Chipotle Mexican Grill(CMG) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales grew 7.5% year-over-year to reach $3 billion, with a comparable sales increase of 0.3% [4][23] - Digital sales accounted for 36.7% of total sales [4] - Restaurant-level margin was 24.5%, a decline of 100 basis points year-over-year [4][23] - Adjusted diluted EPS was $0.29, an increase of 7% over last year [4][23] - Cost of sales was 30%, a decrease of about 60 basis points from last year [24] - Labor costs were 25.2%, an increase of about 30 basis points from last year [25] - Other operating costs were 15%, an increase of about 120 basis points from last year [26] - G&A for the quarter was $147 million on a GAAP basis [27] Business Line Data and Key Metrics Changes - The company opened 84 new restaurants, including 64 Chipotlanes [4] - The promotional environment has intensified, with increased focus on value and menu innovation [5][6] Market Data and Key Metrics Changes - The consumer cohort with household income below $100,000 represents about 40% of total sales and is dining out less often due to economic concerns [5] - The 25 to 35-year-old age group is particularly challenged, facing headwinds such as unemployment and increased student loan repayments [5] Company Strategy and Development Direction - The company aims to strengthen its consumer flywheel by improving execution, enhancing communication of value, and accelerating menu and digital innovation [6][21] - Five key strategies include running successful restaurants, sustaining world-class leadership, amplifying technology and innovation, expanding access, and enhancing guest engagement [7] - The company plans to expand its restaurant openings in North America and internationally, targeting 7,000 restaurants long-term [18][20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the third quarter performance fell short of expectations due to macroeconomic pressures [4] - The company anticipates full-year comps to decline in the low single-digit range due to ongoing macro uncertainty [23] - Inflation is expected to accelerate into the mid-single-digit range, primarily due to tariffs and rising beef costs [24] Other Important Information - The company has a strong balance sheet with $1.8 billion in cash and no debt [28] - The board authorized an additional $500 million to the share purchase authorization, with $652 million remaining at the end of the quarter [28] Q&A Session All Questions and Answers Question: Is the pricing strategy for 2026 changing to prioritize traffic growth over margin expansion? - The company plans a slow and measured approach to pricing in 2026, not fully offsetting inflation in the near term, which may pressure margins [31][32] Question: What is the outlook for same-store sales in 2026? - Management remains confident in returning to mid-single-digit same-store sales growth, depending on consumer conditions [35] Question: Can you provide insights on traffic losses and customer behavior? - Significant pullback is observed from the cohort under $100,000 annually, with losses attributed to consumers dining at home rather than competition [41] Question: How is the High-Efficiency Equipment Package performing? - Early results show labor efficiency gains and improved culinary execution, with positive feedback from pilot locations [46] Question: What operational actions are being taken to inflect traffic? - The company is addressing operational concerns identified in a problem detection study and modifying bonus programs to align with desired outcomes [50] Question: What is the impact of new restaurant openings on existing locations? - New restaurants are comping better than existing ones, with a similar level of cannibalization as in the past [56] Question: How does the company plan to communicate its value proposition? - The company is working on new ad campaigns to highlight its unique value proposition and culinary quality [81]