Earnings Call: Q1 2010

Apr 21, 2010

afternoon, everyone. Welcome to the Chipotle First Quarter 2010 Earnings Conference Call. All participants are now in a listen only mode. After the speaker remarks, there will be a question and answer session. As a reminder, this conference is being recorded. Thank you. And I would now like to introduce Chipotle's Investor Relations Director, Kate Keha. Please go ahead. Thanks so much. Hello, everyone, and welcome to our call today. By now, you should have access to our earnings announcement released this afternoon for our Q1 2010. It may also be found on our website at chipotle.com in the Investor Relations section. Before we begin our presentation, I will remind everyone that parts of our discussion today will include forward looking statements within the meaning of the the strategy as well as projections of comparable restaurant sales trends, the number of restaurants we intend to open, expected trends in various costs in our business and other statements of our expectations and plans. These forward looking statements are based on information available to us today, and we are assuming any obligation to update them. Forward looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward looking statements. We refer you to the risk factors in our annual report on Form 10 ks for 2,009 as updated in our subsequent 10 Q for a discussion of these risks. I want to remind everyone that we have adopted a self imposed quiet period, restricting communications with investors during sensitive periods. This quiet period begins on the 1st day of the last month of each fiscal quarter and continues until the next earnings conference call. For the Q2, it will begin June 1 and continue until our Q2 release in July. On the call with us today are Monty Moran, Co Chief Executive Officer and Jack Hartung, Chief Financial Officer. Steve Founder, Chairman and Co Chief Executive Officer is traveling out of the country and couldn't be with us today. So I'll turn the call right to Monty. Thanks, Kate. Steve asked me to pass along a few things in his absence, so I'll start with that. Our performance during the Q1 is something that all of us at Chipotle should be proud of. But more importantly, we're proud that during the toughest economic times, our entire company remained focused on serving the best food made from the finest ingredients we can find and providing extraordinary service to each customer who visits Chipotlane. And now as the economy appears to be improving, those efforts are beginning to pay off with more customers visiting Chipotlane more often. And because our restaurant managers and crew are the strongest that they've ever been, we're confident each additional visit will be a terrific experience for our customers. Steve has focused a lot of his attention on our first European restaurant, which is on track to open in London next month. He personally selected the 1st restaurant tourist who will move to London and introduce the Chipotle brand there. He also has been active in seeking and finding great local ingredients and is delighted to report that the food he has cooked with these ingredients is delicious. Steve has used London as an opportunity to take a fresh look at many of the things we do in our restaurants, including design. We're opening in London with a great site and a compelling new design and we've already started the process of hiring and training a team of top performers. So Steve is excited and optimistic about the opening and we're confident that this is the first step in what will eventually become a successful European growth opportunity for Chipotle. Steve has been working with Mark Krumpacker, our Chief Marketing Officer on our new ad campaign called Straight Talk, which was launched this month. The new campaign speaks more directly our food and our commitment to finding more sustainable sources for all of the ingredients we use, but it does it in a way that isn't too serious or preachy. It is true to our brand and our personality while addressing a subject that we believe in. And we think our customers are becoming more curious about. These ads are now running in markets around the country in print, outdoor, radio and online. We think this new campaign is the start of a deeper, more compelling message to our customers about what we do at Chipotle to serve the best most responsible food we can. We continue to believe that the more our customers know about where the food we serve comes from, the more appreciative and loyal they will be to Chipotle. Shifting gears a bit, those of you who have listened to us a lot have probably picked up on the fact that we work hard to focus on the few things that we think are the most important to our business. One of these major areas of focus is on building a team and culture of top performers. It's for that reason that you've heard me talk on nearly every earnings call about this high performing people culture we are building. Of course, it's far more difficult to measure and articulate the progress we have made with our culture each quarter than it is for example to report on our comps, our margins or our earnings growth. But it's clear that this culture in our top performing restaurant teams are a major factor in driving sales growth, strong margins and earnings growth. Our strategy of hiring only top performers and developing them into effective leaders while maintaining the discipline to remove low performers has had a dramatic Our Our elite managers, the restauranteurs, remained a central element of this high performing culture. During the Q1, we interviewed over 30 excellent managers and from them selected 20 new restauranteurs, bringing the total number of restauranteurs to 163. Many of these 100 63 restaurateurs are mentoring more than 1 restaurant, such that over 300 restaurants or about a third of our current restaurants are now being led by this elite group. And because of the prestige associated with the restaurant tour position, all of our managers are working to get there. And since they all know that the way to achieve that role is to run an amazing restaurant experience and to create a team of high performing crew, the influence of the program is literally influence throughout the company and build better teams. It also allows us to be more confident that we can grow our company successfully. As we know that each new restaurant is more likely than ever to open with a strong team in place. This creates the foundation of our company for the coming years as we want all of our future leaders to come from the crew ranks. It is also how we plan to build our culture from the ground up as we enter markets in Europe. It's incredibly satisfying for us to see what a high performing empowered team of restaurant managers and crews can accomplish. They hire and develop our future leaders, run great restaurants that are always clean and organized, proudly serve great tasting food made from the very best ingredients, treat our customers to the best service and the best overall dining experience they can, and they do all of this while running an efficient and successful business. To further demonstrate our commitment to developing our managers from within and to give them additional tools to develop their crews to become future leaders, we're going to hold our 2nd biannual All Managers Conference this summer. This conference will focus on such things as what makes a restaurant tour, so that all of our managers know exactly what is expected of them to join this elite group. It will also demonstrate the importance of our people culture and how our teams of high performers are so important to advancing our food culture and our business model enables us to do all of these extraordinary things. We believe that helping our managers better understand how all these pieces fit together will help them continue to understand the importance of their role and how that contributes to our overall vision of changing the way people think about any fast food. So of course we're pleased with our performance, but it's even more pleasing to know that our special people culture and our teams of top performers that are helping us produce these results. That empowered talented leaders can set the bar even higher than we thought possible. That we have an anxious and excited venture future leaders that are ready to run each new restaurant as it opens. And that this special people culture is still growing and providing us with the leadership that we'll need to keep pace with our growth. While our people culture and our ability to develop managers from within is a key factor in our ability to grow, so is our ability to find great sites for our restaurants and to find efficiencies in the way that we build them. Our A Model strategy is designed to do exactly that, supplement and improve our development results. And while we were all very confident that the A Model strategy was the right strategy, we're even more pleased to report that it's working. Through the Q1, we opened 5 A Model restaurants with average development costs well below $700,000 and much lower than our overall average sales, which despite opening with lower development costs and lower operating costs are on par with traditional new restaurant openings. Remember, an A Model is a fully functioning restaurant with the same menu and service model, so our customers won't notice the difference between A Model restaurant and any other Chipotle. These restaurants tend to be a little smaller and the design is a little simpler and the investment costs, occupancy costs and operating costs are lower than a traditional Chipotle. But the trade dress and the customer experience remain unmistakable in Chipotle. This year, we expect that 25 of our new openings will be A Model restaurants with all of those being in proven markets. Limiting A Model restaurants to proven markets this year allows us to refine their design and operations with no risk. Ultimately, we will also build A models in new and developing markets as well and their lower cost will allow us to generate higher returns at current volumes and enable us to grow more aggressively in those markets. Our new A Model strategy gives us another reason to feel very optimistic about our future. And having a culture which continues to attract and retain top performers gives us the comfort that these new restaurants will provide the best customer experience possible. We are confident that we remain on the right path to continue to grow Chipotle in a way that is responsible, both in terms of pursuing our vision of changing the way people think about meat fast food and in increasing shareholder value. And we know that remaining focused on these few key drivers of our business is the key to our continued success. I will now turn the call over to Jack. Thanks, Mani. We're extremely pleased with our results for the Q1 and we're encouraged to see signs that consumer confidence and consumer spending in general are improving after a tough consumer after a tough consumer environment over the last couple of years. Our restaurant managers and crew work very hard to treasure each customer who visited Chipotle during this tough environment and those efforts are paying off as new and existing customers visited Chipotle more often so far this year. While 2010 is off to a good start, we remain cautiously optimistic about the remainder of 2010 as unemployment remains high and consumer confidence is not yet back to pre recession levels. As we entered the recession, we remain committed to our vision of changing the way people think about and eat fast food and strengthening our people culture. As the economy begins to improve, we're more committed than ever to follow this same course. While the effects of the economy caused some companies to stray from their strategies, we continue to invest in better ingredients, continue to invest in and advance our people culture, continue to invest in bringing the 12 experience to more people by opening profitable new restaurants and we did all this while strengthening our business model. Revenue for the 1st quarter increased 15.6 percent to $409,700,000 Revenue growth for the quarter was driven primarily by new restaurants along with a comp sales increase of 4.3%. The comp was driven mainly by increased traffic as we have not had any menu price increase for over a a for the full year. Diluted EPS for the quarter was $1.19 up 53% from last year. Restaurant level margins were 26.1 percent for the quarter, up 2 60 basis points from last year. Efficiencies from comp restaurant sales growth and continued labor efficiencies drove the margin expansion. As we discussed on the last call, we believe our industry leading margins are largely sustainable in 20 10, though they will fluctuate due to factors such as the timing of expenses such as ad spending as well as food inflation. Food costs for the quarter decreased 80 basis points from last year to 30.2%. The decrease was mainly driven by lower costs for rice, avocados and cheese. We expect food cost to increase slightly during the year, primarily in the second half due to modest commodity inflation enabled by increased consumer demand. Labor improved 100 basis points for the quarter, driven mainly by continued efficiencies in our labor scheduling matrix, which was fully implemented in the Q2 of last year. These gains were partially offset by wage rate increases. For the rest of 2010, we expect little or no labor leverage as we fully lap efficiencies gained from the changes in the Q2 of last year and as wage inflation creeps in. For the quarter, other operating costs were historically and artificially low for us. They decreased 80 basis points from last year to 10.7 percent fueled by lower promotional and insurance expenses and overall cost containment initiatives. But we spent only 1.1% of revenue on marketing, while we expect to spend around 1.8% for the full year. So as a result, we expect to delever this line during the rest of the year as we invest in our new marketing campaign. G and A decreased 30 basis points from last year to 6.4 percent of sales. The decrease was the result of the comp sales growth partially offset by higher stock based compensation. We anticipate no overall G and A leverage in 2010 as we hold our 2nd Biennial All Manager Conference in the 3rd quarter, which will add about $3,000,000 to G and A combined with a $6,500,000 increase in our stock comp expense to about $22,000,000 for full year in 2010. We opened 20 new restaurants in the quarter for a total of 9 76 restaurants at quarter end. Our new restaurants continue to hold up well opening with sales in the $1,350,000 to $1,400,000 range. We expect to open 120 to 130 new restaurants in 2010 with about 25% expected to be A Models. We still anticipate our 20 10 development comps will be around $800,000 with the A Model investment expected to be under $700,000 So with our margins and the comp up, the investment down and opening sales holding up well, we're better positioned than ever to add to shareholder value as we open new restaurants. As a reminder, we began a $100,000,000 share repurchase in November of 2009 and through April 16th, we've repurchased nearly $30,000,000 worth of pound stock at an average price of just under $100 So thanks for your time today. And at this time, we'd be happy to answer any questions you might have. Operator, please open the line. And we'll hear first from Jeff Almejandra with Wells Fargo Securities. Thank you. I wonder if you could update us on store productivity initiatives, particularly around handhelds and such. I'm just curious if you'd update us on the progress on throughput. Thank you. Yes. Yes, Jeff, on throughput, to be real blunt, I mean we sort of took our eye off this ball a little bit over the last couple of years. What happened first of course is what is as we went into the recession, our throughput numbers fell off a little bit and we sort of expected that that was appropriate that they should fall off since our transactions were lower than they were before. And especially during the peak lunch hour since that was driven more by the business customer that comes during lunch. So those numbers fell off a little bit. As we've looked at it over the last 6 months or so, basically what we've decided is that they fell off a little more than they should have though. And so we've been talking to our teams in the field and our regional directors and we all realize that this is something that we need to continue to put our focus back on. Over the last couple of years, we've done a great job in scheduling better and making sure we have the right numbers of people working the right times. But there's a lot of additional focus that we're now bringing back to the basic elements of throughput, which are having all of our people in their place at the peak hours, making sure that we're not doing food prep and other tasks that can be accomplished before the peak hours, during those peak hours. But instead that we have all hands on deck for the peak hour. So that's one thing we're working on. Another thing is we're wanting to make sure that we have the proper deployment and having the exact right people in the right places during the busiest times of day. When I say that we've taken our eye off the ball, I mean our throughput is not way off. Right now our throughput is about 4 transactions off per peak hour of where it was in 2,007 when we were sort of at our best during the busiest times at lunch during the week. But we take that pretty seriously because you know in most of our restaurants at the peak hour of lunch, there is an opportunity to an opportunity to continue to speed up our service and by doing that give better customer service, which we believe will add somewhat to our overall comp because we do have some people walking away from the back of our lines again, especially as we get towards our busier time of year. So it's a huge area of increased focus right now and I think it is exactly the right time to return our focus to that important from our competitors. Thank you and congrats on the strong quarter. From our competitors. Thank you and congrats on the strong quarter. Thanks very much, Jeff. And our next question will come from John Glass with Morgan Stanley. Hi, thanks. Jack, I think in the last call you said January was off to an okay start, but then February there's a lot of weather and traffic I think you'd indicated you'd indicated with negative or something to that effect. So can you just trace the progress of comps this quarter given how strong you ended up on the quarter and if you are willing to talk about April that would be helpful as well? Yes. Weather did interrupt the trend and Weather did interrupt the trend in early February, but we did start to see at the time of our call in February, we did start to see some momentum building at the end of January and into February, but that momentum was interrupted pretty suddenly by the weather. After the call, once the weather subsided, we returned to normal weather. We were pleased to see that the momentum continues. So, if you didn't have the weather, I would say, we saw underlying momentum begin in late January, early February, picked up again in late February, continued into March and then are holding those levels into April. So, guidance for the year to the mid single digits. And we're cautious with that, John, because this is kind of a new found trend that we're seeing not just in our business, but with the consumer in general. We're cautious because unemployment is still high and consumer confidence, while it's higher than it was a year ago, isn't quite where it was a couple of years ago. But we're really pleased with the trends. We love the momentum and while we won't say what the number is so far into April, what we saw in March did continue into April. So we're pleased about that. Would you be willing to say what weather hurt you during the quarter? I think it washed out to not be much of a net impact, John, because what happened was once the weather subsided, we saw some nice strength and then it leveled off from that. And that's what we have seen at Chipotle. When we had a snow day in a market, we lose a day or we lose a lot of sales in that day. When the weather clears up, we actually over form for a day or a couple days. It's almost as if people that weren't able to visit Chipotle while the weather was bad, kind of make up for that in some way when the weather improves. I would say when it nets, it nets to something overall for the whole quarter to be not overly material is our take on it. Okay. And then just finally, is the type of commodity inflation that you expect in the half of the year, is that you think material enough to cause you to rethink pricing or is that manageable in the context of your current traffic? Those are you going to take pricing or need to take pricing in the back half or can you get by without it? I think the food inflation that we're seeing, John, it seems manageable based on what we know today. We don't anticipate taking any kind of specific pricing, certainly not related to the inflation that we see. We're still thinking food food inflation will be somewhere in the low single digit range and that would be in the second half of the year. We do have some plans to try to roll food and integrity in certain markets. But even those, we'll probably do that with either no or very modest price increases. So I would expect for the year not to see any benefit from menu price increases for us. Now having said that, if things change and food inflation changes, we certainly have the ability to, but I think we'll be patient before we rush into a menu price increase if we start to see food inflation. And next we'll hear from David Tarantino with Robert W. Baird. Hi, good afternoon and congratulations on a great quarter. I have a question about your development outlook and given that you think you're seeing signs that the economy is improving and you're seeing excellent returns on the A Model strategy, are you thinking now that you might look at accelerating the unit growth as you look out into 2011? Well, yes, David, I mean, we've always said that we will grow as fast as we can find great sites and as fast as we can grow great teams in order run those locations. Right now, in terms of development outlook, a couple of years ago, the vast we even 2 years ago that began to fall off, last year it fell off a great deal as many fewer developments were coming out of the ground. So last year it was about this exact issue. And are they seeing any additional sort of pickup in the amount of new developments? And the answer is not yet. And even when we do begin to see that some of these developments are underway, obviously there's a pretty substantial lead time probably a year or so before those begin to materialize. That being said, we've talked a lot about our A Model strategy and the fact that that strategy tends to go more into the Tier 2 locations and into existing real estate, not as often in new developments, although sometimes they are in new developments. And model strategy, we're all feeling very good about it right now, very bullish about it as a way to help us supplement some of the number of locations that we may have lost due to fewer new developments coming out of the ground. So we're good 2011 and beyond. And that works underway now. So we'll hope to have some news on that front, but it's too early to say. Late this year probably after the Q3 release, we will talk to you a little bit about what our plans are for unit growth in 2011. Sounds good. And I guess just a quick follow-up on that. Is there anything from a human resources or staffing perspective that would give you pause in accelerating the growth rate or is it just a matter of finding the right real estate? Well, right now, we do not believe that the human resources issue is a limiting factor. Our teams are stronger than ever. I will say that we are our ratios on the mid management level are we have about 12 stores per area manager or team leader, whereas 5 years ago that was 6 stores per area manager and team leader. It was never our intention to increase that ratio, although we did predict that it would increase as we got a team of all high performers in those mid management positions. The restaurant tour growth has been steady. The restaurant tours that we already have are steadily taking on additional stores as they become either R2, R3, R4 or what we call apprentice team leaders and we're starting to see more people move towards those positions where they're over seeing more restaurants. Those moves, David, are really what give us the confidence that we're going to be able to oversee sort of as many restaurants as we can build, so long as we continue to produce restaurant tours at the rate that our field teams are telling me that they predict we will be able to continue to grow to additional restaurant tours. So, this restaurant tour program really is the foundation for how we are going to gain confidence that if we are able to accelerate our unit growth that we'll be able to run them properly. But at this point, we do not see that as a limiting factor. Makes sense. Thank you. Thanks, David. Our next question will come from Nicole Miller with Piper Jaffray. Good afternoon and great quarter. Thanks, Nicole. Talk to us a little bit about what you're seeing competition direct or indirect within just the premium convenience segment? And where are you getting this traffic from? It's a great question, Nicole, because it seems like just in reading retail reports from apparel reports and some of the larger retailers and looking at restaurants, it seems like almost all the news in the last month or 2 has positive. So it looks like the consumer is outspending again. It looks like consumer confidence from all the different So it seems like people are out just spending more money. And so we kind of feel like we did the best we could while consumers were more timid about spending money, making sure that they got a great experience every time they visited Chipotle. That's what we talked about with our restaurant teams all the time is that a consumer is making a very important decision to keep Chipotle as part of their budget when they're spending when times are tough, and we feel like that's paying off. I don't know if we're doing maybe better than average or about average, but generally consumers are spending. And our experience has been over time, when more customers, new customers or existing customers come to Chipotle more often. And if we do a great job serving great tasting food in a great environment with great throughput and great customer service, that tends to lead to even more comps. And that's why we've had years of very strong comps until it was interrupted by this environment. So in short, generally the consumer environment seems to be improving and we're taking our fair share of those extra dollars. Got you. And then Monty, I know it's just going to be one store here in London in May, but could you just talk to us a little bit about the sourcing? And then you said the design is different how? And then how big is the team? Like do you guys have a regional manager yet or is it just a GM and who is that team and how does that work? Yes. Well, the way we're going to open in London Nicole is very, very unusual. Although for us, it will be consistent with the way we opened in Toronto. As you recall, we opened Toronto a couple of years ago and we did that without adding any infrastructure at all. To be specific, we do not have a single employee working in Canada who is not a restaurant employee. And that restaurant has been run the entire time by a restaurant tour and he's built a fantastic team and when all of us have gone up there to see the operations in Canada, they've been fantastic. In London, we're going to proceed in much the same way with a restaurant tour opening the restaurant. Although there are actually going to be a couple of or actually 3 restaurant tour level employees who are going over to London to open that restaurant, all of whom will work in the store for some time, but also all of whom will participate in helping with the sourcing, the hiring, the training, all of that. So it's a little bit more of a team over there, but everyone who is going to London is going to be a store level employee. There will be absolutely no corporate infrastructure. So that's very unusual the way we're opening there. But given how we open in Toronto, we're confident that that's exactly the right way to do things to into London, build a very strong team and then use that team to expand in Europe should London prove to be successful and should we be able to find additional locations that are that we're interested in. And also we've mentioned in a call or 2 ago that Germany and France are sort of on our longer term radar screen. We're interested in learning more about proceeding in those countries and that's another reason why we're sending a little bit more talent over to London initially is because 1 or more of those people would be available to go help initiate a new restaurant operation in Germany or France. In terms of sourcing, that's our teams have been going over to London for quite some time. Steve has spent a lot of time going over to London and actually visiting a number of different suppliers and distributors. And the news that has come back and I have not been part of those trips to suppliers over there, but the news that's come back is that Steve has told me that the food that he finds over there is wonderful food that in fact he thinks it's going to be easier to find more food with integrity in the U. K. Than it is here in the States because it's such a focus in Europe generally. For instance, here we tell the fact that we have RBGH free cheese and sour cream. In Europe, there really is no alternative because RVGH is not or RBGH is not used on the animals that are used to produce dairy. So that's one example, but there's a higher level of awareness about hormones, antibiotics, about local sourcing, about organics and all of that in Europe. So we're excited that we think that the sourcing is going to be really advantageous to us over there. Another point though is with regard to sourcing is that we are going to be cooking everything from scratch in that restaurant. Steve has spent a lot of time with the team over there making sure that we can cook everything from scratch. And so therefore, we do not need to deal with commissaries at all in Europe initially, which means that we're going to be able to buy even from very small suppliers and it gives us a great deal of flexibility to go exactly where we want to find exactly the right ingredients to open Europe in a very entrepreneurial way, but in a way that's also very forward on food and integrity. You something new. Although it's not going to be if you went over there and saw the new design, it's going to be very consistent with what our Chipotles our new Chipotles look like. And there's a few of those now in the United States, particularly a couple in New York City that Steve has been very personally involved with. In picking that design, Steve worked with an architect in England and kind of approached it from a very new took a very new look at that and some of those ideas actually came back to the States and became part of what our new design will be here. So it's pretty consistent with what our new design in the United States will look like. Thank you. You bet. Thank you, Nicole. And our next question will come from Joe Buckley with Bank of America Merrill Lynch. Thank you. A couple of questions. On the marketing, Jack, I think you mentioned the full year will 1.8%. I guess I wanted to verify that would be the full year spend or will that be kind of the spend for the next 3 quarters? And with respect to the marketing, how broad will it be? What percent of the store base might it cover? And how many markets will you be doing radio in? All right, Joe. Right now, the marketing is rolling out in basically 30 major markets. There are some of those markets, about half of those where it will be a particularly robust sort of integrated campaign and those markets are the ones where we typically have the greatest density and where it makes the most sense, where our advertising dollar goes the furthest. I think Jack mentioned in his statement that our marketing for the quarter came in at 1.1%. Obviously that was artificially low and the reason it was, is that we were continuing to develop our new marketing campaign and of course that has just rolled out. Too early to tell you what its effects are, but it's pretty clear that we expect our marketing budget to drift upward substantially, so that it will average out sort of to 1 point 7 5% for the year. And given the fact that the Q1 was 1.1, obviously that means it will be ahead of those numbers going forward. You know, mostly the marketing so far is radio, outdoor and billboards and so forth. The radio did just start playing and so too early to tell what the effect of that is. And we'll look forward to telling you more about that next quarter. But the marketing is generally designed to be to talk a lot about food with integrity, but it's going to be different than it's been in the past because in the past we've been less direct with those messages in an effort to be sort of irreverent fun and not very preachy, where we're still trying not to be preachy, but we are going to make the messages much more clear. Essentially what we're trying to do is raise of the public about food integrity, but do so by talking also about the thing that they're most concerned about, which is taste. I know Steve talked in the last call about this concept of or this sort of moniker for our marketing plan, which was taste good, is good. And the point of that is we want to create a tight relationship in our customers' minds between the very high quality ingredients we're using and how careful we are in source our ingredients and taste. So we're trying to link those things in the customer's mind. So in essence, what we're doing is talking about all the things that are important to us like important to us like sustainability, environmental stewardship, animal welfare, healthfulness, but doing all of that in a context which makes it clear that our priority and the result is great pace. So we hope that that will be effective. It will be we'll learn a lot from this and hopefully we'll begin to create a greater still greater bond with our customers as they realize all of the things that we're doing to change the way Americans think about and hopefully the world thinks about needs fast food. Thank you. Could you also give us an update on the kids menu and if you have any new or different thoughts about exploring breakfast? The kids menu and breakfast, yes. Well, right now with regard to the kids menu, during the last call I told you that that would roll out by the end of the year. We're still on track to do that. Right now the kids menu is rolled out in Wisconsin, Denver, Sacramento, Phoenix, Tucson, Utah, most of Texas, Austin, Houston and Dallas and also in Boston. We plan on rolling it out to the rest of the country. The next big tranche of restaurants that will adopt the kids menu will take place on or about little bit of time to do that is that it's very important to train our teams in the field, takes a little bit of time to do that is that it's very important to train our teams in the field as to how to prepare the kids meal, how to talk about the kids meal and to make sure that we are from an operational standpoint, excellent at executing the strategy. So it doesn't put on throughput and otherwise negatively impact the operation. In terms of the effect of the kids meal, the kids meal was during its initial weeks about 2% to 3% of our transactions in the markets where we are that we're in now. But recently it's trended up more towards 3% to 4% of transactions without any particular marketing strategy dedicated to it. So we're pleased to see that our customer seem to be appreciating it, enjoying it and using it more often. And it's also a nice thing because our kids meals do carry with them a much higher ticket average. I guess probably something like 70% or 80% higher than our average ticket otherwise. I see you had another question that I want to forget what it was. On breakfast, but with the kids menu, do you think some of that business is incremental? Can you tell what part of it is incremental? Joe, that's really, really tricky to see right now. We've looked at it carefully and we just can't be sure that we can attribute any particular comp increase to the kids meal. The stuff we hear anecdotally from our customers and through our managers would indicate that our customers are very pleased that we have this option. They feel very comfortable or much more comfortable ordering. It makes them feel much more welcome to bring families. And so we do think that over time this is going to be a positive thing for us, but I can't tell you that we can attribute a certain amount of comp growth to it at this point. With regard to breakfast, Joe, we're still running breakfast in our Dulles Airport location. We really don't have a goal of rolling that out anytime soon. We continue to learn from what we're doing in Dulles. And we're just going to watch that for a while. As you know, we had to do that at Dulles or I should say, we didn't really have to serve breakfast, but we had to serve food at 7 am. And so we thought it was a nice time to go ahead and proceed with offering something a little different, more in the line of a traditional breakfast with some eggs and potatoes and chorizo and so forth. So we're pleased with how it's working in Dallas. Our customers seem to really enjoy it. And we're getting a steady and decent flow of business at breakfast. So we do think it is a possibility that in future it could be a strategy for us. But at this point we have a lot of other things to focus on with our current domestic and now international efforts. Okay. Thank you. Thank you. Our next question will come from Sharon Zackfia with William Blair. Hello. Hi, Sharon. Hi, Sharon. Hi. Actually, it's Tanya in for Sharon. I just a quick question. We realize it's early, but what is your read on the restaurant contribution margin differential between the A model and the traditional locations like 50 basis points, 100 basis points, could you just give us an idea? Well, it is really early. So I don't think we could specifically say what the restaurant level margin difference would be. I can tell you if you're talking about a comparable volume, like right now they've opened up at really similar or the same volumes as our traditional restaurants have opened. If they continue at that, if you compare an A Model restaurant to a traditional non A Model restaurant at the same volume, A Model will be higher, sure, because it's got lower occupancy costs. It's also got lower operating costs. How much lower? Too early to tell at this point. The other thing about A Model is what A Model allows us to do is right now we're only opening up in proven markets. But in the future, probably sometime next year, we'll also begin to open these up in some new and developing markets as well. And what's attractive about that is new and developing markets have historically opened up at lower volumes. They've opened up at about $1,000,000 to $1,100,000 and we don't like the margins that we see with our traditional restaurants in these new and developing markets, and so we don't open very many restaurants at those sales levels. With A Model, we do expect margins even at those lower volumes that maybe aren't as high as our 26% or mid-twenty percent margins, but somewhere maybe in the 20% range at lower volumes, the high teens or 20% range, which based on the much lower investment, we can generate very attractive returns in those. And so either way, the A model at either lower volumes is going to generate higher margins than we gotten in those low volumes in new and developing markets in the past. And in our proven markets where we're opening up at similar sales volumes, we do expect higher margins in A Model, but too early to say exactly what that differential might be. And our next question will come from Matt Driscoll with Oppenheimer. Just looking at the opening schedule left, the 100 to 100 and 10, Monty, I think you said in one of the responses to the last couple of questions back that the environment still remains, I guess, you need the pipeline a little longer on this. How do we stand as far as the development of that? Is that going to be even throughout the next three quarters? Or is it going to be somewhat like last year, a little back end weighted? And then I just wanted to know, can you tell us where those the 25% of the A model in your existing markets where primarily they will be going in? Yes. The 120 well, we said we're going to open 120 to 130 this year, obviously have now opened 120 of those. The weighting this year will be heavily towards the 3rd Q4, the back half of year in terms of when we open our restaurants. The A models are going to be opening up sort of throughout that time with about probably 4 or so opening next quarter and then about sort of a dozen in the 3rd quarter and maybe 8 in the 4th quarter sort of range. And so those will be again strewn sort of throughout the year with the rest of the openings. And what markets would those A's be going into? Well, they're going into our proven markets. And so our proven markets are the ones where we've been conducting business for a long time and where we've got where we're trying to go get as many sites as we can. And that's of course, most of our our markets are proven markets and most of our development is in proven markets. But those are markets, I mean, Denver and D. C. And Dallas, Dallas, Houston, Chicago, Phoenix. And we're focusing on those markets just to reduce the of as we open these, we want to open them with the greatest chance of success since we're going after Tier 2 locations. Obviously, we're meeting with a great deal of success now and it gives us a lot more of a bullish outlook on how these might contribute in the future in the developing and newer markets. Okay. And then, Jack, just last on the marketing expense, when I think the question was the 1.8%, you confirmed is for the full year is where you're going to work your way towards as a percent of sales. Is that though evenly I didn't get it if it was clear enough that that was evenly going to be expensed now for the next three quarters as well or did 2Q also have a couple of weeks where you really didn't jack it up yet? No, I would we're going to step it up for sure starting in Q2. And so I can't say we can't commit that it will be even through the last three quarters, Matt. I think if it was even, it would be roughly around 2% or so. But we want to remain flexible. We're going to talk to our customers. We're going to do customer research, find out which of these ads really connect. We might move some dollars around. We might accelerate some dollars. We might defer some dollars. So, we want to stay very flexible on that. I think if you were going to just plug something in, I think if you assume it's relatively even through the last three quarters, I think that's kind of fair. And then as the quarters unfold, we'll tell you more about it. But generally, we need to spend an average of about 2% for the rest of the year and we'll spend probably in that ballpark for each of the last three quarters. Okay. Thank you very much. Okay. Thanks, Matt. Thanks. We'll hear next from Greg Roody with Stephens. Thanks. Good afternoon. In terms of the Q1 results, can you talk to average check if the consumer is getting more confident? Are you seeing drinking attendance rates lift? And how much of that is baked into your new guidance of mid single digit same store sales? Yes. Thanks, Greg. Check was stable. If anything, it was slightly up, a few pennies up. I wouldn't nothing material to report on that. The single biggest thing that drove the check to be up a little bit was the group size is a little bigger. And contributing to that is the fact that we have our fax and our online sales have grown as well. So there is more group sales that are driving this. And our fax and online sales, those are generally the biggest checks that we have. That's a group of people that are in an office building that are going to get together and order, fax in or through online or even through an iPhone, they're going to send their order in. And those are meeting setting. So check is up just a little bit, a few pennies I would say and it's driven by more of the group size than anything else. Switching to the advertising, I think a year ago you rolled out the new menu test and part of the emphasis there was to educate factor or is it still going to really need to be generated by the restaurant tours and the frontline employees? Yes, really Greg, it's really going to be the latter by restaurant tours and restaurant employees. We did do that menu test in Denver. In fact, it's still going on where there are great sort of a more variety and more different a la carte and single tacos and all that. That test, there are aspects of it we really liked and one of the things that's falling out of that is that the kids meal is a success. Single tacos is something that is has been very successful. But our trying to organize the items in different ways in order to stimulate the customer to make different choices. People when we interviewed them really liked that and they were appreciative of it and they felt like we were taking care of them and so forth. The reality is they ordered exactly the same stuff they've always ordered and continue to order entrees and not really pick from the a la carte menu. So that part of the menu will not be something we'll be rolling out nationally and we're still going to be counting mostly on our restaurant tours and our store level employees to be communicating with our guests to letting them know the kinds of variety that they can have in the restaurant. It's just very tricky to accomplish on a menu to teach those lessons, but we're going to continue to do it at the store level for sure. And we'll move next to Jason West with Deutsche Bank. Yes. Just one on the commodity side. Can you guys tell us what the inflation or deflation, I guess, was in the Q1? And you mentioned things are starting to move up a bit. What exactly are you seeing moving up? And what do you have sort of contracted for the year versus kind of dependent more on the spot markets? Thanks. Yes. I mean, the inflation, 80 basis points, Jason, that's probably a net. Some things cost a little more money, many things cost less money, but when you net it all together, that's probably about a 2.5% inflation, effective inflation in the Q1. We have just a few very small items contracted like rice, and these are items that are contracted at least through 3 quarters. That would include rice, it would include soy oil, it would include corn through 3 quarters. And we've also locked in our pricing for the tortillas for the full year. And that's it. And typically, we're not able to lock in very much of our ingredients. The other thing that we have historically locked in has been cheese. And cheese, we've now locked in. We've been paying at the spot market. And one of the things we're doing with cheese is we're trying to move our supply to more pasture raised dairy. And so we're kind of moving towards different co ops and different farmers that are supplying the milk to make the cheese and sour cream. And so for that reason, we decided not to lock in. And we also felt like the spot market was frankly more attractive, And so that led us to continue to work out the stock market as well. And so the Q1 you said inflation of 2.5% or deflation? Deflation, sorry. Deflation, okay. Yes. Okay. Yes, sorry. Okay. And we'll move next to Paul Westra with Cowen and Company. Great. Good afternoon, everyone. Hey, Paul. Hey, Paul. Just a quick question on just give us an idea of how broad based the comp kind of recovery has been, not just geographically. I'm actually also curious about new versus kind of more mature markets and actually more precisely, you can talk a little bit about those classes kind of open up during the downturn, maybe 'seven, 'eight that didn't quite open up as much. Are you seeing maybe the ramp that never happened kind of delayed and occurring now? Yes, Paul. First of all, geographically, the comp is very broad based. We saw a change in trend really across the whole country. I would say the only spot that maybe is lagging a bit, but it's picking up nicely as well as Texas, but Texas entered the recession a little later. Their unemployment seemed to surge a little later than others, but even in Texas, we're seeing a nice conference. So, it's very, very broad based across the country. And it's also returning largely to in terms of the layering, in terms of layering of openings. It's largely returning to the comp trends that we saw before the recession, meaning our newest restaurants are comping very healthy and even our oldest markets are still positive. So when we look at the oldest, most mature markets, they are slightly positive. You look at the newest restaurants and the newest markets and they're comping at really, really attractive comps. And in fact, some of these markets that we've called developing for quite a while, their comps look really attractive to the point where we're thinking they may be promoted from developing to proven maybe sooner than we had once thought based on the surge in sales. So it's very broad based, it's very healthy across geographies and across the layers of openings. Okay. And then a question on pricing, assume your mid single digit comp assumes 0 pricing changes. That's right. And would you contemplate them and what would trigger that? Yes, that's right. Our comp guidance assumes no incremental menu price increasing. Okay. I guess, the most important question is when you 2 guys are going to get on Oprah. When are we going to get what? Get on Oprah Winfrey. Are you guys opening? Again, you mean? Did you say the first time we were on? Yes. Okay. That was a big impact. Yes. The best thing about that Paul is we had a lot of people visiting our website and a lot of people visiting our restaurants that were curious about where their food come from. And so Oprah brought this curiosity to mainstream America And that's wonderful. That's something you can't do in advertising. But she has such credibility and she's got such a comes from. And so, that was a neat little opportunity for our food comes from. And so, that was a neat little opportunity for Chipotle and Steve. And so, if she invites Steve or any of us again, yes, we're going to hurry up, get out of plan and go see her. It was really nice to see that, I mean, Steve got a chance to get to know Michael Pollan much better during that time too. And obviously Michael was very impressed with Steve and Steve's vision for changing the way the world thinks about needs food and obviously his sort of endorsement as Steve being one of the pioneers that's going to change food on that show was something that we felt was a real was a pretty nice achievement and a nice moment for us. We'll hear next from Brian Elliott with Raymond James. I think the quarter could have been better, but Well, Brian, you should have visited more often. I'm obviously kidding. And all my collections have been asked and I'm too stupid to remember what they get out of the queue. So I'll pass it back to you. Thanks for your honesty, Brian. And that is all the time we have for questions. I'll turn the conference back to our speakers for additional or closing remarks. Thanks so much for joining us and we look forward to speaking with you next quarter. Thanks, everybody. And that does conclude today's conference. We do appreciate your participation. Have a great day.