Chipotle 4Q16 Earnings Call Notes

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Steve Ells

John Hartung

Haven’t had a price increase in 3 years but at some point will need to do that

“Now there are pieces of that, that we’ve been absorbing; for example, inflation. We’ve not had a price increase in three years. We’re not planning any specific price increase right now. But at some point over time, we’ll need to pass on some of the higher costs. But we believe we’ll be able to do that. And then that along with leverage from the higher sales, that along with better negotiation, that along with better management at the restaurant level and holding the line on the P&L, on individual P&L line item. We still think we have the ability to recapture the high 20% margin range. The most important factor, though, year-by-year, is sales, how much we can build in terms of sales.”

Food and labor inflation without price increases

“Since 2012, we’ve had labor inflation totaling about 20%. We have only taken about 5% of a menu price increase in that time, and so we’ve eaten a couple hundred basis points worth of labor inflation, at least, maybe even more. And so the food cost is higher because of things like, we’ve had inflation at steak, we’ve invested in Food With Integrity, things like that, And because we are a little bit behind right now menu pricing, I would say our food is at an elevated level, we’ve been eating some of the higher food costs over time, same thing with the labor.”

Mark Crumpacker

Changed real estate strategy in new locations

“with regard to the new restaurants, they’re performing right now at about 74% of our regular restaurants, which is an improvement, it got as low as 70% during the crisis, and we do see that the stores that we market are performing better. So now all new restaurants receive marketing at their opening. The other change that we’ve made with regard to new stores is the way we’re choosing real estate, particularly in developing markets. As you know, we have our, or you may know, our real estate markets are categorized into four different categories, knew, proven, established, and developing. And in developing markets, we’ve reverted to choosing only Tier 1 sites, which we expect will have an ongoing effect on improving the ADS (33:21) in those restaurants.”