Pershing Square Holdings, Ltd.

hello and welcome to the third quarter 2025 investor call for pershing square today's call is being recorded it is now my pleasure to turn the call over to your host bill ackman ceo and portfolio manager thank you operator uh so welcome to the third quarter uh conference call uh we've had a strong year to date um certainly through q3 and even up to the present uh north of a 20 percent uh return uh

nicely in excess of the S&P for the year. But despite overall strong performance, we don't get them all perfectly right. So I thought we'd start the call focusing on a couple of investments that have not performed well this year. And why don't I turn it over to Anthony to talk about, let's talk about Chipotle. Let's start there.

Thanks, Bill. So we actually sold our remaining shares in Chipotle this year following the company's third quarter earnings report. This concluded an investment in the company that was over nine years old. So a very disappointing conclusion to what had long been a very successful investment for us. The stock IRR from our inception to exit was just under 16% versus just over 15% for the S&P 500. But fortunately, we had previously sold 85% of our initial 10% stake in the company at various times over our nine-plus-year holding period. That resulted in a realized IRR on the position of just under 22% and $2.4 billion in cumulative profits. So the big question is, obviously, why did we decide to sell the rest of it this year after a stock decline of nearly 50%? So just to give you kind of some context for our thinking, from the first full quarter that Brian Nickel was CEO of Chipotle, that was the second quarter of 2018, through the end of 2024, quarterly same-store sales averaged 9%, and no quarter outside of one quarter that was impacted by COVID was below 3%. And if you look under the prior management team, you know, in the 10 years prior to the 2015 food safety scandal that predated our investment, Same-store sales also averaged 9%. So as the company started to report weak quarterly same-store sales this year, we believed, based on the various sales-driving initiatives they had in the pipeline and also the remarkable long-term historical performance since the company went public, that trends would eventually improve. And unfortunately, underlying trends progressively worsened throughout this year, including another step down during the current fourth quarter that was disclosed on the Q3 call. We do believe that macroeconomic weakness amongst low- to middle-income consumers and younger consumers is the primary cause of this same-star sales slowdown, you know, as evidenced by similar trends that peers are experiencing. But we don't know how long this weakness is going to last. We don't know if it's going to worsen before it gets better. And it's pretty clear that Chipotle and competitor management teams don't know either. You know, they're doing the right thing by reinvesting in the customer value proposition by not taking price despite mid-single digit food cost inflation. And they're therefore accepting kind of lower near-term margins. But we don't know if this will be sufficient, and there might be more kind of to come there. Year-to-date, of the kind of nearly 50% stock decline, forward earnings are only down 8%. Now, that's not good, right, because they're supposed to actually grow. But forward earnings are down 8, but the P.E. multiple is down 44. So the vast majority of the year-to-date stock decline is due to multiple compression. While the current valuation of about 25, 26 times forward consensus earnings is cheap, if the company can quickly get back to achieving its long-term growth goals, we just didn't have enough confidence to underwrite this at this time. So the business has a high degree of operating leverage, so it's possible that if sales weakness persists for however long it persists, that consensus margin levels will be below even current levels. And this investment now has a much wider range and dispersion of potential outcomes around the company's near and medium-term earnings power. That's just much wider than we had foreseen at the beginning of the year and, frankly, at any time since we owned our investment in Chipotle. And this made it a lot more difficult to continue holding the investment, despite the fact that the company is now trading at one of its lowest multiples ever. There's a new CEO running the company since Brian left for Starbucks in August. He's a talented operator, but he's certainly off to a rocky start as a first-time CEO. And in light of this, a return to the company's historical premium valuation multiple is uncertain. We do have tremendous respect for Chipotle, and we wish the company all the best as it navigates what's proven to be quite a challenging environment for them and for the industry.