Chipotle Mexican Grill (CMG)

Q2 2010 Earnings Call

July 22, 2010 4:30 pm ET

Executives

John Hartung - Chief Finance Officer

M. Ells - Founder, Chairman of the Board and Co-Chief Executive Officer

Montgomery Moran - Co-Chief Executive Officer, Secretary and Director

Kate Giha - IR

Analysts

Sharon Zackfia - William Blair & Company L.L.C.

Jeffrey Omohundro - Wells Fargo Securities, LLC

Matthew DiFrisco - Oppenheimer & Co. Inc.

John Glass - Morgan Stanley

Jason West - Deutsche Bank AG

David Tarantino - Robert W. Baird & Co. Incorporated

Thomas Forte - Telsey Advisory Group LLC

Steve West - Stifel, Nicolaus & Co., Inc.

Bryan Elliott - Raymond James & Associates

Joseph Buckley - BofA Merrill Lynch

Bart Glenn - D.A. Davidson & Co.

Greg Ruedy - Stephens Inc.

Presentation

Operator

Thank you for standing by, everyone. Welcome to the Chipotle Mexican Grill Second Quarter 2010 Conference Call. [Operator Instructions] Now at this time, I'd like to introduce Chipotle's Director of Investor Relations, Ms. Kate Giha. Please go ahead, ma'am.

Kate Giha

Thanks, Micah. Hello, everyone, and welcome to our call today. By now, you should have access to our earnings announcement release this afternoon for our second quarter 2010. It may also be found on our website at www.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 Securities laws. These forward-looking statements will include discussion of our A Model restaurant strategy as well as projections of comparable restaurant sales and trends, the number of restaurants we intend to open, expected trends in various costs in our business, statements about our stock repurchase program and other statements of expectations and plans. These forward-looking 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-K as updated in our subsequent 10-Qs for 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 first day of the last month of each fiscal quarter and continues until the next earnings conference call. For the third quarter, it will begin September 1 and continue until our third quarter release in October.

On the call with us today are Steve Ells, Founder, Chairman and Co-Chief Executive Officer; Monty Moran, Co-Chief Executive Officer; and Jack Hartung, Chief Financial Officer. With that, I'll now turn the call over to Steve.

M. Ells

Thank you, Kate. I’m joining you today from France, where we plan to open our first restaurant sometime in the middle of next year. Like London, we believe the prospects are excellent for Chipotle in France, given the exceptional food culture and the abundance of great quality, sustainably raised ingredients here. We're also excited about the potential for Chipotle in such a remarkable international food culture.

During the second quarter, Chipotle reached a couple of milestones that we're all very proud of. First, we opened our 1,000th restaurant in June. With more than 1,000 restaurants now, Chipotle is having more of an impact on the way people eat than I ever would have imagined when I started the first restaurant 17 years ago. Our commitment to building a unique food culture based on making better food for more sustainably raised ingredients available and affordable for everybody, and our commitment to a unique people culture that empowers and rewards our best performers and allows us to provide better customer service in all of our restaurants, is resonating with all of our customers. And as we continue to grow, our impact will only be greater.

The other major milestone was opening our first restaurant in Europe. That restaurant has the same philosophy as our U.S. restaurants, and we are using premium-quality ingredients from local sources, including chicken that is grown to a higher welfare of standard, pork that comes from pigs raised on farms that offer large one-acre paddocks where pigs can roam freely and display natural behaviors, and beef from farm-assured British farms, where cattle are raised in a humane and compassionate condition. We’re also using vegetables and herbs from local farms as well.

Before arriving in France this week, I spent a full week working in our London restaurant with our managers and crew. Our plan with this first London restaurant is to introduce the Chipotle brand, establish relationships with suppliers that meet our standards and will be able to help us grow, and to develop a culture of empowerment among our crew so that we can ensure that we properly develop the future leaders of our European business.

Well, just two months after opening, I'm very pleased with how this restaurant is operating. The food is exceptional. The crew is empowered and already performing very, very well, which gives me great confidence that we're now well on our way to developing the future leaders we will need to expand in London and elsewhere in Europe. This focused approach to expansion in Europe is off to a great start, and we remain encouraged about our opportunities.

During the quarter, we continued to make progress on our vision to provide Food With Integrity. As of now, all of the beef we use to make our barbacoa, the spicy shredded beef, is naturally raised. With this change, 85% of all of our beef is now naturally raised. That brings our naturally raised meat total to more than 75 million pounds for 2010, including all of the pork, 85% of our beef and about 80% of our chicken.

You may recall that we had been at about 100% -- or we had been at 100% -- of our chicken as well as pork, but we cannot currently get enough naturally raised chicken to keep pace with demand. We're working hard to find additional suppliers and also helping existing suppliers grow, and we're going to hope to return to 100% naturally raised chicken soon. We have also been working with milk suppliers, cheese makers and creameries in Ohio, Wisconsin and California to increase the supply of pasture-raised milk in our cheese and sour cream.

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