The paragraph is an introductory segment of Chipotle Mexican Grill, Inc.'s first quarter 2025 earnings conference call. The operator outlines the procedure for participants, who will initially be in listen-only mode, with an option to ask questions later. Cindy Olsen, Head of Investor Relations and Strategy, then welcomes everyone and reminds them that the earnings press release is available on the company's investor relations website. She highlights that the presentation will include forward-looking statements based on current expectations and notes the availability of risk factor information in their annual and quarterly reports. Non-GAAP financial measures will be discussed, with reconciliations available online. Prepared remarks will follow from CEO Scott Boatwright and CFO Adam Rymer, followed by a Q&A session with the executive leadership team. Scott Boatwright then greets the audience.

In the first quarter, the company faced challenges such as adverse weather and decreased consumer spending, resulting in a sales growth of over 6% to $2.9 billion despite a slight decline in comparable sales. Digital sales comprised 35.4% of total sales, with a restaurant-level margin decrease of 130 basis points year over year. The adjusted diluted earnings per share grew by 7% to $0.29, and 57 new restaurants were opened. The Chipotle Honey Chicken contributed to increased transactions, although economic concerns led consumers to reduce restaurant visits, impacting transaction trends into April. Despite these headwinds, the Chipotle brand remains strong, with initiatives expected to drive positive transaction growth in the year's second half. The outlook suggests low single-digit full-year comparable sales growth.

The paragraph outlines Chipotle's five key strategies for current success and future growth, focusing on aspects such as cultivating a people-focused culture, leveraging technology for productivity, enhancing brand visibility, and expanding access through new restaurant openings. Emphasizing their value proposition, Chipotle highlights that their menu offers high-quality, handcrafted meals at competitive prices, with popular items like the chicken bowl or burrito priced under $10, which is significantly lower than similar fast-casual options. The brand is gaining momentum, as evidenced by surveys ranking it highly for value and quality. Chipotle attributes its competitive advantage to consistently delivering this value proposition, which hinges on exceptional service and food quality.

The article emphasizes the company's commitment to enhancing hospitality alongside culinary excellence and speed in their restaurants. At a leadership conference, the idea was proposed to improve guest experiences without compromising throughput. Specific actions include friendly interactions, clean environments, and effective issue resolution. Training has been implemented across nearly 3,800 locations to build a guest-focused culture. Efficient throughput remains a focus, with progress in implementing the four pillars, especially expediting, as evidenced by certain sub-regions maintaining high levels of expo presence. The prep process, which involves handling fresh produce, starts early to ensure readiness by opening time.

The paragraph discusses Chipotle's efforts to improve restaurant operations through technology and equipment innovation. The company is testing and rolling out new tools and equipment, such as produce slicers and updated kitchen appliances, to enhance food preparation speed and consistency. These initiatives aim to ensure that restaurants are prepared for peak periods, improve the culinary experience, and maintain high quality while scaling up. The improvements are expected to enhance employee and guest experiences and drive better consistency across culinary operations.

The paragraph discusses Chipotle's ongoing progress with its co-developed equipment, Avocado and the augmented digital make site, which are undergoing restaurant testing and enhancements. Avocado is back in restaurant testing, and the digital make line will return to restaurants later in the summer. Chipotle's marketing strategy, including the successful launch of the Chipotle Honey Chicken limited-time offer, is expanding to increase brand visibility and engagement. This involves a significant increase in marketing efforts starting in May, featuring menu innovations and targeted digital marketing. Additionally, Chipotle is re-evaluating its catering business, which currently makes up a small portion of sales, and plans to test an expansion strategy in the fall.

The article highlights Chipotle's efforts to scale its catering business using new technology and equipment, while emphasizing the company's dedication to employee growth and development. It shares the inspirational story of a team director who rose through the ranks, showcasing Chipotle's commitment to promoting from within and supporting career advancement. This focus on culture and development contributes to a positive work environment and customer experience, earning Chipotle recognition as one of the world's most admired companies. The company aims to promote 90% of its positions internally and expand to 7,000 restaurants in the US and Canada.

In the US and Canada, the company opened 57 new restaurants this quarter and plans to open 315-345 new locations this year, including 15-20 in Canada, marking a record year. The restaurant economics are strong, with high cash-on-cash returns, bolstering confidence in long-term growth. In the Middle East, they expanded with two more restaurants in partnership with Al Shaya Group, aiming for accelerated growth. A new partnership with Alcea will facilitate restaurant openings in Mexico by early 2026, with potential further expansion in Latin America and Europe. The company remains focused on investing in its people, culinary offerings, and growth despite economic challenges, aiming for a global presence with 7,000 restaurants in North America and increased AUVs. This expansion is aligned with their mission to have a positive impact on communities worldwide.

In the fourth quarter, sales grew over 6% year over year to $2.9 billion, with a slight decline in comparable sales. Restaurant margins decreased by about 130 basis points. Earnings per share grew by 7%. Despite consumer uncertainty, there was a positive shift in trends, aided by the success of Chipotle Honey Chicken. Heading into the second quarter, challenges include tough year-over-year comparisons, price roll-offs, and the timing of Easter, but the company is optimistic about returning to positive transaction growth in the second half of the year. Cost of sales increased due to inflation and higher usage of key ingredients, despite a menu price increase.

The paragraph discusses Chipotle's financial expectations and cost management strategies. Favorable avocado pricing has positively impacted the cost of sales, but overall costs are expected to rise due to inflation, normalized avocado prices, and new tariffs. Tariffs are projected to have a minor ongoing impact, with a slight effect anticipated for Q2. Efforts to offset costs include supply chain savings, in-restaurant initiatives, and improved execution. Labor costs have increased due to lower volumes and wage inflation but are expected to stabilize, with a slight increase anticipated for Q2. Despite challenges, the company remains focused on cost management and efficiency improvements.

In the recent quarter, the company's other operating costs rose slightly to 14.4% due to lower volumes, with marketing and promo costs increasing to 3% of sales, both driven primarily by pricing leverage amid inflation. Q2 marketing costs are expected to decrease slightly, while other operating costs should drop to the high 13% range. General and administrative (G&A) expenses were $173 million on a GAAP basis and $161 million non-GAAP, factoring in equity awards of $12 million for key executive retention. The underlying G&A cost was $133 million, with additional expenses for stock compensation, payroll taxes, and a leadership conference. G&A is forecasted to rise to $168 million in Q2 with higher investments in people and technology, including $36 million in stock-based compensation. Depreciation was stable at 3% of sales in the quarter and is expected to remain so through 2025. The effective tax rate was approximately 23% in Q1, with a future projection between 25% and 27% in 2025, subject to change based on specific circumstances.

The company ended the quarter with a strong balance sheet, holding $2.1 billion in cash and investments and no debt. They repurchased $554 million of their stock at an average price of $54.15 and added $400 million to their share purchase authorization, leaving $875 million available at quarter's end. They thank their 130,000 team members for their dedication, emphasizing an industry-leading economic model and strong balance sheet, which allows continued investment for long-term growth. The session opens for questions, with Andrew Charles from TD Cohen expressing gratitude for the actions outlined to improve performance.

The paragraph discusses the confidence of Scott Boatwright, presumably from Chipotle, in the company's ability to maintain positive traffic despite increasing fast-casual competition. Boatwright believes that Chipotle's strong brand, value proposition, unmatched speed, and improved food quality give it a competitive advantage. He mentions that while competition is nearby, Chipotle often sees increased traffic and meets its unit growth targets. Adam Rymer adds that the fast-casual sector, while growing, is still a small part of the overall restaurant space, indicating room for growth. Rymer also notes that Chipotle plans to open a significant number of new restaurants, outpacing most competitors. Andrew Charles then asks a follow-up question regarding tariffs and their impact on costs of goods sold (COGS).

The paragraph is a discussion involving Adam Rymer, Andrew Charles, and Sara Senatore about the impact of tariffs on new store capital expenditures (CapEx) and consumer behavior in the current economic environment. Rymer mentions that while tariffs on new store builds are still in flux, they anticipate a mid-single-digit increase in costs, mostly attributed to China, which might decrease based on recent news. Sara Senatore inquires about the potential slowdown in consumer spending and questions whether it's due to difficult comparisons or a fundamental shift in behavior. Scott Boatwright responds, citing a recent consumer visitation study indicating that consumers are spending less primarily due to a desire to save money and economic uncertainty.

The paragraph discusses Chipotle's strategy to address changing consumer behavior, noting that people are eating at home more often, affecting restaurant visits. The company attributes this to factors like convenience, consumer spending slowdowns, and seasonal shifts. Adam Rymer comments on the slight decline in transactions starting in February, with a new product launch in March and Easter timing impacting sales. They notice a trend of reduced sales attributed to macroeconomic factors. Sara Senatore inquires about increased marketing spending, and Scott Boatwright acknowledges a seasonal drop in business during summer, which they have been evaluating.

The paragraph discusses strategies being implemented by Chris and the team to effectively reach consumers and stay relevant, especially during the summer months when traditional linear TV advertising is less efficient. They are focusing on maximizing returns on ad spend through digital channels such as streaming and social media activations. Sara Senatore thanks the speaker, and David Tarantino questions Scott Boatwright about the company's perception of a slowdown. Scott reassures that the brand is stronger than ever, supported by strong key performance indicators (KPIs) and consumer perception metrics, indicating confidence in their strategic decisions regarding value and quality.

The paragraph discusses the company's emphasis on customer care and satisfaction, which aligns with their recent "guest-obsessed" initiative. The restaurant teams are performing well, with low turnover and high staffing levels. The digital team is focused on innovating and improving the app experience. Despite these efforts, a consumer slowdown is affecting Q1 sales. In terms of forecasting, Adam Rymer suggests using a two-year comparison approach, which shows an 8% improvement in Q2 and projects a positive trend for the second half of the year, leading to a slightly positive full-year comp in the range of 0% to 1%.

The article discusses the restaurant industry's recent traffic trends, noting a recent improvement after a decline earlier in the year. David Palmer from Evercore ISI inquires about consumer behavior and whether there's a shift towards traditional fast-food chains. Scott Boatwright responds that their data shows they are gaining market share across both QSR (Quick Service Restaurants) and Fast Casual sectors, suggesting they feel positively about their position. He mentions that current promotional activities mainly involve share trading between QSRs, and emphasizes their focus on perceived value and maintaining pricing to optimize their offerings.

The paragraph consists of a discussion among several individuals about the performance of Chipotle's limited-time offer (LTO) dishes, particularly comparing the Honey Chicken to the previous Chicken al Pastor. David Palmer questions the success of the Honey Chicken, suggesting it might not perform as well as the Chicken al Pastor, which significantly boosted sales. Scott Boatwright responds that the Honey Chicken is actually outpacing the Chicken al Pastor in terms of mixed percentage, showing it is effective in driving transactions even in a challenging consumer environment. Adam Rymer adds that the Honey Chicken's impact on transactions ranges from 100 to 200 basis points. However, its precise effect is somewhat unclear due to the timing of its launch around Easter. The conversation suggests optimism for Honey Chicken's performance if reintroduced in a less difficult market setting. Following this, the operator announces the next question from Sharon Zackfia, who asks about the business's performance across different income groups.

In this discussion, Scott Boatwright and Adam Rymer address inquiries about the trends in Chipotle's business across various customer demographics and regions. They note that the observed slowdown is broad-based and not restricted to specific income groups or geographical locations. Sharon Zackfia raises a question about digital sales, noting a decline in the first quarter. Boatwright acknowledges that while marketplace performance remains stable, there is a decline in white label orders, with more people opting for order-ahead pickup and in-restaurant options. He emphasizes the potential to enhance digital engagement and mentions efforts to innovate customer journeys to reduce friction in the app experience.

The paragraph discusses a recent successful AI test that optimized the timing and content of a welcome journey, resulting in increased engagement rates and aiming for three purchases within the first 90 days. The team is also testing offers to speed up progress and is learning as they go, particularly focusing on new, lapsed, and at-risk consumers in the digital space. In response to a question from Brian Harbour of Morgan Stanley, Scott Boatwright explains that initiatives like enhanced hospitality and increased marketing have been in development since the previous year. These efforts aren't reactive to current consumer trends but rather a change in strategy from the current leadership compared to previous ones. Chris Brand, on the team, is enthusiastic about increasing the marketing budget to reach more consumers more often.

The paragraph discusses operational improvements in a restaurant chain that have led to positive changes, such as a reduction in refunds, lower costs of care, and improved brand perception. These enhancements are attributed to addressing issues in cleanliness, friendliness, and customer recovery. The conversation then shifts to the impact of tariffs, particularly on aluminum and other items affecting costs. Key areas impacted include beef sourced from Australia, packaging materials from countries like Vietnam and Indonesia, and avocados from Colombia and Peru. Additionally, tariffs affect new restaurant builds in terms of expenses for lumber, shelving, and other items.

The paragraph features a discussion between analysts and executives about sales trends and strategies for improving transaction numbers. Dennis Geiger from UBS asks about consumer behavior, specifically whether customers are cutting back on lunch rather than dinner, and inquires about initiatives to boost sales in the latter half of the year. Scott Boatwright responds by emphasizing the importance of the brand's operational strategy, marketing, and digital efforts working in harmony to drive positive results. He highlights throughput in restaurants as a key focus to enhance the consumer experience and boost sales.

The paragraph discusses the strategic efforts to improve restaurant operations and consumer engagement. It highlights the implementation of a produce slicer in all restaurants by the end of Q2, which is expected to enhance operational efficiency and throughput. The marketing strategies aim to maintain consumer relevance during the competitive summer months. Digitally, efforts to minimize app friction and personalize consumer experiences are underway to boost customer frequency and spending. The overall goal is to transition into positive transaction growth in the second half of the year. Additionally, it notes that while dinner sales have been steady, lunch sales have recently declined slightly.

In the paragraph, Gregory Francfort from Guggenheim asks about the impact of tariffs on new equipment for restaurant builds, specifically regarding cost, availability, and timing. He also inquires about the potential margin benefits from the new high-efficiency equipment package. Scott Boatwright responds that although most equipment is manufactured in the U.S., component parts from other countries may be affected by tariffs, and the full impact is still uncertain. He mentions they plan to implement the high-efficiency equipment in 100 additional restaurants but it's too early to quantify the savings and how it will be allocated between consumer experience, team member experience, and margin capture.

In the paragraph, Scott Boatwright discusses the company's positive performance and growth plans in international markets, specifically Canada and the UK. He mentions that Canada is doing well in terms of sales and margins and that the company plans to expand by adding 15 to 20 new restaurants within the year. Western Europe is also experiencing strong restaurant-level margins, with opportunities for further development in Central London and Germany. Boatwright expresses confidence in the team's efforts and anticipates long-term growth in these regions. Christine Cho asks about potential strategies if slower growth continues, seeking confirmation on the company's midterm unit growth goals and considerations regarding development and capital allocation.

Scott Boatwright expresses confidence in achieving mid-single-digit growth over the coming years, citing the strong brand, effective marketing strategy, and digital innovation. He mentions the goal of reaching 7,000 restaurants in North America and highlights growth potential with partner Alshaya in the Middle East. Lauren Silberman from Deutsche Bank asks about unit growth and potential cannibalization effects. Adam Rymer responds, noting that the impact on comparable sales has increased slightly but remains within an expected range of 80 to 100 basis points, without further deterioration as expansion continues.

In the article paragraph, Adam Rymer discusses expectations for traffic and comparable sales (comps) growth in the second half of the year. He suggests that while current trends indicate a modest 0% to 1% growth, there's potential for improvement depending on both macroeconomic factors and the performance of ongoing investments. Rymer believes the second half can reach mid-single-digit comps with some macroeconomic relief needed for the full year. Lauren Silberman clarifies with Rymer that exiting Q2, they expect positive comparable sales, though traffic will likely be flat. Additionally, John Tower inquires about a new menu item expected over the summer accompanied by significant marketing efforts.

The paragraph discusses the brand's strategy regarding Limited Time Offers (LTOs) and their frequency. Historically, the brand has had two LTOs annually, one in the spring and one in the fall. Recently, there has been a summer LTO, raising questions about increasing their frequency. Scott Boatwright explains that while the brand has traditionally not relied heavily on LTOs, they are considering moving to three LTOs per year due to observed waning effectiveness over time. This change aims to maintain consumer engagement. Additionally, the paragraph touches upon investments in kitchen equipment and store improvements, with a focus on enhancing hospitality. John Tower inquires if this includes increased labor hours or more staff, suggesting these improvements aim to enrich the customer experience.

In the paragraph, Scott Boatwright discusses the potential strategy of deploying additional staff during peak times to increase efficiency in Chipotle restaurants. However, he notes that this plan is not yet finalized. The company is awaiting results from equipment tests expected to be completed in the summer for more clarity. Boatwright acknowledges a challenging quarter but emphasizes the organization's commitment to core strategies and investments in people, culinary innovation, and growth. He expresses gratitude to the company's 130,000 team members and reiterates the goal of expanding to 7,000 restaurants in North America. The operator then concludes the conference call.

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