Chipotle 1Q15 Earnings Call Notes

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47% EPS growth on 20% revenue growth

“During the quarter we generated revenue of nearly $1.1 billion, an increase of 20% on comparable restaurant sales growth of 10.4% and the opening of 49 new restaurants. This produce diluted earnings of $3.88 per share, an increase of 47%”

Encountered supply issues around pork because suppliers not meeting their standards

“We’ve encountered challenges from time-to-time since we begin our journey to find the very best ingredients we can and we do not anticipate our recent pork supply issue to be our last one. But our track record of driving positive change in this change in these areas is unprecedented and we believe these higher quality ingredients taste better. In January we suspended one of our pork suppliers after a supply chain audit found that they were not fully compliant with all of our standards. Our protocol requires that pigs are raised with access to the outdoors or deep bedding in barns and without the use of antibiotics. These differences are in stark contrast to the way conventional pigs are raise. In many cases they spend their whole lives indoors on hard flooded floors with no bedding, which we think is inhumane.”

People climbing the ladder is evidence of our success

“To strength of our culture is evident in many ways including through a growing number of individual success stories, as more and more of our people are climbing the ladder from crew to management and to field leadership positions as well.’

We thought that good ingredients would be the best marketing

“The marketing we do at Chipotle is unlike that of any other fast food brand. The reason for this is simple, very early on we decided to spend more on our ingredients and less on our marketing. It’s always been our belief that better quality food, prepared by hand and served by excellent teams will be the most powerful marketing of all. In fact we were serving better ingredients, including pasteurized dairy, local produce and meats without antibiotics or hormones long before there was even significant customer demand for such things.”

Less reliance on traditional advertising than many competitors

“Chipotle has become quite buzz worthy with awareness coming from social media, public relations, advertising and our local and event market programs, but with less reliance on traditional advertising than many of our competitors.”

Other QSR relies on limited time offers to drive sales

“The vast majority of fast food brands use limited time offers, new menu items and price promotions as their core marketing strategy. These new menu items and offers rarely build long term loyal customers. Instead only provide spike in sales during the advertising window. In order to maintain traffic most fast food brands need to add a steady stream of new menu items throughout the year, resulting in bloated menus filled with hundreds of menu items. ”

Working to eliminate preservatives in tortillas

” Only our tortillas contain any preservatives or other additives and we are diligently working to eliminate those.”

Going to make an ordering app for Apple Watch

Our near-term priorities with regard to mobile include the launch of an ordering app for Apple watch which will be available April 24th and the exploration of new systems for mobile payment, including the use of ApplePay in our restaurants and our iOS app and potentially Google Wallet capability within our Android app. ”

Comps in April are being affected by carnitas

“comps in April so far appear on track to be in the high single-digits and we think our pork shortage is currently impacting our sales by as much as 200 basis points. ”

Going to raise prices on steak

“Beef prices remain at historically high levels, although beef inflation was largely contained during the quarter. We currently believe that the pricing for beef will remain at these elevated levels well into 2016 and perhaps even into 2017. As a result of this increased inflation we expect to raise prices on steak and Barbacoa this year most likely by the end of the third quarter.”

We undershot price increases last year

“as you will recall our intent last year was to cover the inflationary cost pressures of beef but we undershot this level in hindsight as beef costs continue to rise.”

Our growth seems to have come in waves

“we seem to have these wavess and if you go back even as we are private company, these waves where people figure out that’s Chipotle exists. They like it, they come back more often. And so we have this kind of surge and then we have a leveling off and then a surge and leveling off.”

Hardware requirement for ApplePay is minimal. Software is more of a challenge

“The restaurants certainly are not setup to accept mobile pay although with ApplePay in particular the investment on the hardware side is relatively minimal. So that’s not a significant barrier. The main challenge there is making the POS software compliant with ApplePay. So we are working on that and that’s the type of payment that’s of most interest to us as people being able to pay at the POS with their phone.”