The operator welcomes participants to the Chipotle Fourth Quarter and Fiscal Year End 2023 Earnings Conference and introduces Cindy Olsen, Head of Investor Relations and Strategy. Cindy reminds listeners of the risk factors and non-GAAP financial measures before turning the call over to Brian Niccol, Chairman and CEO, and Jack Hartung, CFO and CAO. Brian highlights the company's strong performance in 2023, attributed to their focus on people, food, and throughput.

In 2023, the company saw a 14% increase in sales and a 37% increase in adjusted EPS. They opened a record number of new restaurants, including many with Chipotlanes. The fourth quarter also saw strong results, with a 15% increase in sales and a 25% increase in adjusted EPS. The company expects mid-single digit comp growth for the full year and is focused on five key strategies to continue their success. These strategies include developing and retaining diverse talent, maintaining a people-accountable culture, providing great food and digital experiences, and improving overall guest engagement.

Chipotle is focusing on amplifying technology and innovation, expanding access and convenience, and developing and retaining top talent to drive growth and productivity. They have recently added new benefits and opportunities for professional growth within the company, resulting in a high rate of internal promotions. The addition of a new Chief Human Resources Officer is expected to further enhance support for employees at all levels.

Chipotle's strong leadership and focus on developing and promoting employees has led to successful restaurants and low turnover rates. The company has implemented strategies to improve restaurant throughput, such as adjusting the digital make line and providing real-time coaching and feedback to employees. As a result, the number of restaurants with at least four crew members during peak periods has increased from 30% to around 50%.

The company's focus on improving their value proposition has led to an increase in entrees during peak hours, and they are looking to continue this momentum during their peak burrito season. Menu innovation, such as the successful Chicken al Pastor and Carne Asada options, has also contributed to increased sales. The company plans to continue innovating with limited time offers and promoting their core menu. They have also launched a partnership with Strava to encourage healthy habits among their customers.

Chipotle's marketing team is focused on making the brand more visible and relevant through initiatives like the Behind the Foil campaign, which showcases the restaurant's use of fresh, real ingredients and classic culinary techniques. The company has also made improvements to their digital experience, including order readiness messaging and rewards for loyal customers. The recent launch of suggestive upsell on the app is based on data from rewards members to improve the overall experience for guests.

The company is focused on commercializing customer data and insights to improve marketing and the digital experience, and has made seven investments through its Cultivate Next Fund to further its mission. Two of the investments, Hyphen and Vebu, aim to improve the restaurant experience for teams and guests. The company plans to pilot these technologies in a restaurant in 2024. The company also recently announced two more investments in companies that provide solutions for regenerative agriculture and greenhouse gas emissions.

Chipotle believes that both Greenfield Robotics and Nitricity can contribute to a more sustainable future for farms in their supply chain. They are committed to supporting their suppliers in growing and supplying high-quality, sustainably raised ingredients. The company's final strategic pillar is expanding access, and despite timeline challenges, they opened a record number of restaurants and surpassed 800 Chipotlanes. They also had successful restaurant openings in new markets, such as Canada, and plan to continue accelerating growth in the country. Overall, Chipotle thanks their employees for their hard work and celebrates hitting significant milestones in 2023.

In the fourth quarter of the fiscal year, Chipotle saw a 15% increase in sales, driven by 8.4% growth in comp sales and over 7% growth in transactions. They also saw an increase in restaurant level margin and adjusted earnings per share. Looking ahead, they anticipate mid-single digit comp sales for the full year. The cost of sales increased by 40 basis points due to a shift to beef and higher costs for ingredients.

In the first quarter, the company expects cost of sales to be in the low 29% range due to a shift away from Carne Asada, offset by higher costs for avocados and tortillas. Labor costs are expected to be in the low 25% range, with wage inflation increasing in the mid-single digit range due to California wage increases. Other operating costs are expected to be in the high 14% range, with marketing costs in the low 3% range for both Q1 and the full year. G&A for the quarter was $169 million, with underlying G&A expected to increase each quarter as the company invests in people and technology for growth.

In the first quarter, the company expects to have around $32 million in stock compensation, $7 million in employer taxes, and $21 million in costs for their All Manager Conference. They also anticipate adjusted depreciation to remain at 3.1% of sales. Their effective tax rate for the quarter was 26.2% and they estimate it will be in the 25-27% range for the year. The company has a strong balance sheet with $1.9 billion in cash and no debt, and they have repurchased $144 million of their stock in the fourth quarter. The Board has authorized an additional $200 million for share repurchases. The company opened a record 121 new restaurants in the fourth quarter, with 110 having a Chipotlane. They expect to open between 285 and 315 new restaurants in 2024, with over 80% having a Chipotlane. The company is facing challenges with project delays due to macro pressures and high interest rates, but they remain on track to meet their long-term growth goals.

Chipotle is a purpose-driven company that has been able to grow into one of the largest restaurant brands in the world over the last 30 years. The company still has a lot of potential for growth and is confident in its ability to achieve its ambitious goals. The key drivers for this growth will be strong operations, marketing, loyalty programs, and innovations such as Chipotlanes. However, the main focus will continue to be on great execution in the restaurants, including culinary excellence, strong employees, and efficient throughput. This will be the main factor in reaching the $4 million AUV goal, without the need for additional day parts or major changes to the current business model.

The speaker discusses various factors that will contribute to the company's growth, including automation, rewards program, menu innovation, and marketing. They also mention the importance of operational execution and the potential for outsized comps in the future. However, it is difficult to predict the exact rate of same store sales growth and margins at $4 million volumes.

Chipotle expects to see continued growth and improvement in the future, with plans to reach $4 million in sales and expand margins. They anticipate reaching 7,000 restaurants in North America and have set a goal of 10% unit growth for next year. The company believes they can surpass their current projections and see potential for even more growth.

The company is confident in their goal of opening 7,000 restaurants based on the success of their existing locations and their strong inventory. They believe this is a practical goal, but also hope to exceed it in the future. The team has been building a strong inventory to offset delays in opening new locations and if they receive any breaks in the timeline, they could potentially reach their goal of 10% growth even sooner.

Jack Hartung, CFO of the company, is asked about the potential for shorter timelines and any signs of improvement. He responds that there is nothing sustained at the moment, but the team is working hard and if interest rates improve, it could help. The next question is about the potential for increased traffic in 2024, driven by improved throughput. CEO Brian Niccol responds that they are still in the early stages of implementing their four pillars of great throughput and there is still a lot of room for improvement. He is pleased with the progress so far.

The company has been consistently increasing their Max 15, with December and January showing the best results. They still have room to grow, and the teams are focused on improving performance in areas such as throughput, culinary, and people and culture. The company plans to have one to two menu innovations this year, with a potential focus on spotlighting core menu items. They have demonstrated success with this strategy in the past, most recently with Carne Asada. There is confidence in the company's innovation pipeline and cadence.

Brian and Jack discuss ways to increase check size at checkout, mentioning the success of suggestive selling and the popularity of sides like queso and chips and salsa. They also mention using digital technology to personalize suggestive selling, such as reminding customers to add a Mexican Coke to their order. Jack also comments that pricing in the first quarter will be similar to the fourth quarter, but may change in the second quarter due to factors like California.

The company is considering a 2.5% to 3% price increase in the first quarter due to a 20% increase in wages. They have not decided on the final price increase and will wait to see the consumer sentiment and actions of other companies. The impact on California, which represents 15% of their restaurants, would be an additional 80-100 basis points in menu prices across all restaurants. The questioner asks about the potential for reallocating prep labor with the growth of the company and the use of technology, to which the CEO responds that prep is critical for a successful lunch and they are always looking for ways to improve efficiency.

The company is looking for ways to improve its prep process and increase efficiency. They are considering using robotics and other technology to help with tasks like cutting onions and jalapenos. The goal is to have all restaurants fully prepped and ready to serve, which will improve throughput. The company is also focused on staffing and stability in teams to ensure consistent execution. The increase in transaction growth is not directly correlated to staffing improvements, but it is a contributing factor. In the past decade, a similar focus on the four pillars and improving throughput has led to success for the company.

The company has seen significant improvements in execution and throughput, and believes they can continue to improve. This has led to positive brand perception and increased customer satisfaction. The success of the Carne Asada LTO can be attributed to strong marketing and digital efforts.

Brian Niccol responds to a question about the key drivers of the traffic comp by income cohort and channels. He mentions that sales grew in every income cohort, showing that the brand is resonating. He also addresses the contribution to average check from pricing and mix, stating that they saw progress in all income cohorts and that the brand is resonating in a meaningful way.

In a recent earnings call, Chipotle executives discussed the success of their in-store channel and the impact of their improved employee benefits on labor costs and productivity. In-store was the strongest channel, followed by order ahead and delivery. The company is focused on providing a strong employment value proposition and has implemented initiatives such as helping employees pay off student loans and offering 401-K contributions to attract and retain talent. This is especially important for the younger generation of workers, known as Gen Z.

The speaker discusses the opportunities for growth within the company, specifically for young employees who can quickly advance in their roles. They also mention the positive impact of the company's culture and benefits on employee stability and turnover rates. The speaker also mentions the success of suggestive selling within the app and potential for increasing attach rates in stores through coaching and other methods.

Chipotle CEO Brian Niccol discusses how the restaurant's improved availability of chips, queso, and guacamole has led to an increase in sales. He also mentions that the delivery channel has been stable, but consumers may be choosing to dine in or use lower-cost options due to tighter budgets.

The paragraph discusses the percentage of sales that come from different access channels for Chipotle, such as delivery and in-store pickup. It also mentions the impact of the convenience and value of Chipotle's offerings on customer traffic and value scores, which have remained strong despite softness in other consumer cohorts. The company attributes this to their lower prices compared to other fast casual restaurants with similar quality food.

The company's value proposition is strong due to its quality, convenience, and customization at a reasonable price. They have been able to maintain this value proposition even in the face of inflation. The company is cautious about raising prices, but will do so if necessary to protect their value proposition. The mix of the check is hard to predict, but the company expects it to be similar going forward with continued adjustments to the group side.

Chipotle's Chipotlane prototype has gained significant scale with over 800 locations and a record 238 built in 2023. The company has seen positive results from these locations, with higher margins and volumes compared to non-Chipotlane locations. While the impact on the overall company's restaurant margin is currently relatively small, it is expected to continue to grow as more Chipotlanes are built. The investment costs for these locations are similar, but the return is much higher due to the combination of higher volumes and margins.

The company's shareholder value will increase as they continue to open new restaurants with Chipotlanes, which will have a positive impact on margins and returns. The labor margins in the fourth quarter were better than expected due to higher sales, efficient labor management, and improved handling of sick and vacation time. However, there may be some deleverage in the first quarter due to tax increases and the softer January period.

The three main contributors to Chipotle's growth in transactions are expected to be wage inflation, deleveraging of the labor line, and the loyalty program. The loyalty program has been successful in increasing frequency and check size among both existing and new customers, with 38-40 million members. The pandemic helped move more people into the digital system and rewards program. Customers in the rewards program tend to spend more and add on additional items even when redeeming a free entree.

The company is pleased with the success of its rewards program and the impact of its advertising on attracting new customers. LTOs have also been effective in bringing in new customers. The company acknowledges that there is still room for improvement, but overall, the system is working well. The CEO thanks the team members for their hard work and contributions to the company's strong performance.

The speaker is praising the hard work and dedication of their employees and announcing some major milestones that have been achieved, such as surpassing 3,400 restaurants, opening 800 Chipotlanes, and reaching 3 million in average unit volumes. They are also looking forward to improving their throughput and culinary offerings in order to achieve 4 million average unit volumes in their 7,000 restaurants in the future. The speaker concludes by thanking the team and expressing excitement for what's to come. The conference has now ended.

This summary was generated with AI and may contain some inaccuracies.