The paragraph is from Chipotle Mexican Grill's Third Quarter 2024 Results Conference Call. The Operator introduces the call, after which Cindy Olsen, Head of Investor Relations and Strategy, welcomes participants and provides access to the earnings press release. She advises that the presentation includes forward-looking statements and directs listeners to relevant risk factors and non-GAAP reconciliation available on their website. The call will feature prepared remarks from key executives, including Scott Boatwright, Interim CEO; Jack Hartung, President and Chief Strategy Officer; and Adam Rymer, CFO, followed by a Q&A session. Scott Boatwright then begins the discussion, expressing gratitude for former CEO Brian's leadership and transformation efforts at Chipotle.

The paragraph discusses the speaker's excitement and honor in becoming the Interim CEO of Chipotle. It highlights their passion for the brand and its mission of cultivating a better world, as well as their belief in the strength of the company's employees. Since joining Chipotle in 2017, they have overseen significant growth, with restaurant numbers rising from under 2,300 to over 3,600 and employing over 125,000 people. The speaker emphasizes that the company's successful strategy will remain unchanged, focusing on expansion goals in North America and internationally. Additionally, they note strong third-quarter results with consistent transaction growth.

In the quarter, Chipotle experienced strong sales growth of 13% to $2.8 billion, with a notable increase in transaction comps and in-restaurant sales. Despite a slight decrease in restaurant-level margin, the company achieved a 17% growth in adjusted diluted EPS and opened 86 new restaurants, including 73 with Chipotlane. Digital sales comprised 34% of total sales. The business momentum has continued into the fourth quarter, with the company maintaining its annual sales growth guidance. Chipotle's strategies for success include fostering a people-centric culture, leveraging technology and innovation, developing leadership, enhancing brand visibility, and expanding restaurant access and convenience. A particular focus remains on improving throughput to enhance overall guest experiences.

Last quarter, a focus on the expo position, situated between salsa and cash, was made to enhance order assembly and payment efficiency, resulting in an average addition of five entrees during peak times. A challenge has been ensuring this crew member isn't sidetracked by other tasks like prep work. In response, the manager now takes over the expo role during peak periods, which has increased implementation to over 60% of restaurants and improved accountability and guest communication. However, some restaurants still struggle with full throughput execution due to crew members prepping during peak times. Prep work requires significant skill and begins early in the morning. Efforts are being made to support teams better by enhancing the prep process through coaching and innovation, with several initiatives in progress to uphold culinary quality and improve team experiences.

The paragraph discusses the rollout of new kitchen technologies aimed at improving efficiency and consistency in restaurants. A dual-sided plancha is being introduced to 74 more restaurants and considered for new openings and existing retrofits. A new produce slicer, which streamlines vegetable preparation and was enthusiastically received by managers, is also being implemented and is expected to be in all restaurants by next summer. Additionally, augmented make lines and an avocado processing tool, Autocado, are being pilot tested for future improvements. These initiatives are expected to bring significant operational changes that enhance culinary consistency and efficiency.

The paragraph outlines Chipotle's focus on enhancing team efficiency and guest experience through strategic initiatives, including a new AI-based hiring platform that expedites the recruitment process by automating communication and scheduling tasks. This technology allows general managers to dedicate more time to team development and hospitality. Chipotle's commitment to nurturing talent is highlighted by its top ranking in the American Opportunity Index for high school graduates. The company offers significant career advancement opportunities, with numerous success stories of employees rising from entry-level positions to high-level roles like Regional Vice President.

The paragraph highlights the inspiring journey of a woman who came to the U.S. as a refugee and rose from a Chipotle crew member to a top-performing team director. She now oversees 61 restaurants, contributing to substantial sales, and takes pride in having financially supported her mother's retirement. The author expresses pride in Chipotle's focus on employee growth and highlights the company's plans for expansion, aiming to promote the majority of leadership roles internally. Additionally, the effective marketing efforts that enhance Chipotle's brand visibility, emphasize quality, and showcase the team's work are praised. The paragraph concludes by noting that recent menu innovations have exceeded expectations.

The paragraph discusses the return of Smoked Brisket at a restaurant chain, highlighting its popularity and the effort required to bring it back due to limited beef supply. It mentions testing a new menu item, Chipotle Honey Chicken, in Nashville and Sacramento, which has proven successful and will be rolled out in the future. The paragraph also covers a marketing collaboration with Spirit Halloween, launching Chipotle-themed costumes based on popular social media memes. Additionally, it outlines expansion efforts with plans to open 285 to 315 new restaurants this year, aiming for 315 to 345 new openings by 2025, with most including a Chipotlane.

In the third quarter, Chipotle has seen significant success with new restaurant openings, particularly with a record-breaking launch in Edmonton, Canada. The company is set to surpass 50 Canadian locations and plans to continue expanding in 2025. In Europe, under new leadership, efforts to align culinary offerings with North American standards and enhance operational efficiency are yielding positive results, alongside successful marketing strategies. The recent performance supports building a future restaurant pipeline, with Europe poised as a significant growth area. Additionally, Chipotle's first Dubai location, in partnership with Alshaya Group, has outperformed expectations, with a second opening planned for early next year and further growth aimed for 2025. The company credits strong transaction growth to their team efforts.

The paragraph discusses Chipotle's commitment to exceptional service and growth, aiming to expand to 7,000 restaurants in North America and grow internationally while becoming a global lifestyle brand. With a management transition underway due to Brian’s unexpected departure, Scott has taken over as Interim CEO, supported by well-prepared leaders Adam and Jamie, while Jack Hartung has assumed the role of President and Chief Strategy Officer. The company emphasizes strong culture and morale, driven by passionate leadership, and Jack is committed to ensuring a smooth transition, having been with Chipotle for 22 years.

In the paragraph, Chipotle's new CFO, Adam Rymer, discusses the company's financial results for the third quarter. Sales increased by 13% year-over-year, reaching $2.8 billion, with a 6% rise in comparable sales driven by transaction growth. The restaurant-level margin slightly decreased, and adjusted earnings per share grew by 17%. The company's earnings were positively impacted by equity awards, an investment gain, and negatively by asset impairment and executive retention awards, resulting in GAAP earnings per share of $0.28. The paragraph also mentions strong transaction trends in September, boosted by the introduction of Smoked Brisket, and predicts modest transaction growth in the fourth quarter, with overall comparable sales expected to be in the mid to high single digits for the year.

The paragraph discusses the company's key profit and loss line items for the quarter, highlighting a 30.6% cost of sales, which rose due to inflation and increased usage, despite a previous menu price increase. They expect cost of sales to reach 31% in Q4, largely due to the impact of their Smoked Brisket LTO, and plan to offset a 60 basis point investment through efficiencies by late 2025. Labor costs remain steady at 24.9% but are projected to rise slightly in Q4 due to seasonal changes and wage inflation, particularly from a minimum wage increase in California. Other operating costs decreased to 13.8%, aided by sales leverage, but are expected to rise as marketing expenses increase to around 3% of sales in Q4.

In Q4, other operating costs are expected to be around 14%, with higher marketing expenses offset by reduced seasonal costs. General and administrative (G&A) expenses for the quarter were $127 million on a GAAP basis and $149 million on a non-GAAP basis, excluding a $22 million benefit from forfeited equity awards by the former CEO. The G&A included $126 million in core expenses, $25 million in non-cash stock compensation, and a $2 million bonus benefit. The departure of the CEO and performance-based adjustments positively impacted stock compensation and bonus expense. Underlying G&A is expected to increase to $130 million in Q4 due to investments in personnel. Stock compensation is projected to be $28 million, with expected additional costs of $4 million for bonuses and taxes, and $1 million for a future conference, totaling approximately $163 million in G&A for Q4. Depreciation, at $84 million or 3% of sales, is anticipated to rise slightly with new restaurant openings. The effective tax rate for Q3 was 22.9% GAAP and 23.8% non-GAAP, benefiting from reduced nondeductible expenses. The 2024 fiscal year tax rate is estimated to be 24%-26%, subject to changes from discrete items. The company ended the quarter with $2.3 billion in cash, restricted cash, and investments, no debt, and repurchased $488 million of stock at $54.55 per share.

In the third quarter, the Board of Directors approved an additional $900 million for share repurchase, leaving them with nearly $1.1 billion at the quarter's end. The speaker expresses gratitude for mentorship from Jack and pride in being part of the leadership team, overseeing 125,000 employees. The focus remains on maintaining the brand's unique economic model, which allows for investment in quality ingredients while offering value and leading industry margins. The competitive advantage is emphasized, requiring dedication to providing exceptional experiences for both restaurant teams and guests. The paragraph ends by opening the floor to questions, with Andrew Charles from TD Cowan congratulating Adam, Jack, and Scott on their new roles and inquiring about potential price increases. Scott Boatwright discusses monitoring consumer behavior and market competition, noting modest inflation, with Adam Rymer providing additional insights on the inflation impacting the cost of sales.

The paragraph discusses strategies to offset costs through supply chain efficiencies and back-of-house improvements in restaurants. It mentions anticipated inflation on sales and labor costs, including impacts from the FAST Act and wage increases in California. It also addresses the previous aspirations of achieving a 10% net restaurant growth by 2025, acknowledging that the planned 315 to 345 openings is a bit lower than expected but still represents significant growth. Scott Boatwright expresses confidence in achieving year-over-year incremental growth, potentially reaching 8% to 10%, supported by a robust pipeline and consistent timelines.

The paragraph is part of a conversation during an earnings call, where David Tarantino from Baird asks about the performance of new units and the company's path to achieving high restaurant margins. In response, Adam Rymer and Scott Boatwright from the company explain that new unit productivity remains strong and consistent, with no unusual factors affecting current performance. They express confidence in their ability to achieve high 20s margins, citing ongoing initiatives in supply chain, efficiencies, and technology that are expected to improve restaurant-level efficiency.

The paragraph discusses financial metrics, including a 40% flow-through from incremental transactions, and notes a year-over-year decline of 80 basis points in Q3. However, this is affected by several factors, such as portfolio investment, avocado price comparisons, and promotional timing, which, when considered, would change the decline to a positive 50 basis points. Sara Senatore from Bank of America asks about traffic trends and throughput, specifically referencing Carne asada comparisons and seasonality. Scott Boatwright responds by indicating an acceleration in business, despite challenging comparisons with previous successful promotions and a recent 3% pricing roll-off.

The paragraph discusses the positive trends in a business’s performance, attributed to exceptional product offerings, effective marketing, and outstanding operational execution. Adam Rymer highlights improvements in restaurant operations, specifically mentioning increased expo execution and entree throughput. Sara Senatore inquires about the impact of technology on efficiency and throughput. Scott Boatwright explains a challenge in maintaining efficiency due to morning preparation tasks and suggests that technology could enhance throughput, especially during peak times.

The paragraph discusses the integration of AI and technology in enhancing culinary processes and customer experiences. David Palmer from Evercore ISI asks Scott Boatwright about AI-enabled customized marketing and its impact on business metrics such as sales and labor efficiency. Boatwright mentions their early experiments with customer relationship management (CRM), customer data platforms (CDP), and personalized loyalty programs to improve efficiency and performance. He highlights the ongoing efforts of Curt Garner and his team in developing AI models to optimize these initiatives.

The paragraph discusses the implementation of an AI model designed to enhance user experience by identifying and categorizing users as lapsed, at-risk, or active to offer tailored experiences within a program. It emphasizes creating personalized interactions beyond typical loyalty program engagements. Additionally, there's a discussion around labor management, with Adam Rymer and Scott Boatwright addressing the need to efficiently allocate labor hours in restaurants to improve guest experiences. The paragraph concludes with a new question from Christine Zhao, congratulating Scott, Jack, and Adam on their work.

Scott Boatwright discusses the challenge of quantifying the impact of investments in portion size at Chipotle. He emphasizes the importance of large portions as a key brand strength that aligns with the company's focus on high-quality, fresh ingredients and fast service at a competitive price. Boatwright highlights improvements in customer feedback, particularly on social media, with positive mentions about portion sizes reversing earlier negative trends. He also cites internal and third-party metrics showing increased customer satisfaction regarding value for money, with portioning scores significantly improving. Overall, Boatwright expresses confidence in the brand's progress and commitment to providing value amid economic challenges.

The paragraph is a discussion about the expectations for inflation and the deployment of new equipment and automation in a business setting. Adam Rymer anticipates that low single-digit inflation for food and wages will continue, with no significant changes expected in labor costs outside of the FAST Act. Scott Boatwright talks about initiatives involving new equipment designed to enhance employee experience, improve efficiencies, and potentially drive better margins. Short-range initiatives include the dual-sided plancha and a new produce slicer to increase kitchen efficiency and labor model performance. A dual backfire for cooking chips more efficiently is also being tested. The impact of these efficiencies on pricing relative to competitors is considered.

The paragraph discusses Chipotle's efforts to enhance the team member and guest experience by investing in technology and emerging concepts. Chipotle has invested in companies like avocado and Hyphen to develop technology that can increase efficiency and improve margins. These initiatives involve testing and refining technology in restaurants. Additionally, Chipotle has made a passive, minority investment in Brassica, a Mediterranean concept, through the Chipotle Next fund. This investment aligns with their "Food with Integrity" ethos and aims to explore concepts compatible with their business model, without distracting from Chipotle's core operations.

In the paragraph, a conversation takes place about the potential idea of having certain stores handle prep work for multiple nearby locations to improve efficiency. John Ivankoe suggests this model, asking if one store could manage prep for several others in a specific area, but notes he is not referring to a traditional central kitchen. Scott Boatwright responds by acknowledging the idea has been considered but highlights challenges, such as distribution risks and costs, which previously made the model impractical. He mentions that the current approach is seen as the best for maintaining Chipotle's unique experience, though they remain open to reevaluating the concept in the future. Lauren Silberman from Deutsche Bank is then acknowledged for the next question.

The paragraph discusses consumer behavior across different income cohorts and regions, noting strength in all income groups despite a competitive environment, attributed to perceived value offerings, such as a chicken burrito under $10. California experienced some sales weakness after the FAST Act price increase, likely reflecting broader industry trends and inflation impacts. The overall performance has been strong and broad-based. Looking ahead to the fourth quarter, there's an expectation of modestly accelerating traffic with a comp guide estimate of 4.5% to 5%. September saw a mid-7% comp, with trends continuing into October, expected to persist into Q4.

In the paragraph, the discussion focuses on Chipotle's operational improvements and menu performance. Scott Boatwright mentions plans to enhance throughput, aiming to return to previously higher levels of entree production per 15 minutes, including digital orders. Currently, their performance is lower but shows potential for improvement. Chris O’Cull asks about the Smoked Brisket's success, and Adam Rymer notes that it is performing well, particularly in comparison to Carne Asada, and is attracting new customers and encouraging repeat visits. The Limited Time Offer (LTO) of Brisket is particularly effective in bringing customers back, who may try different menu items upon return visits.

The paragraph discusses the factors affecting the cost of goods sold (COGS) margin for a quarter. Scott Boatwright and Adam Rymer highlight that there was a deleverage of about 90 basis points, attributed primarily to portion investment and food cost inflation, specifically due to avocado price changes. Rymer notes that a portion investment accounts for about 60 basis points, while the abnormally low avocado prices from the prior year add about another 50 basis points to the current figures. Additionally, despite Brisket driving margins, it temporarily raises the cost of sales by about 40-50 basis points due to its price point. This, however, is mitigated by leveraging labor and other operational costs. The paragraph also touches on future pricing strategies, with no immediate changes expected, but it will be a consideration for 2025.

The paragraph discusses Chipotle's expansion strategy and operational developments. Sharon Zackfia from William Blair asks about Chipotle's future plans for licensing in new regions and its commitment to owning locations in France, Germany, and the UK. Scott Boatwright confirms a successful partnership with Alshaya and mentions plans for aggressive growth with them. Chipotle will strategically explore partnerships globally for expansion opportunities in regions like Latin America and APAC but will continue to own its locations in Western Europe and North America to maximize brand value. Additionally, Zackfia inquires about the early implementation of Hyphen technology in Chipotle restaurants, to which Boatwright responds that it helps optimize operations and will unlock demand in that channel.

The paragraph highlights a discussion between Danilo Gargiulo of Bernstein and Scott Boatwright regarding the strategy at Chipotle. Scott emphasizes the importance of focusing on five strategic priorities that have historically benefited the brand. He expresses an intent to maintain continuity in leadership and organizational focus, with possible future iterations. Scott also mentions aiming to enhance connectivity between the organization and consumers through restaurant teams. Finally, he reiterates that everyone within the organization is either directly serving a Chipotle guest or supporting those who do.

The paragraph discusses Chipotle's focus on expanding its brand globally, aspiring to become an iconic global brand with a goal of 7,000 restaurants. Scott Boatwright highlights the success they've seen in Canada, led by Anat Davidzon, who improved margins and growth significantly. With Davidzon now appointed in Western Europe, Chipotle aims to replicate this success by aligning with US standards and improving operational efficiencies. Although there is no specific timeline, the company is optimistic about opening hundreds, potentially thousands, of restaurants in Western Europe over time.

In the paragraph, Scott Boatwright expresses gratitude to participants of the Chipotle conference call, highlighting pride in the company's performance and positive trends over the recent quarter. He emphasizes the strength of Chipotle's culture, brand, and value proposition, along with promising future initiatives. The call concludes with an invitation to the next earnings call in February, and participants are thanked and advised to disconnect.

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