The paragraph introduces the Chipotle Mexican Grill Fourth Quarter 2024 Results Conference Call. The operator explains the format and instructs participants on how to ask questions. Cindy Olsen, Head of Investor Relations and Strategy, welcomes participants and reminds them about the availability of the earnings press release and forward-looking statements. The discussion will include non-GAAP financial measures, with a reconciliation available online. The call will feature prepared remarks from CEO Scott Boatwright and CFO Adam Rymer, followed by a Q&A session. Scott Boatwright expresses sympathy for the damage caused by recent wildfires in Southern California.

The paragraph highlights Chipotle's efforts to prioritize safety and support relief efforts following a tragedy, including donations and featuring the American Red Cross in its app. The company also reports a successful fiscal year in 2024, with sales growing by 15% to $11.3 billion, significant digital sales, and opening 304 new restaurants. Highlights include a 7.4% same-store sales growth, increased average unit volumes, and improved restaurant-level margins. The fourth quarter performance was strong despite challenges, driven by improved throughput and the successful launch of a limited-time Brisket offer.

In the fourth quarter, Chipotle saw a 13% sales increase to $2.8 billion, with digital sales making up 34%. However, restaurant-level margins dropped by 60 basis points to 24.8%, though adjusted diluted EPS grew by 19% to $0.25. Chipotle opened 119 new locations, including 95 with Chipotle lanes, and is optimistic about continued growth, aiming for annual comps in the low- to mid-single-digit range by 2025. A core focus from their recent leadership summit emphasized a "guest-obsessed" approach, ensuring every organizational role enhances the customer experience. The company is committed to five key strategies: successful restaurant operations with a focus on people and food quality, leveraging technology and innovation, enhancing brand visibility and guest engagement, developing and retaining top talent, and expanding their presence both in North America and internationally.

The paragraph discusses the company's focus on improving restaurant operations, particularly throughput. A key factor is reducing general manager turnover, which has improved in 2024 and contributes to stability in the restaurants. Throughput has improved, meeting the company's goals. Weekly throughput reviews and the decision to have managers oversee the expo position have also contributed positively. However, throughput remains a top priority for 2025. Efforts will focus on modernizing the back of house to enhance team member experience and simplify prep without compromising culinary standards, with innovative tools being tested to aid the prep process.

The paragraph discusses the ongoing rollout of produce slicers to all restaurants, expected to be completed by summer, to enhance efficiency and consistency in produce preparation. The company is also testing the combined benefits of installing the produce slicer, dual-sided plancha, three-pan rice cooker, and dual-vat fryer in select restaurants. Initial results are promising, leading to plans for these equipment to be implemented in new restaurant openings later this year, with potential broader implementation based on further data. This approach reflects a holistic evaluation of tools and processes to improve operations.

The paragraph discusses Chipotle's efforts to enhance team efficiency and guest experience through innovations like an avocado device and a digital make line. Their successful 2024 marketing strategy, which featured popular limited-time offers, boosted transaction growth and brand momentum. Looking ahead, the company plans to continue this success in 2025 by focusing on lifestyle goals and promoting healthy habits through a partnership with Strava, emphasizing how Chipotle's ingredients can support various dietary and lifestyle needs.

The Chipotle Honey Chicken Pilot was highly successful and will soon be available in restaurants. The company continues to emphasize its commitment to high-quality ingredients through a successful advertising campaign that highlights its team members and values. Significant internal growth and promotion opportunities are emphasized, with over 23,000 promotions last year, including five Regional Vice Presidents who started as crew members. These individuals have played a crucial role in developing future leaders. This success underscores Chipotle's strong leadership development, ultimately benefiting the business as a whole. The paragraph concludes by hinting at future plans for expanding access.

In 2024, Chipotle had a remarkable year with 304 new restaurant openings, including 257 with Chipotle lanes, marking the second consecutive year of record growth. The company plans to open 315-345 more locations in 2025, with at least 80% featuring Chipotle lanes. These lanes, now comprising over 25% of Chipotle's restaurants, enhance convenience and generate higher revenues and margins. Internationally, Chipotle operates 85 restaurants, with significant contributions from Canada, Europe, and the Middle East. In 2024, the company achieved a 5% increase in transactions and a $3.2 million AUV. Aiming for 7,000 restaurants in North America, higher AUVs, and brand expansion, Chipotle credits its 130,000 employees for their dedication and passion.

The paragraph outlines the company's financial performance in the fourth quarter, highlighting a 13% increase in sales year-over-year to $2.8 billion, with comparable sales up 5.4% driven by transaction growth. Despite a slight decrease in restaurant-level margins and an adjustment for loyalty program points, earnings per share rose by 19% year-over-year. Positive transaction comps were noted across all months, aided by a successful product launch. The company faced softer trends during the holidays due to their timing and notes current volatility in 2025 sales attributed to weather conditions. It anticipates low- to mid-single-digit comparable sales growth for the year, taking into account tougher comparisons and upcoming changes in pricing, especially in the second quarter.

The paragraph discusses the impact of seasonal events and external factors on the company's financial performance. Easter's timing will negatively affect Q2 comparisons, with no benefit seen in Q1 due to the previous leap year. Cost of sales increased to 30.4% due to generous portion sizes, premium product offerings, and inflation in items like avocados and dairy. Despite anticipations, avocado costs were more favorable year-over-year. For Q1, cost of sales is expected to be in the high 29% range, partly due to pricing strategies and a decrease in brisket offerings. However, costs for avocados and chicken are expected to rise. The guidance doesn't consider potential tariffs on imports from Mexico, Canada, and China, which could add about 60 basis points to costs if fully implemented. The company plans to offset these increases through supply chain efficiencies and in-restaurant initiatives, though complete offsetting isn't expected until the second half of 2025.

The paragraph outlines the financial expectations and changes for a company's first quarter and full year. It predicts low single-digit increases in underlying cost of sales inflation, excluding certain factors, and details labor costs as a percentage of sales, noting an increase from the previous year due to wage inflation. Labor costs are expected to decrease as wage inflation slows. Other operating costs have decreased slightly due to sales leverage and lower delivery, with anticipated costs in Q1 being in the low 14% range. Marketing costs reduced slightly and are expected to be stable, while General & Administrative (G&A) expenses include equity awards, legal reserves, and investments in personnel and technology. Expected underlying G&A for Q1 is around $135 million, with increases planned to support growth.

The paragraph discusses Chipotle's financial expectations and performance metrics for the first quarter and 2025. They project general and administrative expenses (G&A) to be around $179 million, with components like stock-based compensation and conference costs included. Depreciation is expected to stay at 3% of sales in 2025. The effective tax rate for Q4 was about 24.4% and is estimated to be between 25% and 27% for 2025. Chipotle has a strong balance sheet with $2.3 billion in cash and no debt. The company bought back $331 million of stock in Q4 and nearly $1 billion for the full year, with plans to continue repurchasing shares. The board authorized an additional $300 million for repurchases, leaving over $1 billion available. The paragraph concludes with appreciation for employees and a commitment to growth and improvement in alignment with Chipotle's mission, while also inviting questions from the audience.

The paragraph is a segment from a Q&A session during a financial call where Sara Senatore from Bank of America asks about pricing and food costs. Adam Rymer responds that pricing is expected to increase by about 2% in 2025, accounting for recent and upcoming adjustments. He also mentions that food costs were better than expected in Q4, primarily due to lower-than-anticipated avocado price increases. Scott Boatwright adds to the conversation by addressing potential concerns about tariffs and their impact on avocado pricing.

The supply chain team has successfully diversified the company's avocado sources over the past few years, reducing reliance on Mexico to 50% by incorporating Colombia, Peru, and the Dominican Republic as suppliers. This diversification could impact the company by 60 basis points if sustained annually. In terms of sales performance, January saw a transaction comp of negative 2%, affected by weather, a calendar shift, and wildfires in L.A., which collectively had a 400 basis point impact. The underlying trend was closer to positive 2%, which suggests a flat comparison for Q1. The company anticipates that February's performance may not replicate last year's success due to the previously high-performing braised beef barbacoa campaign's lasting impact, which is unlikely to repeat at the same scale.

The paragraph discusses the challenges and expectations for sales and transactions for the upcoming quarters. It mentions that the reintroduction of Chicken Al Pastor in March will present a tough comparison due to high previous demand, and that a later Easter might slightly reduce sales since it typically boosts the start of burrito season. As a result, the company expects flat transaction comparisons in the first quarter, with stronger comparisons anticipated in the second quarter. Scott Boatwright apologizes for a previous misstatement, clarifying that transactions will be flat. He also notes that the potential launch of honey chicken is not included in the current guidance but expresses optimism about the marketing plans for the year.

In the paragraph, the discussion revolves around the company's growth drivers beyond limited-time offers (LTOs), such as honey chicken. David Palmer from Evercore ISI inquires about other factors contributing to sales momentum for the year. Scott Boatwright emphasizes the importance of their operational strategy, marketing, and digital initiatives as part of a "flywheel" approach to enhance performance. He highlights improvements in operations, staffing, employee retention, and culture, which are poised to improve the guest experience significantly. Additionally, Boatwright mentions ongoing efforts to enhance culinary quality and service speed, indicating a focus on comprehensive customer satisfaction improvements.

The paragraph discusses strategies for enhancing Chipotle's operations and marketing to drive growth. This includes modernizing back-of-house operations to improve efficiency and handle peak times, and plans to expand to 7,000 restaurants in North America. The company feels confident operationally and plans to utilize existing and new throughput strategies. The marketing team has developed an exceptional plan with increased spend on linear TV and strong limited-time offers (LTOs), along with tests for the summer. In digital, AI assistants will be used to personalize customer journeys and prevent churn. These strategies are expected to positively impact transactions and business growth.

The paragraph discusses recent trends and future expectations for a business's underlying traffic and same-store sales. Despite some fluctuations in recent quarters, including a notable decrease compared to previous years, the overall contribution from different income cohorts has been stable. The company is currently experiencing a decline in absolute comparable sales due to past performance comparisons but expects to maintain a mid-single-digit growth trajectory in same-store sales in the long term. The conversation emphasizes maintaining strategic initiatives to achieve this growth, regardless of short-term noise and external factors like weather.

The paragraph discusses the company's current situation regarding earnings and pricing strategies. Despite a rough start to the year due to factors beyond their control, the company has a plan that guides them to aim for low to mid-range targets. Adam Rymer, responding to Christine Zhao's questions, mentions that the company is cautious about taking additional pricing actions this year. They aim to maintain pricing to offset inflation and focus on growing margins through increased transactions. However, they may consider price adjustments if inflation impacts the business significantly. The mixed drag in Q4 was approximately 70 basis points, with 20 basis points due to a loyalty adjustment, leaving an underlying mixed drag of 50 basis points.

The paragraph discusses a decline in group size observed in Q4, particularly in the last weeks of December due to a calendar shift. Despite this decline, there were benefits from higher-margin items like brisket, which is priced higher than Carne asada, and a consistent demand for queso, extra meat, and chips, which continued into the fourth quarter. Following this, John Ivankoe from JPMorgan asks about the labor market conditions, noting that wage rates have been stable and turnover levels relatively low compared to historical averages, except in California. He inquires about the reasons behind these trends and any potential indicators of change in the labor market. Scott Boatwright responds, acknowledging the improvement in retention across the industry, with their company experiencing a quicker rate of improvement than others.

The paragraph discusses a company's strong performance, attributed to competitive wages, benefits, and a positive work culture, leading to high staffing levels and low retention rates. The operations leadership is credited for creating a supportive environment where employees can achieve their career goals. The company, despite aggressive pricing strategies from major competitors in the quick-service restaurant sector, continues to gain market share and maintain a 30% average discount relative to peers, offering consumers perceived value. In response to a question from Andrew Charles about the timing of a chicken promotion, Scott Boatwright explains that the company considered advancing the promotion due to external challenges at the start of the year, but ultimately decided against it for undisclosed reasons.

The paragraph discusses confidence in the upcoming launch of Braised Beef Barbacoa, targeting a March TV advertising push for maximum impact. The speaker also mentions challenges in staffing the expedited position during peak times, aiming to increase staffing from 60% to 100%. They note that the lack of staffing can disrupt operations, such as prep and dishwashing. Improved back-of-house equipment and processes are expected to enhance efficiency and throughput, particularly during the morning prep cycle. The paragraph concludes with a transition to the next question from Danilo Gargiulo of Bernstein.

The paragraph discusses the improved restaurant-level margins in the U.K. under a new leadership team, which has led to plans for site development and expansion in Western Europe. Scott Boatwright expresses confidence in the team's progress and the potential for growth in Western and adjacent European markets. Additionally, Boatwright highlights the success of the Chipotle lane in generating higher sales and margins. The company intends to strategically retrofit existing stores to include Chipotle lanes, considering factors like lease terms, space, traffic flow, and permitting to ensure a good return on investment.

In the paragraph, Jon Tower from Citi asks about potential barriers to achieving the higher end of unit growth in fiscal '25, mentioning local government permitting issues. Scott Boatwright responds that while permitting is a factor, they expect to achieve a 9% to 9.5% growth rate this year and are working towards a strong pipeline for future growth, targeting closer to 10% in '26. Boatwright expresses confidence in maintaining 8% to 10% growth with a strong return on investment. Jon Tower then shifts the conversation to marketing, noting a consistent marketing spend of 2.5% of sales, which is lower than the historical 3%. He questions the reasoning behind this decision, to which Adam Rymer starts to respond.

The paragraph discusses the financial strategy of implementing price increases to offset inflation and labor costs, especially during COVID-19. The company took significant price hikes but aimed to not fully pass this onto marketing expenses, showing a bit of financial leverage. The price increase was around 8-8.5% year-over-year. The discussion then shifts to a Q&A session where Brian Harbour from Morgan Stanley asks about the performance of brisket. Adam Rymer responds that brisket, a challenging item to source, performed exceptionally well upon its return, with high transaction rates and strong performance across various protein switches. Its success continued throughout the end of the year and into January.

The paragraph discusses the successful impact of introducing brisket to a restaurant's menu, which attracted both existing and new customers, and maintained strong sales throughout its promotional period. Scott Boatwright mentions considering making brisket a permanent menu item if supply issues can be resolved. The conversation also touches on the benefits of a new produce slicer, which will save labor and allow for labor redeployment. Additionally, Scott discusses testing new equipment and potential challenges in rolling it out more broadly, primarily related to equipment supply.

The paragraph discusses the introduction of new equipment in restaurants to improve efficiency, enhance team member experience, and optimize labor usage, particularly mentioning the dual vat fryer, dual sided plancha, and more efficient rice cooker. These tools are expected to be included in new restaurant openings by the end of the year and potentially retrofitted in existing restaurants as part of a high efficiency equipment package. The discussion then shifts to a question from Sharon Zackfia about restaurant-level margins, suggesting variability within the year and inquiring about potential acceleration of efficiency gains to mitigate investment impacts.

In the paragraph, Adam Rymer discusses the company's financial strategy for the year, emphasizing a two-part approach. The first half will experience some financial pressure due to a portion investment, but they expect relief in the second half as this investment is offset. The goal is to drive positive transactions to improve restaurant-level margins. Rymer says that some of the offset will come from efficiencies within the supply chain and the introduction of produce slicers, which will gradually mitigate the investment impact over the year. Sharon Zackfia confirms a question about portion investments, while Brian Bittner indicates that his other questions have been addressed and references Scott's appointment as permanent CEO in November.

In the paragraph, Scott Boatwright, now taking on the permanent role of CEO, discusses his focus for the organization, emphasizing continuity with previous strategies while highlighting three core objectives. First, he aims to enhance the organization's connection to guests, stressing "guest obsession" both in support roles and at the restaurant level to ensure a consistently positive experience. Second, he identifies the modernization of the back of house as a critical goal, acknowledging his past reluctance to make significant changes while serving as Chief Operating Officer.

The paragraph discusses Chipotle's focus on modernizing its back-of-house processes by integrating equipment innovations while maintaining traditional methods like using knives and cutting boards for consistent quality. The company is committed to growth, both in terms of geographic expansion (such as entering the Middle East) and personal development for employees, aiming to help them achieve their career goals at Chipotle. The speaker emphasizes the importance of growth, modernization, and individual career development. Additionally, a question is raised about restaurant-level margins, specifically whether high 30% to low 40% incremental margins are still feasible, considering factors like equipment productivity and easing portion investment.

In the paragraph, Adam Rymer discusses their business's financial flow, noting that although it has been around 20% due to investments, it is expected to return to 40% in the second half of the year. Zach Fadem mentions global partnerships, and Scott Boatwright expresses confidence in Chipotle's global appeal, highlighting the successful partnership with Alshaya, with three restaurants in Kuwait and Dubai and plans for further expansion. Boatwright hints at interest in expanding to Southeast Asia and Latin America with reputable partners experienced in American brands.

Scott Boatwright delivered closing remarks at the conference, expressing pride in the organization's achievements and appreciation for the team's efforts, including the 130,000 restaurant workers devoted to the mission of cultivating a better world. He conveyed excitement for the upcoming year and thanked the listeners, after which the operator concluded the call.

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