Chipotle Mexican Grill(US:CMG)2023-04-26 00:23Financial Data and Key Metrics - Q1 2023 sales grew 17% YoY to $2.4 billion, driven by a 10.9% comp growth [6] - In-store sales grew 23% YoY, while digital sales represented 39% of total sales [6] - Restaurant-level margin increased by 490 basis points YoY to 25.6% [6] - Diluted EPS was $10.50, representing 84% growth YoY [6] - The company opened 41 new restaurants, including 34 Chipotlanes [6] - Full-year comp sales guidance is in the mid-to-high single-digit range, with Q2 comps expected in the same range [7][24] Business Line Performance - Digital sales accounted for 39% of total sales, with strong performance in both order-ahead and delivery channels [6][84] - The Fajita Quesadilla launch nearly doubled Quesadilla sales and contributed to two of the top digital sales days in company history [14] - Chicken Al Pastor LTO outperformed Pollo Asado, the most successful protein LTO ever, and was rolled out globally [15] - Rewards program membership reached 33 million, with increased enrollments and engagement due to the Freepotle initiative [16] Market Performance - The company expanded its presence in Canada with the first Chipotlane in Ontario and a partnership with SkipTheDishes, Canada's largest food delivery network [21] - Small-town openings have been highly successful, with four of the top five openings in company history occurring in small towns [21] - The company is on track to open 255-285 new restaurants in 2023, with at least 80% including a Chipotlane [30] Strategy and Industry Competition - The company's five key strategies include running successful restaurants, making the brand visible and loved, amplifying technology and innovation, expanding access and convenience, and sustaining world-class people leadership [8] - Project Square One has improved operational execution, with better training, stability, and accountability leading to improved throughput and customer experience [10][35] - The company is testing new technology, such as clamshell grills and Hyphen automation, to improve efficiency and consistency in food preparation [17][40] - Investments in sustainability, such as the Responsible Restaurant Design pilot, aim to reduce environmental impact and support long-term growth [20] Management Commentary on Operating Environment and Future Outlook - Management highlighted the importance of operational excellence and menu innovation in driving traffic and sales growth [64][65] - The company is cautiously optimistic about the macro environment, with no base case for a recession, and believes it is well-positioned to navigate economic uncertainty [116] - Management emphasized the strength of the brand, balance sheet, and long-term growth potential, with a target of 7,000 restaurants in North America and AUVs beyond $3 million [119] Other Important Information - The company repurchased $132 million of stock in Q1 and has $282 million remaining under its share authorization program [30] - Labor costs decreased by 170 basis points YoY to 24.6%, driven by sales leverage and labor scheduling efficiencies, partially offset by wage inflation [26] - Marketing and promo costs were 3.2% in Q1, with expectations for Q2 to step down to the mid-2% range [27] Q&A Session Summary Throughput and Operational Improvements - Project Square One has improved operational execution, with better training, stability, and accountability leading to improved throughput and customer experience [35][36] - The company is testing new technology, such as clamshell grills and Hyphen automation, to improve efficiency and consistency in food preparation [39][40] Margin Outlook and Pricing Strategy - Q2 margins are expected to step up due to seasonal sales strength and lower marketing costs, with potential for further improvement if inflation remains tame [44][45] - The company will take additional pricing if inflation warrants it, but no definitive plans have been made for the balance of the year [47][48] Labor Productivity and Loyalty Program - Labor productivity improved due to positive transaction trends, menu price increases, and labor scheduling efficiencies [51][52] - The rewards program has 33 million members, with increased enrollments and engagement due to the Freepotle initiative [53][54] Transaction Trends and Customer Cohorts - Transaction trends were positive in Q1 and continued into April, driven by operational execution, menu innovation, and the loyalty program [63][64] - Higher-income consumers increased their frequency, while lower-income consumers showed signs of recovery [79] International Expansion and Chipotlane Performance - The company is expanding in Canada and Europe, with a focus on establishing operational excellence and digital systems [74][75] - Chipotlanes continue to outperform non-Chipotlane locations in sales, margins, and digital mix [90][91] Commodity Inflation and Macro Outlook - The company expects modest inflation in the back half of the year, with potential for deflation in certain categories such as poultry and dairy [113] - The base case for the macro environment does not include a recession, and the company is well-positioned to navigate economic uncertainty [116] Marketing and LTO Plans - Marketing spend is expected to step down in Q2 due to timing, with higher spending in the first and back half of the year to support LTOs [109] - The company has a strong pipeline for LTOs and will decide on back-half initiatives based on consumer trends and operational performance [97]