Chipotle Mexican Grill, Inc. (CMG)

Investor Update

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Jun 27, 2018

Greetings, and welcome to Chipotle Mexican Grill Incorporated Special Investor Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Today's presentation contains 2 videos. Audio during these videos will only be heard over the webcast and not over the telephone. Those listening via the phone will only experience silence during this time. When the video is launched during the presentation, if it does not begin to play automatically, please click the play button. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Cora Lee Witter from Chipotle. Hello, everyone, and welcome to our call today. Before we begin our presentation, I will remind everyone that parts of our discussion today will include forward looking statements as defined in the securities laws. These forward looking statements will include statements regarding our strategy and initiatives to build sales and the expected sales opportunity represented by digital channels, statements about our unit economics, information relating to the anticipated restaurant closures, information relating to anticipated one time costs and restructuring charges and statements regarding our future sales potential as well as other statements of our expectations and plans. These statements are based on information available to us today and we are not 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 as updated in our subsequent Form 10 Qs for a discussion of these risks. I'd also like to remind everyone that we will not be providing any updates to our Q2 results to date or to our guidance. We have adopted a self imposed quiet period that is in place following this call, restricting communications with investors until our Q2 earnings release scheduled for July 26. We will start today's call with some prepared remarks from Brian Nichols, Chief Executive Officer Marisa Andrada, Chief HR Officer Chris Brandt, Chief Marketing Officer and Jack Hartung, Chief Financial Officer. We will allow plenty of time at the end of those remarks for questions. In the room and also available during the Q and A period are Scott Boatwright, Chief Restaurant Officer Kirk Garner, Chief Digital and Information Officer and Lori Shallow, Chief Communications Officer. Before I turn the call over to Brian, I want to mention that the slides that will be shown during the webcast are also available on our website at chipotle.com in the Investor Relations section. And as a usability note, if you are accessing the webcast via a Chrome browser, you will need to hit the play button when the slides appear on the webcast as the videos will not auto load. With that, I'll turn it over to Brian. Thanks, Coralee, and thanks to all of you joining us this afternoon and for your interest in Chipotle. As Coralie mentioned, we will not be talking about Q2 results today. Instead, we'll focus on our near term and long term strategy. But I will tell you that we are pleased with the underlying sales trends we are seeing as the sales trends from Q1 have continued into Q2. We're confident that the strategy we will talk about today can accelerate our future growth. Our vision at Chipotle is to win today and cultivate a better future. And we will achieve that vision with a clear strategy, strong supporting structure and a new culture. Specifically, today, we will talk about 5 focus areas that will drive sales and transactions as part of our growth turnaround. Number 1, becoming a more culturally relevant engaging brand that builds love and loyalty. Number 2, digitizing and modernizing our restaurant experience that creates a more convenient and enjoyable guest experience. Number 3, running great restaurants with great hospitality and throughput. Number 4, being disciplined and focused to enhance our powerful economic model. And number 5, building a great culture that can innovate and execute across digital, access, menu and the restaurant experience. Before we dive deeper into those five focus areas, let me first share with you what I've learned about Chipotle since joining 3 months ago, a state of the union, if you will. 1st, I found a number of positives. As I mentioned in April, I've seen that consumers really love our brand. We can build on that and continue to create more distance between us and others. We don't believe anyone else has the quality of ingredients that drives great taste like we have and now our marketing will lean into that to increase awareness and remind customers why they fell in love with Chipotle. We also have an excellent value proposition that we can enhance across all day parts. And our new restaurant economics today are very strong. We have built a solid foundation and made progress in digital we expect to accelerate in the coming months. Our second make line is a significant competitive advantage that enables throughput and efficiency that enhances our economic model going forward. And finally, I'm very proud of the passionate people we have working in or supporting our roughly 2,500 restaurants that are responding enthusiastically to our new strategy. However, I also found that we have some gaps that we are actively addressing. There was a lack of discipline around priorities, process and accountability and we were not sufficiently results focused, which made us reactive and hampered execution. I found skills gaps in many areas and insufficient data for decision making that have held us back from reaching our potential. There was no validated menu innovation pipeline, a general lack of customer understanding and no real process for scaling and commercializing innovation. And as you've heard me say before, the brand had been silent and lost some of its cultural relevance. I found that our marketing dollars had been inefficiently allocated and we are working quickly to correct that. And lastly, in our restaurants, our throughput remains below potential and we need to move consumers through the line more quickly and deploy technology to help us do that. I'm happy to report that all of this is changing. Organizationally, we are adding experienced professional talent in many areas, including marketing, menu, digital, analytics and human resources. Our leaders will provide clear direction and roles will have defined accountabilities. We will invest in areas core to our strategy and be scrappy in looking for efficiency opportunities to fund our investments. For example, we have flattened the organization with the removal of layers, which when combined with clear roles and responsibilities will speed up decision making and drive better results. We are putting in place a clear governance structure for the organization to enable efficient execution. Importantly, we will build muscle around innovation by establishing a stage gate process where we test, learn and iterate. So then we roll out a new initiative, we are highly confident in the probabilities of success. Overall, we will transform into a learning organization that is decisive and one that constantly iterates to achieve our core objectives. To give you a concrete example of what I'm talking about, I'd like to tell you about our new digital pickup shelves, which you can see on your screen. While the app experience that was rolled out late last year is best in class, in many of our restaurants, it is unclear to our customers where to pick up that order, which detracts from the experience. In our downtown Denver restaurant, we cut a window into our wall near the kitchen door not far from the register and put a digital pickup sign above it. That simple change caused a double digit increase in our digital sales within the 1st few weeks and it sustained. Not only did it provide a significantly faster and more convenient mobile order and pickup experience, but it served as in store marketing that raised awareness among our customers standing in line. There's a big opportunity across all of our restaurants, because over half of our customers aren't even aware that you can order ahead for pickup at Chipotle. We looked into adding windows in all restaurants, but quickly realized that with permitting and other issues, they just take too long to roll out. So we hypothesized that we could get the same benefit with self serve shelves and assign overhead and get them rolled out much faster and more cost effective. We have digital pickup shelf prototypes in a handful of restaurants as we speak and expect to expand in another test market this summer. These shelves unlock the power of our 2nd make line and accelerate our digital sales flywheel to drive more mobile and delivery orders and more group orders. In addition to increasing peak capacity in our restaurants by providing a relief valve for our very busy customer facing service line. This is just one great example. What else is changing at Chipotle? We will make the brand more engaging, more visible and more culturally relevant. In our restaurants, we will provide a great experience with throughput. Importantly, we will lean into the strengths we have, namely our 70,000 employees that are passionate, committed and working hard to make Chipotle better. Our great tasting classically cooked food made from real ingredients, our strong value proposition, our brand equity and our efficient and effective digitized second make line. We have a lot of work to do to win today and cultivate a better future. While I could not be more excited about the future of Chipotle, it's important to be patient and recognize that people changes don't happen overnight. We need to add talent, build and create muscle memory around processes and testing capabilities and upgrade our enabling tools and technology. While we're doing that, we're focusing on the singles and doubles that can create short term sales and transaction momentum, while we build capabilities behind larger opportunities. Looking at our team, we are fortunate that Kirk Gardner started building improved digital capabilities when he joined 2 years ago, and we are now enjoying some of the fruits of those efforts with digital sales at just under 9% in the Q1. We have the ability to lean more heavily in our digital initiatives to drive further growth as I'll describe later. We're also fortunate that Scott Boatwright began restructuring the field organization last fall and is completing the final stages of process. Additionally, we're investing in training to consistently deliver an outstanding guest experience, investing in our facilities to improve the appearance of our restaurants and in modernizing the tools our restaurants need to enable faster throughput, better efficiency and a better team experience in our restaurants. I'll turn it over to Marisa, our new Chief Human Resources Officer. Thanks, Brian. I am personally delighted to be part of Chipotle and to support our over 70,000 employees. It's great to be here today with you on the call. We're excited about this unique opportunity to build a dynamic culture and lead Chipotle on its next and what we truly believe will be its most rewarding chapter. It's no secret that we're successful because of our people. We will deliver our strategy through a people and culture transformation. We will modernize the structure, build organizational capability, elevate our talent and leverage technology to provide our restaurants with world class service levels from our support centers in Newport Beach and Columbus. We are starting the creation of an organizational structure that we believe will allow us to best execute our strategy. As announced, this includes a with a structure that will provide world class service levels to our restaurants and will streamline our structure to eliminate 2 layers to stay nimble and agile as we grow, allowing us to reinvest in new capabilities and skills. It's our firm belief that the way to grow a company and to bring a brand to life is to grow its people. We're building and bringing in new capabilities across the organization, including in marketing, menu, digital, analytics and human resources. Key aspects of our strategy are attracting, developing and inspiring best in class talent and cultivating an environment that inspires mutual learning and development. We will grow Chipotle by growing people. As part of our cultural DNA, we will codify our values to inspire curiosity, creativity and innovation. Our employee experience will be the foundation for our customer experience. As a team, we will be committed to driving accountability for performance and people at Chipotle as this is critical to cultivating a better world. Today, our employees join and love working at Chipotle because they love our real food. In the future, we will create an environment where employees will join Chipotle because they love our real food and that they belong in a company that unleashes their potential. I can't wait to embark upon the journey together. Now I'll turn it back to Brian. Thanks, Marisa. We are happy to have you on the team. I'll take a moment to elaborate on the priorities that will be visible to our guests, running great restaurants, modernizing and digitizing our restaurants and becoming a more relevant and engaging brand. I've already discussed the road map that Scott Boatwright is executing to run our great restaurants. When we talk about modernizing and digitizing our restaurant, it means making it easier to access Chipotle. We want our guests to enjoy Chipotle whatever way is most convenient for them, whether it be through ordering and paying digitally ahead of time, through delivery or via group ordering options. Our digital sales are fast approaching $500,000,000 with very little marketing support. We believe that by increasing awareness of our mobile order ahead feature and improving the in store experience, we can accelerate the rate of digital sales growth. And our digitized second make line has the capacity to handle significant increases in volume. Over time, we think this can be a multibillion dollar opportunity. I mentioned earlier the digital pickup shelves that we are testing can help unlock the potential of our digitized second make line. For those of you that are new to Chipotle, our second make line is a second production line in the back of our restaurant that looks and functions just like our front service line. We are now in the process of digitizing those second make lines as you can see on your screen. What that means is that instead of reading small fonts on paper receipts to assemble our orders, our crew now has 2 flat screens above the line with pictures that mirror the placement of the food on the line and lights up just the bins required to assemble an order. This results in much better throughput, greater capacity to build digital sales and even more importantly for our customers much better accuracy. Delivery is a significant opportunity for us that also leverages the production capacity of our 2nd make line. In April, we added DoorDash as a new partner, and we continue to expand the number of restaurants that all of our partners can deliver from. Our delivery business previously has been built with virtually no marketing. We learned this quarter through joint efforts with both DoorDash and Postmates that we can accelerate delivery growth simply through greater awareness and best in class delivery times. Later this summer, we will add delivery capabilities to our app so that the fastest way to deliver Chipotle to your chair is only a few clicks away. We will also continue to increase access by making group occasions more convenient for small and large groups alike. Now let's talk more about our great Chipotle brand. Being a relevant brand starts with insightful consumer understanding. We are investing in foundational customer research right now and this will help us refine our innovation strategies around marketing, digital, access, menu and restaurants. We'll have conclusions from that research this fall, but some of the early qualitative findings are encouraging, namely that our commitment to food with integrity is a key point of difference and our customers feel good about our delicious food. We will build on the customer understanding that we are gaining with CRM capabilities and we will test the loyalty program that leverages those insights in the second half of this year, leading to a planned national launch in 2019. Our loyalty program will give us a currency with which to incent and reward trial and new behaviors. We're also increasing our brand relevance by adding new occasions, which our loyalty currency can support. The good news is that we have no value issue with our burritos, bowls and tacos. We can build on that strength and get people excited about snacking dayparts. For example, we are exploring a happy hour offering that enhances our value proposition during non peak snacking hours with $2 tacos with a drink between 2 p. M. And 5 p. M. We're also exploring a similar offer for increased late night sales after 8 p. M. Another way to be more relevant to our consumers is with excitement around our menu. We think about menu innovation in 4 key ways. Number 1, what our customers tell us they want, like nachos and quesadillas we're experimenting with in the Test Kitchen. Number 2, items our customers tell us they want us to bring back like chorizo. Number 3, new items that can be unique to Chipotle like frozen Mexican chocolate milkshake and the avocado tostada that are also in the test kitchen. And finally, number 4, celebrating existing items that are already in our restaurants. For example, many people don't know we have sofritas or what sofritas is. It's a great tasting organic tofu cooked with our adobo blend for delicious vegetarian choice. The goal is to thoughtfully add delicious menu items that drive incrementality, are operationally easy to execute and enhance our ability to drive great throughput. We need to build capabilities in this area and build a pipeline utilizing a stage gate process. You'll begin to see more tests in the second half of this year and you can expect relevant menu news in the coming quarters. Finally, we are changing the cultural narrative around our brand. We know we can drive growth by putting more effective and relevant marketing behind our innovative initiatives and by reminding people why they love Chipotle. Being culturally relevant means being present in sports, fashion, technology and entertainment. I'll turn it over to Chris Brandt, our new Chief Marketing Officer to elaborate on how he is positioning Chipotle to be more engaging and more culturally relevant. Thanks, Brian. Before I talk about some of the early progress we've made, I just want to say I'm thrilled to be a part Chipotle. It's early days for me, but I've never seen a brand that has more purpose and more passion than Chipotle. Cultivate a better world isn't just a slogan on a wall. It lives in the hearts of our employees and their pride in serving people responsibly sourced, classically cooked, delicious food you feel good about eating. Many consumers feel that same passion as well. There is such a unique emotional component to this brand stemming from its authenticity and transparency about food that we need to reinforce and reignite. To that end, our ultimate marketing mission is to make Chipotle not just a food brand, but a purpose driven lifestyle brand. What do I mean by that? Chipotle will become a brand that people want to know about, want to be a part of and want to wear as a badge. I genuinely believe that Chipotle can transcend the food category, separate itself from everyone else and be a category of 1 because there are no compromises with Chipotle. No one has such great tasting food that you feel good about eating like we do. To accomplish that mission of making Chipotle a lifestyle brand, we need to change our approach and evolve our marketing philosophy and our tactics. We need to strike a balance of traffic driving, short term wins and long term growth that we call winning today and cultivating a better future. We need to celebrate our food and ingredients and expand our reach with consumers. We need to be culturally relevant and a part of the conversation. We need to show people we can have some fun because when a brand has a purpose, is visible and is doing fun things that are a part of culture, people are more interested in it and want to be a part of it. That's how you become a lifestyle brand. We've already taken some steps in that direction. Our latest advertising campaign was put together in my 1st couple of weeks and was a noticeable pivot from prior work. We celebrated the food, showed how craveable it is and we also demonstrated a little bit of our personality and sense of humor. Let's watch. The data we have from 3rd parties, as well as anecdotal evidence, shows these ads were very well received by consumers. Not only did we change our creative direction in a matter of weeks, we also changed the media plan to feature broader reach and popular programs. We advertised in signature, culturally relevant programs like the NBA playoffs and season finales of top shows across a variety of networks. We also linked a sponsorship with a top gaming team playing Fortnite, easily the hottest video game right now that has taken the nation by storm. These actions not only got us heightened awareness with consumers, but our team members also saw them. One of my favorite quotes was from a team member who saw the ads on TV and said, I love them. It feels like we are back on the front foot again. That's awesome. But there is much, much more to come. We are shifting our marketing from a field based promotion driven approach to a centralized strategy featuring broader reach with category users. Our goal is to make our marketing dollars more efficient and effective and most importantly help drive traffic. The foundational consumer research Brian mentioned will give us better insight in consumers. We're putting a stage gate process in place with dedicated resources to help validate new product and promotional ideas. We're working with our agency partners to develop innovative creative that is focused on celebrating food with integrity and the real ingredients that make Chipotle great. We're rolling out a new tagline this fall that is a perfect fit for the brand. We're developing innovative media plans with key partners to reach consumers in unique ways across both traditional and digital channels. We're going to expand the awareness of mobile ordering and delivery, or as we call it, the easiest way to Chipotle. We're going to be more engaging in social media. Already 2 of our recent Instagram posts are the most liked in Chipotle history. Overall, we're going to be a much more agile, innovative and visible brand that people will talk about. Again, I'm thrilled to be part of Chipotle. We've made a ton of progress in the last few months, but the best is yet to come. Brian, back over to you. Thanks, Chris. We expect that all of these initiatives across marketing, digital, consumer access, menu, analytics and operations combined will create a flywheel that can drive transactions to accelerate our growth. To put it another way, we will amplify our unique positioning. Real ingredients, real cooking, real opportunity and now through our new strategy, Real Performance. I'll turn it over to Jack now to discuss the short term financial implications of the restructuring we are undertaking to execute on and align behind the strategy that will unlock our brand's potential. Thanks, Brian. Before I begin, I want to remind everyone that we're not providing a financial update on our current quarter and we're not updating or reaffirming the guidance provided on our last earnings call. Everything you've heard today about our focus on running great restaurants, modernizing and digitizing our restaurants and becoming a more relevant engaging brand is designed to drive transactions, improve our unit economics, accelerate our earnings growth and create significant shareholder value. While it's too early to predict the timing and precise impact each of these strategies will have on results, I'm confident that the strategies will lead to higher average unit volumes and higher margins in the future. All of these opportunities are going through a new stage gate process designed to ensure successful rollouts. As we move through those stage gates over the coming year, we'll have a better understanding around the timing of when these new initiatives will translate to sales growth. In the meantime, we know that a combination of great operations, clever marketing and pushing further into our digital initiatives will drive near term sales growth. Executing these strategies at a high level will require changes to our organization and to our culture, and that will result in non recurring charges during the Q2 and over the next few We'll clearly call out these non recurring charges as they are in Curti's quarter, so that you will have a clear perspective of the underlying progress we're making in our business results. These non recurring costs These non recurring costs primarily relate to the moving of our offices, the restructuring of our organization and the closing of underperforming restaurants. In aggregate, we expect these costs to be in the range of $115,000,000 to $135,000,000 Of that amount, we expect about $50,000,000 to $60,000,000 will hit the Q2. And while most of the remaining charges will hit in 2018, there will likely be some charges, particularly related to terminating restaurant and office leases that will spill into 2019. As a result of our review of underperforming restaurants, we expect to close between 5565 restaurants, including the 5 Pizzeria Locale restaurants located outside of Denver. 2nd quarter charge will include about $30,000,000 related to restaurant asset write offs, while the lease buyout costs for these restaurants will be charged over the next several quarters. About half of the restaurants will close within the next 30 days and the remainder will close over the next several quarters as we negotiate lease buyouts with our landlords. The non recurring costs will primarily be reflected in 3 line items, G and A, the loss on disposal and impairment of assets and depreciation, and we'll clearly call these out these charges out each quarter. In addition to the $115,000,000 to $135,000,000 estimated charges, will also write off about $10,000,000 in deferred tax assets over the next few quarters as fully vested, but underwater stock options will expire as we complete the restructure of the organization. This deferred tax write off will hit our tax rate and is in addition to the tax rate impact we discuss on our Q1 call. We'll provide more color on the quarterly timing of all future non recurring costs when we have more certainty around that timing. In future earnings calls and releases, our quarterly disclosures will clearly break out one time costs from normal recurring costs, so you can follow the underlying trends. We're confident that following these strategies will lead to better customer experience, stronger customer loyalty, better unit economics and the creation of significant shareholder value. I'll now turn the call back over to Brian. Thanks, Jack. When I first spoke to you on our Q1 call, I shared how excited I was to have the opportunity to lead Chipotle in its next chapter of growth and to build on a strong foundation of a well loved brand that has a ton of growth optionality and one of the best economic models in the industry. As Jack mentioned, driving transaction growth is the single biggest lever enhancing our economic model, but we will also be scrappy and find efficiencies to add a tailwind to our economic model. The combination of top line growth and margin expansion will ultimately lead to increased store growth, and I could not be more excited about the future of Chipotle. Capitalizing on that opportunity requires us to build a new culture of creativity, action and accountability. The realignment of the organization we are undertaking this year is a significant effort. And while it is potentially disruptive in the short term, it is good for our customers and our shareholders and will result in a much stronger that is structured to innovate and execute successfully to win today and cultivate a better future and to capitalize on a wealth of opportunities for many years to come. I can easily see a future where Chipotle more than doubles revenue to over $10,000,000,000 So as I've outlined today, our 5 focus areas that will drive sales and transactions as part of our growth turnaround: number 1, becoming a more culturally relevant and engaging brand that builds love and loyalty Number 2, digitizing and modernizing our restaurant experience that creates a more convenient and enjoyable guest experience. Number 3, running great restaurants with great hospitality and throughput. Number 4, being disciplined and focused to enhance our powerful economic model. And number 5, building a great culture that can innovate and execute across digital, access, menu and the restaurant experience. Okay. Before we open up the call to questions, I'd like to show you a quick video clip of the Chipotle of the future. We have our executive leadership team here with us today available to answer your questions. As a reminder, we will discuss our Q2 results on our July 26 earnings call. And we'll now open up the line for questions regarding our strategic outlook. Thank you. Our first question comes from the line of Nicole Miller from Piper Jaffray. Please proceed with your question. Thank you. Good afternoon. Appreciate the update. I find it very fascinating how you talk about the brand previously being somewhat silent. And I want to understand if you've measured perhaps aided versus unaided awareness or some other measure? And how will you be measuring the relevancy going forward beside the obvious same store sales performance? Thanks. Sure. So, hi, this is Brian. So what we've been tracking is we have a brand tracker that tracks both top of mind awareness as well as kind of what people are saying about the brand. And what we have seen now it's fairly new study that started back in February. So we don't have that much historical data on it is an opportunity to improve from where we are today. We also as I mentioned in the call, we just placed a foundational study, which is going to give us some key metrics on the brand that we'll be tracking going forward. And we're going to use the combination obviously of sales performance, top of mind awareness and then some key brand metrics that we'll be defining once we finalize all this foundational research that's coming back. And then you also mentioned you're not at peak transactions and I think I was measuring it earlier today around just over $400 on about $1,900,000 AUV in a $12 to $13 average check. And I think historically there were stores that at peak could do that maybe in an hour. So just a quick 2 part question. Do you get more transactions by extending hours? Or do you get more transactions at peak? And I was just curious to know how does the system do at peak? What are the number of transactions currently? Thank you. Yes. So I'll answer this and then I can have Scott chime in as well. But we believe there's more opportunity for transactions at peak. So moving people through the line faster, and that goes back to what Scott really has implemented around things where people are clear on their roles and their accountabilities and being positioned so that they're ready for the throughput that they're capable of doing. So that's what we're focused on. Scott, do you want to add anything? Yes. Thanks, Brian. Hi, Nicole. I think it's something that we have really only begun to put a shoulder against over the last couple of months and we still have much work to do to really move our restaurants at the pace with which we moved prior. And so there's a lot of work going on from a training perspective to ensure we're focused on the right things as it relates to shift management overall at Chipotle, something we've got to do a better job of teaching, which a key component of is faster throughput. So more on that to come, but it is a high priority for us and something we're working against as we speak. Thank you for taking my questions. Our next question comes from the line of David Tarantino from Baird. Please proceed with your Brian, my question is about your growth outlook for the next few years. And one thing you didn't mention is how you're thinking about unit growth over that horizon. And I guess as you think about the opportunity to improve the economic model, what do you need to see to either accelerate the growth or continue the type of growth that you've outlined for this year? And then I have a follow-up question about the restaurant economic model. I think you mentioned that there are opportunities to drive some efficiencies to provide a tailwind to that model. So could you just elaborate on what you meant by that statement as well? Thanks. Sure. So your first question regarding new units and the pace of development. First of all, the new unit economics we're getting right now are I think best in class are still returning north of 30%. So we're very optimistic about the new stores that we're opening. I will tell you, the pace will increase as the business continues to recover the top line sales. And I think that is something that we're going to be smart about on how we ratchet that up going forward because the good news is the returns are there. And I think as the core business really gets itself back to a place of where it was performing, we can also then at the same time start enhancing the new unit development. So that's going to be the approach we're going to take David. On your second question around efficiencies in the economic model for adding additional tailwind. This is really to the point of our culture where we're going to get a little scrappier on how we approach things. And obviously, the number one way for us to see that margin expand is through the top line sales growth. But I think there's also some opportunities for us to get scrappy as we look at the business on how we're spending our money and the areas where they're being spent on. So those are really the components that we're going to be looking at to make sure that we really maximize the economic model of the business. And then just a quick follow-up, maybe it's for you or for Jack. Any way to size up the opportunity on the cost side either at the unit level? And then you also, I think, mentioned that you're cutting out a few layers in the G and A structure. Should we think about those as opportunities that flow through to the bottom line or is that sort of an area where you cut and then reinvest somewhere else? So at least any thoughts on that this stage? Yes. David, this is Jack. On the G and A, the savings are going to be reinvested. We'll have a leaner, more nimble organization. You heard Brian talk about we've got skills gaps. We've already been filling a lot of those skills gaps. So I would say it's going to be reinvestment. The G and A would think about that as being similar. Once we get through some of these one time charges, it will be similar as a percent of sales to what we've had in the past. I would say that excluding stock comp, so it's going to be reinvestment. The reinvestment is going to really be reinvested in things that will drive our growth. In terms of the economic model and what we can do for efficiency, it's too early to tell. I think it's more of a culture and an attitude. We're going to focus on fewer things and the fewer things will either drive growth or they will enhance the economic model. And I think by focusing on these fewer things, we're going to expect and we're going to get results. But as we identify the opportunities, David, in the coming quarters, we'll share more with you. Great. Thank you very much. Our next question comes from the line of Sara Senatore from Bernstein. Please proceed with your question. Hi. Yes, thank you. I have one follow-up to an earlier question and then a question on technology. The follow-up was, the goal of both improving throughput and menu innovation and maybe adding items. And I think historically there was some sense internally that maybe those were inconsistent. So just is the answer technology? Is it what you're talking about in terms of really defining people's roles and where they should be? Or I guess how do we reconcile what has always been known as a very simple model where it felt like every time something was added, for example, Queso, something else had to come out with what we're hearing in terms of menu innovation? And then I have another question. Sure. So obviously one of the key criteria for us as we go through the stage gate process with any new menu item is going to be the impact on throughput, whether it improves throughput because we've added new capability with equipment or some technology advancement, meaning it moves to the 2nd make line, something along those lines. But one of the key criteria for anything to get to the national phase is going to be throughput element. And what we've seen is there are some menu items that we believe have a high probability of having no impact on throughput. There are other menu items that are going to come with the requirement of price and equipment investment and a real understanding of how do we treat the process if we want to be able to maintain the same level of throughput that we have today. So obviously, the second one that I just talked about is going to take a little bit longer from a testing and validation standpoint than a menu item that has no impact on throughput of the process or equipment. So that's where the StateScape process becomes a very important piece of the puzzle so that we really understand the impact on our operations, the consumer and the team member and then obviously the financials. So we'll be leaning into that stage gate process to ensure we find the power of throughput and innovation. Understood. Thank you. And then just on the technology piece, I thought I heard you say you're going to add delivery capabilities to your app. And I think that's something that no one else yet has done in terms of the companies partnering with 3rd party. It has been companies with in house delivery that have been able to do that. So maybe talk about how you've leapfrogged some of what we've seen elsewhere or whether you think that's going to be a meaningful distinction between what we're seeing with other restaurants that are partnering with 3rd party aggregators? Yes. So I'll hand it over to Kurt, but let me answer your couple of questions there. Obviously, one of the things we're really excited about with delivery is our model results in food that gets delivered with great speed. And one of the things that we're really excited about in our DoorDash partnership is we saw that speed firsthand relative to all your other food alternatives on the DoorDash website. So we're very excited about the idea of being able to once you're in our app, stay in the app and give people the access opportunity to have Chipotle delivered to their home, because I think people are going to be excited about the speed at which they can get Chipotle delivered to them. I don't know if we're the only ones with delivery in our app, but I'll hand it over to Curtis, if you want to add anything. Yes. I'll follow-up by saying we're really excited, Sarah, about this launch and this test coming later in the year. And as Brian has said, we're a learning organization now. So it's early days and we're excited to see how customers respond and how we can continue to make digital the easiest way to Chipotle. Thank you. Our next question comes from the line of John Glass from Morgan Stanley. Please proceed with your question. Thanks very much. My first question is just simply a timeline question. Brian, when should we expect to start to see the results of some of these initiatives coming into play specifically in the back half of this year? Is that an unreasonable expectation? Do you expect, for example, a product launch in the Q3? And is there something on the marketing front? You talked a little about a lot of pieces and a lot of need to rebuild some capabilities. So what's a reasonable expectation of the type 2 or 3 examples of things that should happen inside of this year, let's say? Yes. So what I can definitely share with you is you're going to start to see us testing programs in the back half of this year. So you'll see these tests happening in with some food ideas. You'll see some tests happening with digital loyalty and we're very excited about all those. Depending on how things perform in that stage gate process will dictate the timetable for which we roll it out. Because one of the things that I think is important for the organization is we iterate, we listen, we learn before we then decide to go with a national launch. So we're in the early days of validating these propositions. And once we start moving them through the stage gate process, we'll be sharing when they will actually be hitting the national programs going forward. Okay. So I guess go slow to go fast in other words to make sure that you're getting them right when you do launch them. That's correct. Okay. And then remodels was discussed last call or maybe 2 calls ago is something that 2019 effort, maybe that was before you arrived. Do you look at the businesses needing a substantial remodel, light remodel or how do you view the physical assets and how do you phase that into these other initiatives? Yes. So we have an initiative called the Big Fips and that is happening. I'm happy to say we're on track to be finished by the end of this year. I think we're exactly 50% of the way done right now. And this is really where we are bringing our all of our restaurants up to date. It's fixing the lights, the painting. It brings them back to a, I would say, a Class 1 restaurant experience. Separate from that, we also have an after going on with a redesign, which is kind of the Chipotle restaurant in the future. And that is going to be you'll see that going into some testing in the back half of this year, probably right around the fall timeframe. You'll see us going into New York City. Got it. Okay. Thank you. Our next question comes from the line of Sharon Zackfia from William Blair. Please proceed with your question. Hi, it's Sharon Zackfia, but that was a good try. I guess a couple of questions. Now that digital is up to around 9% of sales, I'm just wondering if you've been able to harness that data at all and kind of incent consumer behavior in different ways. I don't know where you are on that. And then if you could give us some perspective once you launch loyalty kind of when you'll be able to use that data to then kind of create new customer behavior. And then lastly, I don't think you mentioned international at all. So just if there's any thought on what to do with the international locations? Sure. So your first question around digital and loyalty and I guess more importantly the data approach to remarketing or incentivizing our customers. That's absolutely part of our approach going forward. One of the things I'm really excited about as we get this pilot going with our loyalty program, we're going to start to move to really the tailored data specific marketing that they can use the currency and the rewards program to drive certain behaviors, incent certain products, incent certain experiences. And we think that's going to be a key unlock for the business going forward, because as this business goes from 10% plus in digital sales, that presents an opportunity for us to have more customers in our business engaging at a different level than they have in the past. And then when you layer on top of that a loyalty program with a strong CRM engine, I think really exciting things will be unlocked as we roll out loyalty on a national basis in 2019. Your second question was on international. For now, international is something that we are managing. It's not an aggressive part of our plan for growth. We're focusing the aggressive growth in the U. S. Business and that's what we outlined this right now. Okay. Thank you. Our next question comes from the line of Karen Holthouse from Goldman Sachs. Please proceed with your question. Hi. Two questions that go back to some of the prepared remarks. There is a comment on opportunities to enhance the value proposition across dayparts? And then I think as it relates to value, the only specific thing mentioned was a happy hour test. Are there other things you're looking at in terms of your pricing or sizing in other dayparts or is that really more of a comment on the overall customer experience potentially layering and loyalty? And then second, it would seem like some of this sort of foundational consumer research is really going to feed back into some of these tests and other strategy. How long is it until you think you get sort of the base level of data in place for that? Sure. So your first question on the value and how we see that playing out, you're exactly right. We see using our rewards program as a great way to present targeted value and incentives for customers when they want it, where they want it and how they want it. Combine that with then providing some value that matches up with the day part like a happy hour, which matches more of like a snacking occasion, I think then we have to provide the right value equation for a snacking occasion between the hours of 3 to 5 pm. So those are our lead in ideas. And then obviously a key piece of the puzzle is always understanding our price equation as well. And what will be important is we'll continue to make sure we understand how consumers are interacting with the menu and where we see opportunities to enhance our value proposition. We will do it in a smart fashion. Your second question on the timing of the consumer foundational research, yes, absolutely. This will inform pretty much the entire business and we're really excited. We're going to start getting some of the preliminary results back here in the next month. And then we'll have the entire package back by the time we get to fall. So we're already starting to get some learnings back. And it's very exciting because it's new knowledge for the company and it's new insight into our customers, which I think is going to be hugely valuable for us going forward. Great. Thank you. Our next question comes from the line of John Ivankoe from JPMorgan. Please proceed with your question. Hi, thank you. A couple of follow ups. Firstly, when you make delivery available on your app, what percentage of stores will that currently cover? Okay. So are you're talking about the in app delivery experience, what's that percent? Yes, exactly. Hi, John. To start, we will be covering approximately 1500 restaurants and expect to get to around 2,000 restaurants by the end of the year. Okay, perfect. That's a big number. Secondly, Jack, I think the question for you. I mean, you mentioned G and A being similar as a percentage of sales into the past excluding executive comp. The past has actually shown some variability in terms of G and A and obviously executive stock comp, executive comp is actually a big percentage of that. So as we think about 2019 2020 post the move, some of the restructurings and some of the hires, I mean, can you help us just get closer to a number in terms of what G and A should be as a percentage of sales for a company of this size? Yes, got it. Including stock comp? Well, including the stock comp gets tough only because when the stock moves, stock comp moves pretty dramatically as well. So I the thing we can control is the underlying G and A that we spend on people, offices, things like that. I think as we get through a lot of these non recurring charges, our current underlying G and A is in the, call it, low 5% to mid-five percent range. When you add in stock comp, you're in the mid- to high-6s or something like that. I think that as we get through all of these adjustments with our offices and our structure will still be in that same kind of range. Now, once we get to that range, as we build sales with the strategies that you've heard today, we've been able to lever G and A in the past and I expect we'll be able to lever G and A in the future. I think the important thing is our G and A will be in a similar pattern. What's really going to drive is we're going to drive top line sales that will drive our margins, that will drive unit economics and that's where I think most of our shareholder value is going to come from. Thank you. And then 2 quick ones. Brian, at previous experiences, especially on the operating side, how do you think about the right prime cost food and paper plus labor for Chipotle? I mean that's a line that's actually changed quite a lot over the course of the history of this company. But do you think about it at the 60% range? Do you think about it at 55% somewhere in between? I mean is there something that you think about on the prime cost side in terms of what this business should be over the course of the cycle? Yes, John, listen, this is Jack. Right now, we're in kind of the 60% range. Our model works quite well. We're in the 60% range, but you know very well that when that long ago, we were in the 55% range. And that's how you get margins in the mid to high 20% range. We have the ability to get back to that, but it all depends on the top line. And so the strategies that you've heard today are very heavily weighted towards driving the top line, bringing customers in, making the brand relevant again. If we do all that well, we have the ability to get those time costs back into some of our historical ranges. And that's a very important point. And finally, when you mentioned $10,000,000,000 of sales for the Chipotle U. S. Brand, how many stores does that contemplate in your current thinking in terms of optimizing that portfolio? Yes. Look, the way we think about it is, you could easily be around 5,000 stores at some point while we're exceeding $10,000,000,000 Okay. Thank you. Thanks for the question. Our next question comes from the line of Jeffrey Bernstein from Barclays. Please proceed with your question. Great. Thank you very much. Two questions. First, just Brian, I know you talked about being pleased with the underlying sales trends. I'm just wondering from our side of the seat, and the compares are obviously difficult to read the 1 to 2 year. Just wondering what measures do you focus on perhaps daily or weekly or monthly, whether it's variability by geography or daypart or product line? I'm just trying to figure out how you define success in your seat in terms of the comp growth? And then I had a follow-up on the supply chain. Sure. So look, we are watching sales and transactions every day and we look at it by region and by daypart. And what we continue to see is good performance in all the dayparts. And we're optimistic that the continued improvement in throughput and operational execution will continue to support the sales trends that we've seen to date. And then obviously going forward, the plan is to accelerate the sales and transactions with the initiatives that we put through the stage gate process that then we have a high level of confidence that we'll grow the business. So that's what we're looking at. That's the scorecard we keep an eye on a daily basis. The other key thing we also look at is obviously what percent of our business is growing through the second main line, because I guess it's an indicator of how we're doing on driving our digital and off premise business. Got you. And then just separately on the supply chain side of things, I mean, there was mention of food with integrity and I know you talked about authenticity and transparency, which sounds like conference calls from years past. Just wondering how much time have you spent focused on the supply chain, maybe what change do you think need to come? Obviously, there big risk in the supply chain and as you enhance kind of new products and whatnot, I'm just wondering your thoughts on the supply chain changes that have been put in place and what we should expect going forward? Thanks. Yes, sure. So a couple of things. 1, I think I mentioned this in my prepared remarks, maybe I didn't, but we've hired a new supply chain leader and it's probably the first time in a long time that we've had what I would call a real expert in the supply chain space leading our supply chain efforts. He's 2, maybe 3 weeks into the job now. Very excited about him getting into the role and helping us figure out our next chapter on how we work with our suppliers and partners on our supply chain. And then to answer your question, my ability to get out and meet some folks, I've had the opportunity to meet with 2 of our bigger partners, OSI and Minnead. And the thing that I love about our partnerships is they're equally excited about the food as we are. And to have that commitment to that quality is hugely valuable. And then obviously, we'll figure out how we do it in the most efficient fashion. But when you have that shared value of commitment to quality and excellence and food with integrity and really trying to move things to another level, it makes for a powerful partnership. So I'm very excited about Carlos joining the work and I'm very excited about my early conversations with some of our key suppliers. Understood. Thank you very much. Our next question comes from the line of Andrew Charles from Cowen and Co. And Co. This is actually Brian Beaton on for Andrew. And thanks again for all the updates today. And if I could just ask maybe 2 around digital. So in terms of the app, as we look out kind of the adoption curve, what do you guys view as sort of the biggest hurdles to breaking through the fray and sort of offering consumers a compelling reason to download the app? The confidence is always encouraging, but thus far we've kind of seen this as a challenge, not only for fast casual, but sort of the broader restaurant industry. And then in your answer to Sara, I believe, it sounded like maybe once customers download the app, delivery could drive sort of deeper engagement with the app. But what are the bigger hurdles you see to breaking through the fray and drive net adoption on an in house app? And then just secondly, from a marketing perspective, in the spirit of moving away from promotions and more towards a centralized approach. From a delivery or mobile app perspective, does that mean marketing will center more so on media ads or could that have more of a promotional element? Thanks guys. Sure. So look, I think our biggest hurdle on the app frankly is just awareness. Right now, I think I was just looking at some numbers, but more than 50%, I think it's like 52% of people aren't even aware that we have an app. And I think this goes back to the question somebody asked me earlier, why do you believe the brand isn't as visible as it should be. It's things like this that are I think key growth engines for the business that we just have really low awareness on. So job number 1 is to get people aware of the app, I think they're going to love the experience based on the users that are already in the app. And then job 2 is how do you get them to continue to use it? Well, I think we had to continue to provide utility in that app, adding things like delivery, adding a loyalty program. These are things that will continue to provide utility for them because then what we'll be able to do is get into this game of 1 to 1 communication and really change the level of engagement with our customer through that app experience. So it's going to be a combination of things but I think ultimately move the app forward. But I think the biggest challenge for us first and foremost is make people aware that they have the app. Then give them the experience that gives them a reason to keep using it, right? So it's a whole experience then is just superior to anything else they've seen where when they order, they pick it up, the order is accurate, the speed is like nothing they've seen, that it's getting delivered, It's at a level of speed that they haven't seen with accuracy that they haven't seen. And then obviously layer in the idea of loyalty. I think you start building utility for why people are going to adopt the usage over time. What was your second question? Mark, great. Just secondly, just from a marketing perspective, I know you guys have talked about sort of moving away from promotions and sort of more towards centralized marketing approach. But just from a delivery or mobile app adoption perspective, just wondering, does that mean the marketing to get those sign ups will center more so on sort of media ads or could that have promotional element of maybe a coupon or something to that effect? Look, we're going to be what we're going to be moving towards is programs that I think are going to engage and connect at a different level than we have in the past. And how we choose to connect will be driven by the users that we're trying to persuade with the experience that we provide. So you're going to see us be very present in digital, mobile, all the non traditional mediums. And you're also going to see a show up in the traditional mediums because I think at the end of the day and Chris feel free to chime in here. We want to be relevant and engaged with all category users, light, medium and heavy. And to do that, that means our marketing program has to be comprehensive and find people at the right times when they're interested in engaging with Chipotle. Chris, I don't know if you want to add anything. Yes. I think, look, you got to use all the tools at your disposal and there will certainly be some promotional things. We'll continue some of the promotional days that we've done in the past. But overall, you'll see a pullback in promotional activity in favor of the more centralized marketing, driving awareness and hopefully transactions and traffic that will follow that. Great. Thanks for the time guys. Our next question comes from the line of Matt McKinley from Evercore ISI. Please proceed with your question. Thank you. On the unit growth and the CapEx, and Brian, I appreciate that the economic model of the restaurant and the top line is what supports future unit growth, but the development pipeline for units is not a short one typically. And this year you guys had slowed the unit growth, but you ramped up the investment in existing stores, remodels and just investment in digital and things like that. But it doesn't sound like you want to put out a specific growth number or you would have done so, but does the present new unit run rate seem like that's the right pace of growth? Or and then I guess secondly, is the investment that you made in CapEx in those new stores, is that unique to 2018? Or is this something that we should expect more spending on existing units in the future? Yes. Look, I think when we get to the fall, we'll be in a better position to talk through exactly how we're seeing the new unit growth. But I think like we said in the last earnings call, we see at or better in 2019. And to your point, the development pipeline is an 18 month pipeline. What is good news is we're seeing great economic results in the new restaurants we're opening and we're liking the economic model that we have in our current restaurants as we continue to see additional sales strength. And then your question on the CapEx as it was allocated to the big fix. The big fix is just that it's a big fix where we're coming in to probably make up for some time that we should have been doing it over time that we didn't. And so as a result, we're coming in and doing it. But I do think going forward, one of the things that's going to be important is we don't find ourselves falling behind on our restaurants. That's something we don't want to repeat, but we'll be able to share more details on that front probably around the fall. Okay. And on the store closures, other than being unprofitable, is there a common theme on the age of the store, the location or the geography that amongst these 6Q or so that you're going to wind up closing? Not really. There's no common theme. Jack, I don't know if you want to add anything to that? Yes. No, they're all over the place. There are various ages. Some are a couple of years old, some are 15 years old. We literally just called the list, found all the restaurants that were cash flow of leaders, went through, looked at every single site, looked at quality of the real estate, quality of the team, the sales trends and we made a decision. And frankly, we don't close stores very often. So we didn't like closing these, but these are ones that we just didn't see getting to or above breakeven for some period of time, but they were all over the place. There's nothing that's broken with our approach to our real estate pipeline. These just were random misses. Okay. Thank you very much. Our next question comes from the line of Brian Bittner from Oppenheimer and Company. Please proceed with your question. Thanks guys. Appreciate all the commentary today. But can you, for any point, could give us a more detailed book into how you expect all of this to impact the financials, whether that be through the establishment of financial targets or goals or something else? And then I have a follow-up. So look, we've not changed any of our expectations for the year. And then I think as we get through the stay safe process for these various initiatives, we'll have high level of confidence with that performance looks like, which then obviously as these things unfold, we will share with you the progress that we're making in the business. That the point of today's conversation was to share with you the strategy for how we see the growth unfolding. And as we start to validate that growth, we will share with you how that's impacting all the financial targets and the subsequent pieces of the puzzle that come with it. Okay. Thanks for that. And just as you set out to drive this top line strategy, I mean, should we expect all the incremental sales growth from this strategy to be highly incremental to profits and margins and just drive significant operating leverage? Or are we should we be expecting some type of in store operating expense step up to drive this strategy or capital expense step up or whatnot just on the investment side? What we're looking for obviously is incremental profitable growth, right? That's what we are 1st and foremost after. With that said, various initiatives are going to have varying degrees of incrementality. We've got a lot of exciting things that we're going to start putting through our safety process that it's going to start validating how incremental these programs are and then how that flows through the economic model. So, but yes, of course, the goal is incremental profitable sales growth. That's why we're vetting these ideas. Understood. Thanks. And just final question for me. Just Brian, can you comment on moving the headquarters from Denver to Southern California? What are the primary benefits you expect to harness from this move? Sure. I think as we mentioned in here, we're going to be building more marketing, more digital, more menu, data analytics, varying areas of expertise. And we think we have the ability to really transform the organization in a faster fashion by relocating the company. So that's the precipitous for doing it. And there's lots of talent on the West Coast and across the entire country that frankly wants to be a part of the Chipotle journey. So we're very excited about the restructuring, the relocation and the new culture and talent that we'll be building. Thank you. Our next question comes from the line of Chris O'Culloch from Stifel. Please proceed with your question. Hi, good afternoon guys. This is actually Mitch on for Chris. A question about catering and the opportunity around that. You recently announced options for smaller groups in different pricing tiers. Curious, are you pleased with those effects of those actions? And are you pulling other initiatives to grow that business, perhaps putting more marketing dollars behind it? Go ahead, Chris. Look, we view catering as a big opportunity and highly incremental opportunity. I think that they going down to a package size at a price point that's a little bit more accessible should open up that market even further and give us some more flexibility. It certainly is on our radar screen from a digital ordering standpoint. So we're racking and stacking that with all of the other mobile and digital and delivery initiatives that we have. We will be putting dedicated resources against it going forward because we do think it's a good opportunity. So we think that with the rest of the suite, mobile and digital ordering and delivery and everything, Catering is a key aspect for us and we'll see how this new rollout of the smaller one goes and we'll pour the gas to the things that deliver the most incremental profit for us. And we'll continue to evaluate others to help optimize those. So relocate a ring. We think it will be awesome. We think it's a huge opportunity and we'll just pace and sequence it with everything else. Okay. Thank you for that. And then just a follow-up question on loyalty. I'm curious whether you have done any studies to gauge consumer demand for this. And if so, what are they showed? Yes, we have. And actually, this is one of the top consumer requests for Chipotle to provide. It's a this is going to be one that's going to be a customer pleaser. Okay, great. Thank you, guys. Our next question comes from the line of Gregory Francfort from Bank of America. Please proceed with your question. Hey, I got two questions. The first is, just after you do the tax write off, I think part of the reason the tax rate was staying high the next couple of years is because the stock was down. If you sort of write that off, what do you think this ongoing tax rate is going to be? And then more from a big picture, Brian, how do you envision the operational flow of the line? And as you go out and test in these new store prototypes, are you going to be putting in new equipment for new products? And if so, where do you think that goes? And just any changes to the structure or flow of the line as you see it today or opportunities to kind of change that just to improve the labor efficiency or anything along that line? Well, why don't I answer the second question and I'll hand it over to Jack on the tax. So to answer your question, any new item that we bring in, one of the things that I'm very cognizant of is today, the reason why we have $2,000,000 AUVs is because we're selling burritos, bowls and tacos at a tremendous throughput. And that model has to be protected. So as I mentioned earlier, one of the key criteria is anything we bring in cannot cause us to go backwards from a throughput standpoint, okay? Now with that said, there's going to be products that we may introduce new equipment that I think will improve the experience for the customer when they order something that maybe doesn't go down the line the way it always has. We may have to put a piece of equipment in a different place so that you move from a customer facing line where things are flowing to where it moves off, use a piece of equipment, but then gets back to that register and expediter in the right timing so that the flow is uninterrupted. And you see this happen in a lot of other restaurants. The key is though you have to take the time to make sure you understand the time and motion involved with the new equipment and the new manual. And so we're going to take that time. We're not going to rush it when you've got something that is going to be a difference to the current line optimization that we have today. And initiatives that utilizes the current line optimization probably will be able to move through the stage gate process a lot faster. That makes sense. Yes. So that is going to be the approach, but I just want to clarify. I mean, one of the things that is and I think I said this in my remarks, one of the things that is exciting for me that I've discovered is just better understanding how powerful this operating model is. The economics and the food and the team member experience that all happens with this line is a real gem and we have to protect it. And fortunately, one of the other gems we have is that second make line, which allows us then to do a lot of digital business off premise business without impacting that customer facing line at all. If anything, it creates a lot more capacity in the restaurant and it creates an even more attractive economic model when you start ramping up on that digital make line or second make line. So I'm really excited about how we can use technology, loyalty, access and some menu innovation to really, I think, drive incremental growth that helps us protect our throughput and hopefully improve on it. Jack, I don't know if you want to take the cash. Yes, Greg. Chris is down, Sharon, but I'll take it, Chris. Yes, Greg, our underlying tax rate is 28.8 percent. And I went through that in quite a bit of detail on the Q1 call, so you might want to go back to the transcript on that. Our rate is going to be higher in the high-30s. It was in high-30s in the Q1. It will be about that rate in the Q4. These are related to they're non economic or non cash. The thing I mentioned today about a $10,000,000 write off. These are deferred tax assets that were put on the books when our stock was at a much higher level. We're expecting with the restructuring that stock options are going to be they're going to be forfeited. They're vested. They're going to be forfeited as we've restructured. So there is no tax deduction available, but there's also no expense available either. Those options are not going to be exercised at all. It's just an imperfection in the way accounting leaves the expense on the books. Tax will never allow deduction when there's not an actual cost involved. And so but these are non economic. They don't take out of any cash of our balance sheet. And they're very difficult to predict. In a normal environment where the stock continues to increase, you won't see this type of stuff. As we see this stuff coming, I'll warn you about it. We'll tell you about it each quarter about these unusual write off of deferred tax assets. Got it. Thank you. Our next question comes from the line of Peter Saleh from BTIG. Please proceed with your question. Great. Thank you. Brian, I think you touched on this in your last comments, but can you talk about the margin profile and maybe the throughput capability of that digitally enhanced second make line? Well, I probably won't give you the specifics of the margin associated with it, but what I can tell you is it obviously runs with less labor. It's in the 3 people needed in order to execute the 2nd baseline versus 6 or 7 people on the customer facing line at peaks. So that obviously is a nice tailwind for the 2nd make line. And then the other piece that we love about it is the accuracy and the speed associated with using that second make line is also another really powerful tool because now with our second make line, we can literally tell everybody what you can skip the line when you order online. And that's going to be, I think, a powerful message in the Chipotle business going forward. And then just my last question. On the loyalty program, are you envisioning this to be a digital only loyalty program? Or will this be something similar to what you had in the past with like a physical presence in the store? I'm going to let Kurt answer that one. He's the master of all things loyalty. Hi, Peter. The loyalty program will be available in restaurant as well as online, but there will not be a physical card. So a customer will create an account, a loyalty account digitally and they can use their phone to present that account either on the register or as Brian has said, the fastest way to order is to order digitally where that number will just be placed as part of that ordering process. All right. Thank you very much. Very helpful. Our next question comes from the line of Nick Setyan from Wedbush. Please proceed with your question. Thank you. Just on pricing as mid single digit labor inflation is ongoing and food costs may not remain as benign as they've been this year. So how are you thinking about your pricing strategy going forward? And then just specifically how are you thinking about pricing in 2019? Yes. So we've not made any decisions on our pricing for 2019, but our approach to pricing will be obviously looking at the metrics you just talked about. And then you actually have to put the customer into that equation as well. So that's the approach we're going to be taking, understanding what's going on with our food costs and paper costs combined with our labor costs and then managing that relative to what our customers' expectation is on a great value proposition and then also how much growth we foresee in the business to also overcome some of the inflation. So, we're going to take a comprehensive view and we will approach it that way every year. And I guess just a follow-up maybe for Jack. As we kind of think about transaction growth, assuming there's no pricing in 2019, what kind of transaction growth do you think is necessary for us to be able to lever at the unit level? Yes. I mean, if you have it depends on the inflation, but if you have inflation of like labor inflation, for example, somewhere in the mid single digits, which is what we've been running, you need to get like a mid single digit transaction driven comp just to stay even on the restaurant cash flow line. You'll still lose, you'll delever on labor, but you'll make it up in some of the other line items and you'll about breakeven. So I think in this kind of environment, you have to be considering a combination of transaction growth and well thought out, as Brian mentioned, price increase to try to offset both so that as you're growing transactions, you'll at least hold at macro margins. Thank you. Our next question comes from the line of Jon Tower from Wells Fargo. Please proceed with your question. Thanks. I know it's getting late, so I'll try to be quick with these. Just first one for Jack, if you can quantify what the drag was or will be from those 55 to 65 stores that you're planning on closing, what sort of drag that was on store level margins? 2nd, I guess this is for Brian or Chris, in terms of making the brand more visible over time, is that going to require a higher spend going forward from a marketing standpoint? I think that's run roughly about 3% of sales historically. And then lastly, now that you're doing all this brand research in the early learnings, have you better determined where some of that lost traffic has gone since the food crisis, meaning other fast casual brands or fast food? That's it. Yes. I guess we'll take a no order, this is Jack, on the restaurant level margin. Those restaurants were well under $1,000,000 They were all cash flow losers. When they're all fully closed, we should expect a margin improvement of 30 basis points or more. Now keep in mind, we're closing about half or so in the 1st month and then the others will be happen over time as we negotiate with the leases. So this won't be this won't hit all at one time, but eventually when they're all closed, we should pick up 30 basis points or perhaps a little more. It's Chris. I'll take the conversation about the overall marketing budget. I think that you're right, we have about a 3% marketing budget. I think our opportunity certainly in the short term is to be more efficient and effective with the existing dollars that we have. But one of the beauties of having an innovation pipeline in the stage gate process and a testing protocol is that you can test varying levels. And so you have a much better certainty about what you're doing as you go national once you've tested in the test market. So we'll simulate different levels of spending and then we can decide as we go forward whether those delivered on what we wanted to or not. And so over time, you might be able to lean into some products and some products you may not. So I think that's part of the beauty of having a defined process and an innovation process and an innovation pipeline so that you can pick and choose what works the best. In terms of the question about where they went and who we source from, I think that's a big part of the foundation of research. I think one of the beauties of Chipotle though is that we have a great balance of getting consumers not only from just QSR and other fast casual, but even from casual dine and also we have a great mix of both men and women. So it's a really widely appealing brand and I think that's a big opportunity for us to appeal to category users from a more centralized marketing standpoint than just a more decentralized promotional based marketing plan that we've had in the past. Okay. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to management for closing remarks. All right. Well, thank you everybody. And hopefully, you have clarity on our strategy for how we're going to cultivate a better world and win today. And thank you for everybody's time and your interest in Chipotle. Have a good night.

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