Chipotle Mexican Grill, Inc. Q2 FY2026 earnings call

• Core Restaurant Execution Improvement

  • Deployed the Linebacker role in over 70% of restaurants this quarter, driving accelerated year-over-year MAX 15 peak throughput growth for the second consecutive quarter.
  • Rollout of HEAP (High Efficiency Equipment Package) is ongoing, with installations complete in over 1,000 restaurants; the company remains on track to reach ~2,000 restaurants by end of 2026. HEAP-equipped restaurants outperform the rest of the fleet by 2-3 additional entrees during peak 15-minute periods, translating to hundreds of basis points of comparable sales improvement.
  • Reinstated mystery shopper programs for more frequent operational feedback, held company-wide hospitality huddles, and reallocated manager time to support peak day parts, resulting in higher year-over-year guest satisfaction scores, higher digital on-time fulfillment rates, and a meaningful reduction in refunds.

• Digital and Rewards Program Modernization

  • Hired a new Chief Digital Officer who has already driven innovation, including the pilot launch of the AI-powered modernized Cook to Needs demand forecasting tool, which automates manual daily data entry; early crew feedback is positive.
  • Relaunched the Chipotle Rewards program in mid-April with improved personalization, simplified onboarding, proactive re-engagement for lapsed users, and expanded redemption options. New in-restaurant enrollment tools drove a nearly 20% increase in daily enrollments, and in-store loyalty comparable sales have outpaced order-ahead comparable sales post-launch.
  • A new frictionless automatic rewards earning experience, which eliminates the need to scan at checkout, will pilot in August, expected to improve both engagement and service speed.

• Brand and Menu Innovation

  • Hired a new Chief Brand Officer, who is leading an evolution of brand messaging to highlight Chipotle's differentiated value of fresh, high-quality real ingredients; the first new marketing elements will launch later this quarter.
  • The reintroduced limited-time offering (LTO) Chipotle Honey Chicken outperformed its prior launch, achieving a cumulative attachment rate above 25%. Permanent cilantro lime sauce continues to outperform other sauce options with strong attachment rates.
  • Two additional limited-time protein LTOs and other menu innovations are planned for H2 2026. The refreshed high-protein marketing campaign reinforces Chipotle's differentiated high-quality fresh protein positioning.
  • Group/catering business pilots in multiple U.S. markets have produced encouraging results; the company is on track for a national catering launch in 2027.

• People and Talent Development

  • General manager turnover remains at a multi-year low, and crew turnover has returned to pre-pandemic historical norms, positioning the company to support ongoing expansion.
  • The company's culture of internal advancement is a core competitive advantage, and it has become one of the restaurant industry's top developers of restaurant operators.

• Global Expansion

  • Opened the first Chipotle restaurant in Monterrey, Mexico in partnership with Alsea, with additional Monterrey openings planned for 2026 and entry into Mexico City planned for 2027.
  • First restaurants in Seoul, South Korea will open in 2026, followed by Singapore in early 2027 in partnership with SPC Group.
  • New partner-operated restaurants opened in Abu Dhabi and Qatar, with entry into Saudi Arabia planned; long-term growth outlook for the Middle East region remains unchanged despite near-term development pauses tied to geopolitics.

Chipotle operates as a single integrated restaurant business, with digital sales as a key reported segment. For Q2 2026: Total company revenue was $3.3 billion, growing 9.3% year-over-year. Digital sales reached $1.3 billion, accounting for 38.3% of total revenue, up from 35.5% in Q2 2025. Comparable restaurant sales increased 2.2% year-over-year, with a transaction comparable growth of 1%. Restaurant level margin was 25.2%, down 220 basis points year-over-year. Adjusted diluted earnings per share was $0.33, flat year-over-year. 101 new restaurants were opened in the quarter, 100 of which were company-owned, with 1 international partner-operated restaurant. For new restaurants: new restaurant productivity has remained stable at the 80% range, with year-two cash on cash returns holding at around 60%, both among the strongest in the industry. In Europe, all markets delivered high single-digit comparable sales growth in the quarter, following alignment with North American culinary and training standards. In Middle East partner-operated markets, regional sales have returned to pre-conflict levels. Catering and build your own Chipotle, positioned as a family meal solution, currently represent 2-3% of total sales and are highly incremental.

• Full-year 2026 comparable sales growth guidance is raised to the low single-digit range, up from prior lower expectations.
• Full-year 2026 pricing impact is expected to land near the high end of the previously guided 1-2% range, with Q3 pricing impact expected to reach the mid-2% range.
• The company reaffirmed its target of opening ~350 company-owned restaurants in 2026, with ~80% of new locations including a Chipotle lane format.
• HEAP deployment remains on track to reach ~2,000 restaurants by the end of 2026, with full fleet deployment expected to be completed in 2027.
• Q3 2026 cost of sales is expected to be just under 30%, with full-year cost of sales inflation expected in the low single-digit range.
• Q3 2026 labor costs are expected to land in the mid-25% range, with wage inflation in the low single-digit range.
• Marketing costs for full-year 2026 are expected to remain in the low 3% of sales range, consistent with Q3 expectations.
• Depreciation and amortization for 2026 is expected to remain around 3% of total sales.
• The 2026 effective non-GAAP tax rate is expected to land in the 24-26% range.
• The board authorized an additional $1.3 billion for the company's share repurchase program, bringing total remaining authorization to $1.7 billion at quarter end. The company will continue opportunistic repurchases with its net cash position and no outstanding debt.

• Consumer spending caution has increased across the broader restaurant industry, leading to softer comparable sales trends in the second half of July 2026.
• Inflation remains a pressure on input costs; beef and freight inflation more than offset benefits from lower avocado and dairy prices in Q2 2026.
• Cyclospora-related industry concerns created a roughly 200 basis point headwind to comparable sales in the second half of July 2026, and the duration of this impact is uncertain, though Chipotle is not directly involved as it does not use the produce implicated in the outbreak.
• Geopolitical instability in the Middle East means near-term development timelines for the region remain dependent on conditions, though long-term outlook is unchanged.
• Overly aggressive new restaurant expansion beyond the 350 company-owned per year target could fracture operational quality and erode the company's strong new restaurant track record.

Q: Do reintroduced popular LTOs like Chipotle Honey Chicken still deliver stronger performance than their first launch, and how has guest perception of Chipotle's value changed? / A: Management confirmed that Chipotle Honey Chicken performed better on its second launch, as do most returning popular LTOs, though there is expected to be a point of diminishing returns after multiple reintroductions. The company has quadrupled its menu innovation rate, so it will introduce new items alongside revisiting high-performing past LTOs. Brand tracker data shows value perception improved across all income and age groups in Q2 2026, reaching the highest level in a couple of years. Management noted value extends beyond price, including convenience, execution, and menu innovation, and Chipotle's high-quality protein positioning at an approachable price point strengthens its value proposition. / Q: Analysts question why management is confident comp growth momentum will build into 2027 despite current low single-digit growth and heavy near-term investment. / A: Management explained that the 1% transaction comp growth in Q2 came from only the earliest stages of their recipe for growth strategy, with early proof points like improved guest satisfaction, food quality, and operational consistency confirming the strategy is on track. Additional layers of growth from menu innovation, deeper rewards engagement, improved brand marketing, and expanded catering/group occasions are already showing early positive momentum and will scale through H2 2026 into 2027. New senior leadership in digital and branding are driving innovative, industry-leading changes that have not yet been fully rolled out, creating additional future upside. / Q: Can you confirm the underlying Q3 comp trend excluding the recent cyclospora headwind, and clarify how HEAP impacts current system-wide throughput? / A: Management confirmed the Q3 comparable sales guidance of +1% assumes the 200 basis point cyclospora impact continues throughout the quarter, so the underlying comp trend without this headwind is roughly +3%. HEAP-equipped restaurants deliver 2-3 additional entrees per peak 15-minute period; system-wide average peak 15 throughput is ~20 entrees for in-store sales and ~15 entrees for digital sales, for a combined low-to-mid 30 entrees per peak 15 minute period across the entire fleet. / Q: What is the status of Chipotle's planned restaurant refresh program, and will the company use more partner-operated models for new international markets? / A: Management noted the company has never done a brand-wide aesthetic restaurant remodel, and is currently testing different investment levels ($100,000 to $300,000 per restaurant) across multiple test locations to measure consumer response and return on investment. No results are available yet as the program is still in early testing. For international expansion, the company will continue to own and operate Western Europe, but will use strategic partner-operated models and joint ventures for most other new global markets, leveraging local partners' market expertise while Chipotle retains brand and quality oversight.