Chipotle Mexican Grill, Inc.

Good afternoon and welcome to the Chipotle Mexican Grill first quarter 2019 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Ashish Kohli, Global Head of Investor Relations. Please go ahead.

Hello, everyone, and welcome to our first quarter 2019 earnings call. By now, you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.chipotle.com. I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements, including projections about comparable restaurant sales growth and new store openings. These statements are based on management's current business and market expectations, and our actual results could differ materially from those projected in the forward-looking We see the risk factors contained in our 2018 annual report on Form 10-K and in our subsequent Form 10-Qs for a discussion of risks that may cause our actual results to vary from these forward-looking statements. Our discussion today will include non-GAAP financial measures. A reconciliation of these measures to GAAP measures can be found via the link included on the presentation page within the investor relations section of our website. We will start today's call with prepared remarks from Brian Nickell, Chief Executive Officer, and Jack Hartung, Chief Financial Officer, after which we will take your questions. Our entire executive leadership team is available during the Q&A session. With that, I will turn the call over to Brian.

Thanks, Ashish, and good afternoon, everyone. I'm very pleased to report strong Q1 results with 9.9% comparable restaurant sales growth that included 5.8% transaction growth. Restaurant level margins of 21%, 150 basis points higher than last year. Earnings per share adjusted for unusual items of $3.40, representing 60% year-over-year growth, and digital sales growing 101% year-over-year to represent 15.7% of sales. The ongoing improvement in each of these key metrics over the past few quarters gives us confidence that our mission to win today and cultivate the future is resonating. In fact, this is the fifth consecutive quarter of accelerating comps, which reinforces our view that when we connect with guests through culturally relevant marketing, focus on Chipotle's great taste and real ingredients, and provide more convenient access with less friction, they respond enthusiastically. The first quarter's strong results were driven by the same strategic focus areas that we've talked about for several quarters now. Being culturally relevant and increasing brand engagement and visibility, digitizing and modernizing the restaurant experience, great hospitality and throughput, and, of course, enhancing our powerful economic model, all while building a great culture of accountability and creativity. We were definitely visible this quarter with unique marketing programs that celebrate our real ingredients and classic cooking techniques, as well as several initiatives that caught the attention of our guests. As you know, last fall we launched our For Real advertising, which showcased Chipotle's point of difference in real ingredients and real cooking techniques. We followed this up with our Behind the Foil campaign in February to showcase what a Chipotle kitchen looks like every day, real fresh ingredients, real cooking techniques, and real people. Chipotle has always believed that there is a connection between how food is raised and prepared to how it tastes. And what I love most about these commercials is there was no studio, no script, no props, and no actors. It was just our employees doing what they do best, which is making delicious food. In addition, Q1 also benefited from several other initiatives that made the Chipotle brand more visible in culturally relevant social and traditional media channels. Our free delivery bowl offering, which ran from December 17th to January 7th, helped expand access, and was not only a great way to attract new guests to our app and delivery capabilities, but also to Chipotle, as nearly half of the guests taking part in this offer were new or lapsed users. And we are seeing increased new customer retention with higher levels of delivery sales after the promotion. We also launched our first digital-only menu innovation on January 2nd called Lifestyle Bowls. This resonated with consumers in a big way. In fact, during the first few days, It generated over a billion earned media impressions. Later in the quarter, we extended the lifestyle menu platform with plant-powered options, highlighting our sofritas and vegetarian bowls. We are currently testing several other menu items through our StageGate process and will update you on their progress over time. And finally, we continue to drive awareness of our brand through a holistic media plan with national TV advertising on culturally relevant programming, like March Madness, and always-on social media that resonates with our guests. Collectively, these marketing efforts helped drive culture, drive a difference, and ultimately drive a Chipotle purchase. This contributed to the lift in Q1 sales as evidenced by digital impressions increasing 300% year-over-year and social impressions increasing 400% year-over-year. We are pleased with the returns on our marketing dollars to date and expect healthy returns from programs being worked on for the remainder of 2019. We are also excited about Chipotle Rewards, which launched on March 12th. The StageScape process allowed us to learn, enhance, and optimize the program to ensure a better guest experience upon launch. And we're encouraged to have already enrolled 3 million members. The rewards are spend-based, where customers earn 10 points for every dollar spent and receive a free entree after accruing 1,250 points, with periodic bonus offers so real food becomes real free, real fast. In addition to allowing us to reward and thank our guests, we are beginning to gather data that can be used to more effectively target them to engage and grow their loyalty. The rewards program gives us a currency that we can use to incent behaviors and is a key part of our digital system flywheel. Our guests have been asking for a loyalty program for a long time, and now the more you Chipotle, the more you can get free Chipotle. We believe that Chipotle rewards will be a key element that will provide top spin to our digital system, which was again a key driver of our sales growth. The digital system, which includes order ahead, delivery, catering, digitized second make lines, mobile order pickup shelves, and now Chipotle rewards, is creating a more convenient and enjoyable guest experience, making it easier to order food from Chipotle however and wherever you like. To that end, I am pleased to share that we recently completed the addition of mobile order pickup shelves in all relevant restaurants. These self-service shelves are a key element in digitizing and modernizing our restaurant experience, as they increase access, speed of service, and convenience for our guests, while building more love for Chipotle and driving digital sales. In addition, this is a key component to improve delivery times. The delivery driver no longer waits for orders when they enter our restaurant. They simply go straight to the shelf, select the appropriate order, and head off to the delivery destination. We feel this is a competitive advantage and allows us to have industry-leading delivery times. I want to thank our teams for their great execution on this initiative. Also, with regard to our digital make lines, they are currently in approximately 1,300 restaurants, and we expect to have them in all applicable restaurants by the end of 2019. Early results are showing that restaurants with mobile order pickup shelves and digital make lines generate digital sales above our national average. Through a combination of delivery, order ahead, and catering, our digital sales accelerated from Q4 and grew 101% year-over-year in quarter one. Digital sales totaled $206 million during the quarter, and represented 15.7% of sales. We also relaunched a new Chipotle.com website in February that is helping increase customer conversion. We are pleased to be averaging more than 1 million digital transactions per week. Delivery remains a key driver of our digital growth given enhanced capabilities on our app and website, as well as our expanded reach. As I mentioned earlier, we are seeing some residual lift in delivery sales that last beyond any promotion, And I've seen very little guest overlap between our own in-app delivery and our third-party delivery partner apps. As part of our goal to increase access, we continue to open Chipotle lanes, and this test will ramp up later in 2019. These restaurants are a great extension of our digital system as they help increase convenience and access to Chipotle for customers looking to pick up digital orders without getting out of their cars. While marketing and digital are helping to bring guests into our restaurants, the operations team is determined to deliver a great experience that will keep them coming back. Specifically, we are focused on team stability and development, creating and supporting an inclusive and engaged culture, exceptional throughput, consistently delivering great tasting food, and food safety. Our field leadership conference last month allowed us to reiterate these messages while also highlighting the theme that Chipotle is a people-driven, world-class organization. A key part of this is to continue supporting and celebrating our general managers through better leadership training, providing a clear direction on career progression to ensure long-term success, and great benefits as illustrated by our enhanced tuition assistance program. While early, these efforts are beginning to make a difference. We experienced a solid reduction in overall turnover measures in Q1, which tells us we are on the right path with our people-focused initiatives. We are now consistently executing line tastings, and leveraging chef-driven cooking demonstrations to improve the quality of our food, and these efforts are being noticed by guests as measured by our guest experience survey. In addition to these outcomes, we are seeing a modest improvement in throughput, aided by training, focus, and providing our teams with an ECU's dashboard that provides greater visibility on performance. We still have more work to do, but I am encouraged by the progress thus far, and we are aligned in our approach and believe that great execution will enable Chipotle to capitalize on future growth opportunities. As we continue to evolve our brand and grow the business, it is an honor to welcome Patricia Philly-Crushell and Scott Maul to our board of directors. Pat is currently the CEO of the Center for Talent Innovation and has previously held numerous leadership roles at Comcast, Time Warner, and WebMD. Scott recently retired as CFO of Starbucks after a long and successful career. From contributions in global business strategy and talent management to finance and risk management, I'm confident both Pat's and Scott's perspectives and valuable insights will help us accelerate our goals. With that, let me conclude by thanking all of our team members for their belief in Chipotle, their dedication and passion to provide our guests with a great experience serving real food, cooked to perfection, and prepared in our restaurants with fresh ingredients. Whether I'm in our restaurants or in our support centers, I feel the energy and see the right actions being taken day in, day out. It's this focus and strong execution that has brought us to where we are today. The care, hard work, and dedication on the line, in the kitchen, and in our support centers are the reason we are winning in the marketplace. We're off to a great start in 2019, and with our sustained efforts, I believe Chipotle can cultivate a better world. With that, here's Jack to walk you through the financials.