition, seeing that show up in transactions as the driver of growth. We're gonna continue to stay focused on executing great throughput. We're gonna continue to stay focused on great culinary, and we're gonna continue to stay focused on having great people that are trained and know exactly what they need to do in their position. So very excited about the results we've achieved, but very optimistic about our future, both in building new units and continuing to drive average unit volumes and margins. Thank you for taking the time, and we'll see you in a couple of months. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.