Chipotle 4Q15 Earnings Call Notes

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Chipotle Mexican Grill (CMG) Steve Ells on Q4 2015 Results

Without question the most challenging quarter in our history

“The fourth quarter was without question the most challenging in our history, but we have responded and have implemented an industry-leading food safety program that reduces our food safety risk to as low to zero as possible.”

Objective for 2016 will be making food as safe as possible

“as we emerge from this difficult time, we can focus on what will be our primary objective for 2016: making sure our food is as safe as possible and welcoming customers back to our restaurants as our teams deliver an extraordinary dining experience.”

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

Not an increase in employee turnover

“Just reviewed those numbers recently, and there’s not increased turnover in any significant way. So in fact most of our turnover numbers, especially for our hourly managers and salaried managers, have been declining over the last few months and they seem to continue to. And just having spent a lot of time in the restaurants with our teams and having spoken with our executive team directors and restaurant support officers, all of us are seeing the same thing, which is that our employees are really, really enthusiastic, they’re excited to be implementing these new food safety procedures, they’re proud of what they’re doing, they understand that these things make sense and they’re doing a fantastic job. And they’re keeping their heads very, very high.”

Mark Crumpacker – Chief Creative & Development Officer

60% of customers who are aware of the issues say that it would cause them to visit less

“Starting November 1, we have been running both daily and weekly research studies in order to keep close track of customer awareness and perception. Not surprisingly, consumer awareness of the issues we have been dealing with for the last few months is high. Our most current research indicates that 63% of Chipotle customers and 60% of fast casual diners in general are aware of the food-borne illness issues at Chipotle. Of those who are our customers and who are also aware of the issues, right around 60% have indicated that it would cause them to visit less.”

Customers are showing an increased willingness to return to restaurants

“While this research data’s obviously not good news, our weekly data for the last two weeks is encouraging as it indicates a leveling off of what was a downward trend that started in late October. We have seen a leveling off and in some cases a slight increase in consideration, admiration, first-time visits and date last visited. This is good news as our customers are indicating willingness to return to the restaurants.”

John R. Hartung – Chief Financial Officer

Comps got worse in January

“For the month of January, sales comps were down about 36%, worse than the December run rate due to tougher January comparisons, weather in the Northeast, and continued negative publicity. Comparisons become easier in February, but more importantly, we’re anxious to begin the process of welcoming our customers back, which will begin in February with the marketing and PR that Mark talked about.”

Year of significant investment

“Overall, 2016 will be a year of significant investment to ensure our food is safe and to encourage our customers to return to Chipotle. Margins and earnings will be significantly affected as we make these important investments. But I’m still confident that as we recover sales, over time, we can also fully recover our margins and our earnings capabilities.”

When we looked at other companies it typically takes 4-5 quarters to recover

“When we looked at other events, other companies that have gone through something like this, the recovery typically takes four or five quarters or so. We know that there are things that are different than what happened in previous cases. For one, we’ve had a couple instances here, so that kept us in the news a lot longer. Secondly, the news travels faster. There’s a lot more chatter on social media, and so the word really traveled fast. Sometimes accurately, sometimes inaccurately.”

A lot of the food safety procedures are happening outside of the restaurant

“A lot of the procedures are not happening in the restaurant, meaning the testing is happening outside the restaurant. So a lot of this food safety program is designed to prevent anything unwanted from ever getting into the restaurant”