Chipotle Mexican Grill's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Chipotle Mexican Grill (CMG)

Q1 2012 Earnings Call

April 19, 2012 4:30 pm ET


Alex Spong -

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

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

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


David Palmer - UBS Investment Bank, Research Division

Phan Le - Lazard Capital Markets LLC, Research Division

Alvin C. Concepcion - Citigroup Inc, Research Division

Karen Holthouse - Crédit Suisse AG, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Sharon Zackfia - William Blair & Company L.L.C., Research Division

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

Jeffrey Andrew Bernstein - Barclays Capital, Research Division



Good afternoon, and welcome to the Chipotle Mexican Grill's First Quarter 2012 Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Thank you. I'd now like to introduce the Chipotle Director of Investor Relations, Alex Spong. You may begin.

Alex Spong

Hello, everyone, and welcome to our conference today. By now, you should have the access to our earnings announcement released this afternoon for the first quarter 2012. It may also be found on 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, the impact of menu price increases, trends in food costs and other expense items, effective tax rates and our unit economics and shareholder returns, 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-K as updated in our subsequent Form 10-Qs for discussion of these risks.

Our discussion today will also include non-GAAP financial measures, a reconciliation of which can be found on the presentations page of the Investor Relations section of our website. I'd like to remind everyone that we've adopted a self-imposed quiet period, restricting communications with investors during that period. 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 second quarter, it will begin on June 1 and continue through our second quarter release in July.

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 will now turn the call over to Steve.

M. Steven Ells

Thank you, Alex. We're pleased to see our momentum from 2011 carry into the first quarter of 2012. Coming out of the recession, we have now seen 7 consecutive quarters of double-digit same-store sales growth, posting a comp sales increase of 12.7% in the first quarter on revenue of $640.6 million, an increase of 25.8% from the first quarter of 2011, adding up to earnings per share of $1.97 for the quarter. More importantly, I'm pleased that we continue to perform well by remaining focused on only those things that are the major drivers of our business, our unique food culture and our unique people culture.

During the quarter, we made another significant leap in educating our customers about our commitment to serving great food made with better ingredients from more sustainable sources when we ran our 2-minute animated short film, Back to the Start, as a commercial during the Grammy awards. Buying such a large block of time during the Grammys reached a significant number of people with this important message and sparked some very public dialogue about food issues that continued for several days in social media and mainstream media outlets.

This year's Grammys telecast surpassed the expected 29 million viewers with 40 million people tuning in. But the spot had a much broader reach and impact than that. Immediately after it aired, the spot prompted 22,000 Tweets and significant reach in social media where it produced more than 33 million impressions on Twitter in the days that followed the Grammys. According to the popular sharing platform, AddThis, which tracks the frequency with which people are looking at or sharing things in social media, our commercial was unique in that as soon as people saw it, they felt like seeing it again and wanted to share it with their friends. Running the spot on the Grammys also provided another significant PR opportunity for us.

In all, press coverage surrounding the spot generated another 150 million media impressions, giving us the kind of media attention that is often associated with Super Bowl ads. But with our Grammys spot, all of that coverage was focused only on Chipotle instead of being shared among numerous Super Bowl advertisers.

The Back to the Start film is just one part of our Cultivate marketing platform which is designed to invite people on our journey to a more sustainable world. While most other fast food companies use advertising to tell the latest discount or the latest menu item, we believe that we are creating a more loyal frequent customer by connecting with them rather than advertising at them.

Since we have such a great story to tell, our challenge is to tell it in the most compelling way possible and we have found that less traditional forms of advertising work better. The Back to the Start short film and other films and of similar nature that are in production now are a great example. Just as we did with the Back to the Start film, we'll start small with these projects and figure out the best way to use the films based on the opportunities we think they provide as they come together.

Our day-long Cultivate Festival series planned for Chicago and Denver this year is another way we're making use of nontraditional marketing, as is our Farm Team program that rewards knowledge about the Chipotle story. These programs, along with a variety of others including games, educational content and a refined approach to local marketing, are all designed to engage our customers in conversations and create an emotional connection that will last much longer than any limited time offer possibly could.

I think this is absolutely the right direction for our marketing and believe it's very consistent with our brand. We've built Chipotle in a way that's different than traditional fast food, so it should be no surprise that marketing works best for us that doesn't follow traditional fast food model. Of course, marketing efforts like this would ring hollow if we weren't so deeply committed to doing the kinds of things our marketing portrays, and our commitment has never been stronger to finding better, more sustainable sources for all of the ingredients that we use and identifying ways to improve the taste of our food by finding better ways to prepare it.

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