Chipotle Mexican Grill, Inc.

Good afternoon and welcome to the Chipotle Mexican Grill third quarter results conference call. All participants will be in a 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 IR. Please go ahead.

Hello, everyone, and welcome to our third 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, new store openings, our effective tax rate, and expected G&A expenses. 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 statements. Please 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 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 Nickel, our Chief Executive Officer, and Jack Hartung, our Chief Financial Officer, after which we will take your questions. Our entire executive leadership team is available during the Q&A session. And with that, I'll turn the call over to Brian.

Thanks, Ashish, and good afternoon, everyone. We're pleased with our third quarter financial performance, which reflects further progress on our key strategic initiatives that are providing guests with a great experience in positioning the business to deliver above industry growth for many years to come. In fact, this marks the seventh consecutive quarter of accelerating comparable sales, which highlights that running great restaurants with a purpose of cultivating a better world is a compelling proposition. For the quarter, we reported 11% comparable restaurant sales growth that included nearly 7.5% transaction growth, restaurant-level margins of 20.8%, which is 210 basis points higher than last year, earnings per share adjusted for unusual items of $3.82, representing 77% year-over-year growth, and digital sales growth of 88% year-over-year, representing 18.3% of sales. I'm often asked what's next. I believe we still have a lot of opportunity in executing our five key strategies, which are, number one, making the brand more visible and loved, Number two, running successful restaurants with a strong culture that provides great food, hospitality, and throughput. Number three, leveraging our digital make line to grow sales and expand access. Number four, engaging with our customers by launching a new loyalty program. And number five, creating a stage gate process for innovations. Let me give you an update on each of these, starting with our stage gate process, which is designed to test an item in a few markets on three key areas, delighting our customers, deriving a financial benefit, and of course, ensuring a seamless integration into our current operations. This test tends to be predictive of what happens nationally and helps increase the likelihood of success. I'm pleased to announce that Carne Asada is the latest item behind Lifestyle Bowls and our rewards program to be successfully validated through this process, and all three are meeting or exceeding our expectations. Carne Asada is a limited-time offering that is easy to execute operationally and has a unique flavor profile. It's a tender cut of steak seasoned with fresh squeezed lime and finished with hand chopped cilantro and a blend of signature spices. No wonder it's receiving terrific customer feedback. As great as carne asada tastes, its success is amplified by all elements of our strategy coming together in unison. Specifically, digital providing more frictionless access, marketing enhancing awareness and emphasizing the deliciousness of carne asada, operations delighting our guests with great hospitality and throughput, and our supply chain ensuring we have the highest quality ingredients that meet our food with integrity standards. I'm so proud of the collective efforts of our teams in rolling out this new premium steak. Beyond carne asada, we are also testing queso blanco, salads, and quesadillas. These items are in various markets where we are gaining valuable feedback. As I have stated previously, we're not going to roll out new menu items at the sacrifice of throughput, nor will we add complexity to our restaurants by overemphasizing new menu choices. We will update you on our progress of all potential new menu items as they move through our stage gate process. Now, let's talk about our marketing efforts, which have and will continue to be an important enabler of our growth. In fact, you saw this with the Carne Asada launch as we leveraged our digital capabilities as well as a national TV campaign by teaming up with film director David Gelb. These spots are a continuation of our Behind the Foil campaign that launched earlier this year and highlight real Chipotle team members and provide an inside look at the real, fresh food and skillful preparation that happens in Chipotle kitchens every day. These efforts are designed to increase transactions and grow sales by driving culture, driving a difference, and ultimately driving a purchase. In addition, we effectively utilize social media and ran several strategic promotions during the quarter to make the Chipotle brand more visible while helping expand access. Going back to the question of what's next, We launched Chipotle Rewards in March and are just now beginning to leverage that platform. We currently have 7 million enrolled members and have only scratched the surface on database marketing. We are encouraged by early signs of transaction increases across all frequency bands, and going forward, we'll double down on our ability to leverage this data to incent behaviors. We expect this lever to become a bigger driver over time as we gain more experience gathering customer insight while continuing to expand our digital platform. Reducing friction and providing more convenient access for our guests has been critical to increasing our digital system penetration over the past couple years. This quarter, digital sales grew 88% year-over-year to $257 million and represented 18.3% of sales during the seasonally slower summer quarter for digital. And we're knocking on the door of digital becoming a billion-dollar business. Consistent with past quarters, delivery remained a key driver of our digital growth given enhanced capabilities on our app and website, as well as our expanded availability from more than 97% of our restaurants. Importantly, digital remains highly incremental, and we continue to see residual lift in delivery sales that last beyond any promotion. Additionally, I'm pleased to announce that we have finished installing our digital make lines in all relevant restaurants, and this was completed slightly ahead of schedule and makes the system more efficient for our guests, team members, and delivery partners, while driving more sales and loyalty for Chipotle. Now that we have the digital make lines installed, we are focused on ensuring that execution for this large and growing business matches that of the traditional front line. This brings me to the evergreen topic of operational excellence. The reality is that all the growth initiatives I just mentioned are being supported by the terrific job our operations team is doing in providing a great guest experience. And we know cultivating a better world includes investing in our people. And we believe that's the right approach in creating an environment where our employees can thrive professionally, as well as personally, and be in a position to win not only today, but also in the future. Enhanced training and development, industry-leading employee benefits, including the recent debt-free degrees program, in addition to our newly expanded tuition reimbursement program, and a new crew bonus that was paid out to more than 2,600 employees last quarter are just a few examples of how we continue to invest in our people to cultivate a better restaurant culture. The result is our employees putting their best foot forward and remaining focused on our core fundamentals. This is leading to us attracting and retaining the right talent and having higher team stability, which is allowing them to spend more time together and deliver on two important benefits. One, delicious food consistently being prepared and served every time, something our guests have definitely noticed. And number two, We're seeing a steady improvement in throughput aided by training, focus, and providing our teams with an easy-to-use dashboard that provides greater visibility on performance. I want to recognize our team for their efforts and hard work in delivering another outstanding quarter. I believe we are still in the early stages of our journey, and we need to stay focused on our priorities and executing flawlessly to support our growth while providing our customers with the experience they expect from Chipotle. Thank you to all our employees for all that you do. We have a unique brand, and I love the passion and determination that I see during my restaurant visits as our crew members constantly strive to be better today than they were yesterday. With that, here's Jack to walk you through the financials.