Chipotle Mexican Grill, Inc.

Good afternoon and welcome to the Chipotle first quarter 2021 earnings 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, Head of Investor Relations. Please go ahead.

Hello, everyone, and welcome to our first quarter fiscal 2021 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. 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 statement. We see the risk factors contained in our annual report on Form 10-K and in our Form 10-Qs for our discussion of risk that may cause our actual results to vary from these forward-looking statements. Our discussion today will include non-GAAP financial measures. Our 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 Nickell, Chairman and 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 and a session. And with that, I'd like to turn the call over to Brian.

Thanks Ashish and good afternoon, everyone. Chipotle is off to a promising start in 2021, which gives me optimism for the rest of the year. There's still uncertainty related to COVID, but as more people become vaccinated, including many Chipotle employees, I'm hopeful we're getting closer to brighter days ahead. In fact, All but about 20 of our restaurants are now open, with 92% of them offering in-restaurant dining with capacity limitations. For the quarter, we reported sales of $1.7 billion, representing 23.4% year-over-year growth, which was fueled by 17.2% comparable restaurant sales growth, including about a 1.5% headwind from winter weather in February. Restaurant level margins of 22.3%, which is 470 basis points higher than last year. Earnings per share adjusted for unusual items of $5.36, representing an increase of 74% year-over-year. Digital sales growth of 133.9% year-over-year, representing 50.1% of sales, and opened 40 new restaurants, including 26 with a Chipotle name. Not surprisingly, comparable restaurant sales were the highest during the month of March as we lapped easier comparisons. And I'm pleased to report that April is off to a good start. These results highlight that our key strategies continue to resonate with guests and position us to win today while we create the future. Let me now provide a brief update on each of these strategies, which I believe will help fulfill our long-term vision of more than 6,000 restaurants, AUVs above $2.5 million, and restaurant-level margins above 25%. These are, one, making the brand visible, relevant, and loved. Two, utilizing a disciplined approach to creativity and innovation. Three, leveraging digital capabilities to drive productivity and expand access, convenience, and engagement. Four, engaging with customers through our loyalty program. And five, running successful restaurants with a strong culture that provides delicious food with integrity. while delivering exceptional in-restaurant and digital experiences. Let me start with our marketing efforts, where the team is doing a great job being agile and remaining relevant to a consumer mindset that continues to evolve. Internally, we encourage curiosity and experimentation, which takes advantage of our digital and social capabilities in conjunction with TV advertising to consistently reinforce our messaging. For example, we leverage the return of sports to showcase our brand and purpose, Our first ever Super Bowl commercial titled Can a Burrito Change the World was very successful at highlighting Chipotle's dedication to cultivating a better world through real food, sustainable sourcing, and a commitment to the farming industry. We also connected and engaged with our guests during March Madness with a mouthwatering commercial showcasing real ingredients, real cooking, and real people in order to support the launch of our handcrafted quesadillas. Not to be outdone, our digital communication strategy involved supercharging the superfans who are our true advocates. Content on social platforms is a key way we interact with our guests. The end goal for all of our creative initiatives is to drive culture, drive a difference, and ultimately drive a purchase. Helping these marketing efforts were a handful of new menu innovations, which provide wonderful examples of the StageGate process and our team's ability to execute new food experiences. Pulled flour rice, which we launched in early January and will continue through mid-May, is continuing to bring in new guests. In addition, we launched quesadillas across the U.S. and Canada as a digital exclusive offering on March 11th. This is our first new customizable entree in 17 years and was the most requested item by guests not on our existing menu. We made sure we took the proper time to develop an excellent product that consumers love and also works well operationally. The end result is a quesadilla that is perfectly crispy on the outside with delicious melted cheese on the inside. My personal favorite is the barbacoa quesadilla. The benefits of a digital-only offering are that it leverages our digital scale while removing operational friction by utilizing our digital kitchen. Although it's only been out for about a month, we're encouraged by its performance thus far with an incidence mix of approximately 10% and expect it to remain a guest favorite moving forward. Last but certainly not least, we also had carne asada for the majority of the quarter, and we're pleased to say that it had an incidence mix similar to what we saw last year. And our talented culinary team is not done innovating. We have several market tests of new items scheduled later this year that have shown promise in early stage consumer testing. We are gaining valuable feedback and will update you on their progress as they move through our stage gate process. Also, it's likely that we will put another marketing push behind some 2020 initiatives like Tractor Beverages later this year to optimize their performance once COVID normalizes. Let me now talk about the next strategic driver, our digital platform. Our investments in new digital features and innovations helped Q1 digital sales grow 134% year over year to $870 million and represent 50% of sales. Momentum continued to build within the quarter, with March setting a new record for digital transactions, supported by our best ever digital order ahead month, over 800,000 app downloads, and the most new digital customers since May of 2020. With the overall digital mix remaining relatively stable for the last three quarters, we're delighted to see that our highest margin transaction, digital pickup orders, were slightly more than half of digital sales during Q1. Within the delivery channel, about 40% were initiated through the Chipotle app or website, while the remainder were through a handful of partners. Our digital sales are a sticky, frictionless, and convenient experience, as evidenced by our April digital sales mix holding around 50%. Aided by the Quesadilla launch, our digital sales are now slightly above the COVID peak from last year, while we've recovered roughly 60% of in-restaurant sales as dining rooms have reopened. We also continue to see outside digital performance in Chipotle lanes, which have revolutionized the drive-through experience towards order ahead for pickup transactions, which is our most profitable channel. As our digital ecosystem has evolved from a commerce system to a platform of engagement, we continue to look for ways to enhance convenience and access, including Chipotle's, alternate store formats, digital-only menu offerings, and Chipotle rewards. We are regularly making enhancements to our app, website, delivery, and group offerings to support the current and expected future growth within this channel. We'll also continue to make important tech investments to create a path for the future. One such example is our recent investment in Neuro, an early stage leader in autonomous delivery. Neuro uses robotics in their fleet of on-road, occupantless, and autonomous vehicles to deliver everyday consumer goods, and we believe has the potential to take the delivery experience to the next level. Speaking of our loyalty program, we now have more than 21 million passionate members that receive targeted and personalized messages. We are leveraging the CRM platform for purpose-driven messaging, as well as tempting fans with our latest promotions. Communications to our customers are individually tailored so that specific customer activities prompt targeted responses. Each digital message can vary along the customer buying journey, such as the latest promotional offer on a new menu item or a more targeted offer to entice a customer that has not visited a restaurant for a certain period of time. For example, customers receive communication about the quesadilla launch featuring their favorite protein based on their ordering history. Our loyalty program has been very successful in driving additional transactions across our light, medium, and heavy consumer segments, but we continue to increase the level of sophistication and experience in our information and targeting, which should bode well for the future of Chipotle rewards. We're also investing in talent and infrastructure for rewards and have several enhancements to the program planned for later this year that consumers have indicated would increase their engagement and purchases. Let me end by talking about the foundational ingredient of our success. and that's our restaurant operations, where the team has done a great job staying focused on safety, reliability, and excellent culinary. Running great restaurants requires great people, and Chipotle is privileged to have amazing employees. Our continued investment in our team members to ensure they have the resources to develop and thrive in their career, including the recently announced expansion of debt-free degrees in agriculture, culinary, hospitality, and supply chain, is paying off. Turnover continues to be relatively stable, and we are seeing great applicants for open positions to staff our expected growth in AUV and new restaurant openings. After visiting a number of our restaurants recently, I'm encouraged to see more guests enjoying their food in our dining rooms. As a result, we've been reiterating the importance of executing great throughput by teaching, training, and validating the five pillars of throughput every day during every shift. After all, guests need to feel safe and deserve a great and fast in restaurant experience. Chipotle is a unique brand committed to fostering a culture that values and champions our diversity, while leveraging the individual talents of all team members to grow our business and cultivate a better world. To show how passionate we are about inspiring real change in people, food, and the environment, we have tied 10% of officers' annual incentive bonus to the company achieving certain ESG goals. Our updated sustainability report, which was published last week, showcases our desire for transparency, and being a leader in sustainability. I also want to take this opportunity to welcome our two new independent directors, Matt Carey and Mauricio Gutierrez. Both bring excellent experience to our board and will be valuable assets for Chipotle. Finally, I want to thank our employees for their incredible level of collaboration and tireless dedication, which were critical in helping demonstrate the brand's resiliency. While the past year has been full of ups and downs and the volatility related to COVID may not be fully behind us, I believe Chipotle is stronger today and is well positioned for growth. As a result, I'm excited about our future as we remain a premier fast casual brand focusing on all stakeholders, a leader in culinary, a leader in food with integrity, and an innovator providing convenient access inside our restaurants as well as through our expanding digital ecosystems. With that, here's Jack to walk you through the financials.