Chipotle Mexican Grill (CMG)

Q3 2011 Earnings Call

October 20, 2011 4:30 pm ET


John R. Hartung - Chief Finance Officer and Principal Accounting Officer

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

Alex Spong -

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


Nicole Miller Regan - Piper Jaffray Companies, Research Division

Bart Glenn - D.A. Davidson & Co., Research Division

Alvin C. Concepcion - Citigroup Inc, Research Division

John S. Glass - Morgan Stanley, Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Larry Miller - RBC Capital Markets, LLC, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Jason West - Deutsche Bank AG, Research Division



Good afternoon, and welcome to the Chipotle Mexican Grill Third Quarter 2011 Earnings Conference Call [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce Chipotle's Director of Investor Relations, Alex Spong. You may begin your conference.

Alex Spong

Hello, everyone, and welcome to our call today. By now you should have accessed our earnings announcement released this afternoon for the third quarter 2011. It may also be found in our website at 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 as defined in the Securities laws. These forward-looking statements will include projections of the number of restaurants we intend to open, comp restaurant sales increases, food cost trends, margins, effective tax rates and shareholder returns, as well as other statements of our expectations and plans. These statements are based upon 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 these forward-looking statements. We refer you to the risk factors in our annual report on Form 10-K as updated in our subsequent Form 10-Qs for discussion of these risks.

I'd like to remind everyone that we have adopted a self-imposed quiet period restricting communications with investors during that period. That 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 fourth quarter, it will begin on December 1 and continue through our fourth quarter release in February. On the call with us today are Steve Ells, our 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. Steven Ells

Thanks, Alex. I'm very pleased with our financial performance during the third quarter, but even more pleased with our continued strengthening of our food culture and our people culture, as well as the stronger bond that we're creating with our customers as they begin to care more about where their food comes from. All of this gives me great confidence that we're on our way to achieving our vision of changing the way people think about many fast food.

We talked about food culture at Chipotle, instead of talking about new food products. We do this because of our philosophy of constantly working to serve better-tasting, more wholesome food, and that leads us to improve every ingredient we use.

In order to achieve these improvements, we evaluate how our ingredients are raised or grown, improve our recipes and cooking techniques, and improve our kitchen equipment, all with the objective of serving better-tasting food made from sustainably raised ingredients.

Though we don't have time to talk about all the food improvements that we're currently pursuing, I do want to highlight 2 changes that happened during the quarter. First, we've made some changes to our green tomatillo salsa that we think may get even better tasting than before. We've increased the percentage of roasted tomatillo we use in the salsa and are roasting the tomatillos longer in order to mellow the tangy flavor of the raw tomatillo and balance the spiciness of the salsa and improve the consistency. We're using larger vegetable cuts so that the new version of the green salsa is thicker and chunkier than it was before. These changes have made this salsa illustrate how we are always looking at how we can change the food we serve to make it better.

The second food-related improvement I want to highlight is our rollout of brown rice. We're now serving brown rice in addition to white rice in about a dozen markets around the country, including New York, Denver, Chicago, Washington, D.C. and Seattle among others. Like our white rice, the brown rice is seasoned with fresh lime juice and freshly chopped cilantro, but also offers the nutritional benefits of a whole grain, and it has a delicious nutty flavor. Though we've done very little marketing about the brown rice, customers are responding well and are selecting the brown rice nearly 1/3 of the time. We expect to have brown rice in all of our restaurants by the end of the year. Of course, we're also continuing to make progress in our quest to expand the use of naturally raised meat. Already, we expect to use 100 million pounds of meat from animals that are raised responsibly and never given antibiotics or added hormones and hope to move closer to serving all naturally raised meat in the coming months.

I'd also like to tell you about a couple of marketing initiatives that have taken place since the last earnings call. One recent effort that I'm extremely proud of is a short film that we've created called Back to the Start. If you have not had a chance to see this animated film, I encourage you to visit our website and click on the link and take a look. The animation is accompanied by Willie Nelson covering the Coldplay song, The Scientist. And the video illustrates the dilemma farmers have faced in industrial farming and that has displaced more sustainable farming. It has connected with people on an emotional level far beyond what we could have imagined when the project began. The video has already been viewed online more than 1.7 million times on YouTube alone and is now being shown on about 10,000 movie screens nationwide before the feature films, where we expect around 20 million people to see it. The video has provided a wonderful opportunity for people to discover and become more curious about how their food is raised, without being preachy or overcomplicating the message. But don't take my word for it. Really, go see it and decide for yourself.

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