Chipotle Mexican Grill, Inc. Q2 FY2025 earnings call

Operations: Restaurant teams executed well in a challenging environment. Completed rollout of produce slicer, and beginning to see back-of-house benefits. Opened a new restaurant innovation space working on emergent technology. Plan to complete rollout of high-efficiency equipment package over 3 years. ### Marketing: Ramped up summer marketing strategy, doubling reach in social and streaming, launching Summer of Extras rewards program, which was successful. Menu innovations like Chipotle Honey Chicken and Adobo Ranch have driven engagement. ### Digital Experience: Enhanced app functionality, ramped up enrollment campaigns for rewards program, launched Summer of Extras gamified experience. ### Expanding Access: Opened 61 new restaurants in U.S. and Canada in Q2, with 80% including Chipotlanes. Confident in opening 315-345 new restaurants in U.S. and Canada this year. Making progress in international markets like Europe and Middle East. ### People Leadership: Emphasized purpose of cultivating a better world and culture of people development, with 80% internal promotions, showcasing growth opportunities for employees.

In the second quarter, sales grew 3% to reach $3.1 billion, including a negative 4% comp. Digital sales were 35.5% of total sales. Restaurant-level margin was 27.4%, a decline of 150 basis points year-over-year. Adjusted diluted EPS was $0.33, a decline of 3% over last year. 61 new restaurants were opened, including 47 Chipotlanes. Digital sales accounted for 35.5% of total sales.

Full Year: Now anticipates comparable sales to be about flat for the full year. ### Long-Term: Confident in getting back to mid-single-digit comps and surpassing $4 million in AUVs longer term. ### Q3 Expectations: Cost of sales expected to step up to the high 29% range; labor cost in the high 24% range; marketing cost to step up to the mid-2% range; other operating costs in the mid-14% range; underlying G&A around $139 million; total non-GAAP G&A in Q3 around $163 million.

Consumer Environment: Ongoing volatility in sales trends and consumer environment poses a risk. ### Marketing Fatigue: Potential for consumer fatigue with marketing initiatives, although learning from summer campaigns will inform future strategy. ### Macroeconomic Factors: Macro conditions affecting consumer spending, such as low-income consumers seeking value, can impact performance.

Q: About digital marketing, what worked with Summer of Extras and plans for lapsed users?

A: Summer of Extras had 5 million participants, 40% transacted, enrollments up 14% year-over-year. Working on a win-back journey for near or lapsed consumers, in test in coming months.

Q: Trends through the quarter, like 2-year comp?

A: April had around +8% 2-year comp, May softened, but June and July improved with summer marketing, exiting June at ~8% 2-year comp, July choppy but expecting Q3 to be ~8%.

Q: Thoughts on getting back to mid-single-digit comps, macro vs structural?

A: Much of current performance is due to macro, low-income consumers seeking value; as sentiment improves, business will improve, and confident in returning to mid-single-digit growth.

Q: LTO cadence and revisiting favorites?

A: LTOs tend to perform better on revisits, with proven LTOs that can be layered into marketing calendar, and team working on new on-brand items.

Q: Regional performance differences?

A: All regions trending similarly; Northeast still performing well, urban restaurants outperforming suburban slightly in some areas.

Q: Contribution of Jason Kidd as COO?

A: Jason brings vast retail knowledge, different perspective, expected to create step change in operational performance.

Q: Marketing spend going forward?

A: Will follow return-focused approach, may incrementally spend more if it drives top and bottom line.

Q: High-efficiency equipment impact?

A: Early stages, but expected to drive labor efficiency, improve culinary consistency, and unlock growth platforms like catering.

Q: Same-store sales trends and mix headwinds?

A: June-July trends expected to continue, mix headwinds like lower group size and shift to lower-priced entrées, but sides provide partial offset.

Q: Chipotle's susceptibility to macro today vs history?

A: Not getting sufficient credit from consumers on value proposition; need to better communicate value going forward.

Q: Food cost favorability drivers?

A: In-restaurant initiatives (flow of food) and supply chain initiatives (supplier diversification, logistics) have driven food cost efficiencies, offsetting prior investments.

Q: International growth outlook?

A: Making progress in Europe and Middle East, with Anat's team making progress in Western Europe; confident in international growth as a significant lever in future years.