奇波雷墨西哥燒烤 (CMG) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to the Chipotle Mexican Grill First Quarter 2008 Earnings Conference Call.

(OPERATOR INSTRUCTIONS) It is now my pleasure to turn over to your host, Mr.

Chris Arnold, Investor Relations for Chipotle Mexican Grill.

Please go ahead, sir.

Hello, everyone, and welcome to our call today.

By now you should have access to our earnings announcement released this afternoon for the first quarter of 2008 ended March 31, 2008.

It may also be found on our website at Chipotle.com 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 within the meaning of the securities laws.

These forward-looking statements will include projections of restaurant comp sales trends, the number of restaurants we intend to open, earnings per share, certain expense items and other statements of our expectations and plans.

These forward-looking 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 for 2007 for a discussion of the risks that could impact our future operating results and financial conditions.

I want to remind everyone that we have adopted a self-imposed quiet period restricting communications with investors during sensitive periods.

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 first quarter it will begin May 1st and continue until our second quarter release in July.

On the call with us today are Steve Ells, our Founder, Chairman and Chief Executive Officer; Monty Moran, our President and Chief Operating Officer; and Jack Hartung, our Chief Financial Officer.

After their comments, we will open the call for questions.

With that out of the way, I would like to turn the call over to Steve.

Thanks, Chris.

I'm really proud of our accomplishments during the fourth quarter of 2008.

In an environment that remains very difficult for restaurant companies, Chipotle was able to deliver a better than expected 10.2% comp in the quarter, which contributed to a 29.3% increase in revenue, with a 37% rise in EPS.

Our continued strong performance is the direct result of the hard work of our crews, restaurant managers and demonstrates the loyalty of Chipotle's customer base, as well as our growing appeal.

Chipotle is changing the way the world thinks about and eats fast food.

Consumers seem to be paying more attention to issues surrounding the food they eat and the impact of their choices on both their own health and the environment in general.

This growing awareness of our food and food-related issues makes me even more confident in our vision.

I recently read Michael Pollan's new book, "In Defense of Food".

If you haven't read this book yet, I definitely recommend it, particularly for people following the restaurant industry.

In the book, Pollan talks a lot about how much our food system and our eating habits have changed over the last several decades.

He argues that we have become overly dependent on fast, heavily processed foods from convenience stores or fast food restaurants and points out that instead of eating real food too many people are eating what he calls "edible food-like substances", things that are a product of science not nature.

Pollan suggests that the solution is to eat only real food, food that your grandparents would recognize as food.

I found this book so interesting in part because it's similar to what I've always believed that real, unprocessed foods are better.

They taste better and they're much more wholesome than foods that are heavily processed.

From the beginning, that's what we served at Chipotle.

Real, whole foods made with fresh, high quality, unprocessed ingredients.

Our customers see this every time they come in to one of our restaurants, because we prepare the food we serve right in front of them in open kitchens and there's nothing to hide and I think our customers appreciate that.

But our customers don't always see or understand the care that we take in choosing our ingredients that make our food.

We call this idea Food with Integrity.

We are looking at every ingredient that we use and how we can make it better, from more sustainable sources.

This commitment is helping us bring our customers a new kind of dining experience, one that let's everyone have access to great tasting food made with the kinds of ingredients that were once only available in high end restaurants or specialty food stores.

We're showing that great food can be accessible and affordable.

And we continue to make progress in our efforts to bring our customers food made from these better ingredients.

This year we expect to serve more than 52 million pounds of naturally raised meat, more than any other restaurant company.

That's more than 200 million meals made with meat from animals that were raised in a humane way and never given antibiotics or growth hormones and fed a pure vegetarian diet without any animal byproducts.

During the first quarter of 2008 we added naturally raised beef to all of our restaurants in Minnesota.

With that change, Minnesota joins the number of Chipotle markets that are serving 100% naturally raised meats and we continue making progress with our naturally raised chicken suppliers.

At the end of the first quarter 2008, about 85% of our restaurants served naturally raised chicken.

In the coming months, we expect to introduce naturally raised chicken to our remaining restaurants and complete our goal of serving 100% naturally raised chicken, in addition to serving 100% naturally raised pork today.

Last year, Chipotle became the first national restaurant company to serve only dairy products that are made from milk from cows that were not treated with a synthetic growth hormone rBGH.

Today we are working on taking that another step further, working with our cheese supplier and the farmers that provide milk for our cheese to increase their percentage of the milk that comes from pasture-raised cattle.

I have mentioned before there are a number of advantages of raising cows on pasture.

Commodity dairy cows are usually raised in confinement, with little or no access to suitable grazing land and given hormones to stimulate milk production and antibiotics to stave off the resulting illness.

By contrast, pasture raised cows are raised on open pasture, don't need to be given antibiotics to remain healthy and are comfortable and well treated and enjoy a much longer life span.

The result is not only a much more sustainable agricultural system but better tasting milk, which make delicious sour cream and cheese for our restaurants.

Similar to our commitment to securing the very best ingredients, we're also pushing ourselves to design better, more efficient restaurants.

Later this year we plan to open our first LEED certified restaurant.

LEED certification provides a set of standards for environmentally sustainable construction.

Our work to design restaurants this way shows us how much improvement is possible.

Just like there will always be better ways to make our food, there will always be better ways to design and build our restaurants.

Before I turn the call over to Monty, I'd like to take a minute to update you on the progress of our first restaurant in Toronto.

We have said before that we'll be opening our first restaurant in that market later this year, but I think it's important to remember that we don't see Canada as a significant part of our growth strategy in the near future.

Our plan in opening the restaurant is to get into the market, introduce our brand and to establish a supply chain.

We also think it's important to build a strong local team to run our restaurants in Toronto.

So, rather than pushing those processes and compromising our brand and culture, we will take a measured approach that will set us up for long-term success in Canada.

Our commitment to constantly improving the way we source and cook our food, the way we design and build our restaurants and the way we identify and develop our highest performing people, which Monty is going to talk more about, makes Chipotle a very different kind of restaurant company.

We understand the magnitude of the challenge we face.

But we also believe that we are the right company with the right people and this is the right time to be working on this very lofty goal.

So now I'll turn it over to Monty.

Thanks, Steve.

You know we're well on our way to building a culture that appeals only to the highest performing people.

We believe that building this culture will allow us to continuously develop strong future leaders for our Company.

We also believe that having such a culture and having the right people in the right roles is the best way for us to deliver consistently strong restaurant operations and solid financial performance.

At the time of our IPO, just about two years ago, our average unit volume was $1.4 million.

Today that's increased to over $1.76 million.

This dramatic increase has come without adding anything to our menu and is result of increased customer awareness and constantly improved restaurant operations.

And our improved operations are the result of having better managers and crews in our restaurants.

One great example of this is California.

Only six years ago we have 33 restaurants, with average restaurant volumes under $600,000 per year out in California.

The team we had in place at that time did not have much experience running Chipotle restaurants and what they essentially did was try to run the restaurants lean in order to try to drive some profit even at these low volumes.

When we changed the regional operations team in California, the new team introduced a very different approach, an approach that's much more consistent with our culture.

They began to staff the restaurant the same way they would in a higher volume market.

They put the right people in the right positions and brought a renewed commitment to training and developing people.

They began promoting managers from (inaudible) to create new opportunities for their best performance.

Because of these changes, quality of their operations improved and the experience that they were providing to our customers rose to among the best in the country.

The result of those changes has been incredible.

Our restaurants in California have gone from being our poorest performers to being the highest volume restaurants in the country in a span of only six years.

The average unit volume, under $600,000 just six years ago, has more than tripled to $2.0 million today.

We've spent much of the last quarter traveling and visiting restaurants in a number of markets and what we're seeing around the country is very encouraging.

We're seeing markets where our financial performance and our restaurant operations are strong, highlighting the fact that we do have the right people in place, empowered to do their jobs.

We're also seeing markets where we have made considerable improvement to our operations just over the last year or so and a corresponding improvement in those markets to our financial performance.

And we're seeing markets where our financial performance is below average as well, but in those markets we're seeing the greatest opportunities to build better teams and run better operations.

This is encouraging to us because we know that the issues there are things that we can fix and that our attention to fixing them will strengthen our overall performance.

We were recently in Texas for a meeting with all of our managers from around the State.

Just three years ago our restaurants in Texas were averaging just over $1.0 million, with operations that were not up to par.

Seeing that, we brought a renewed focus to what we were doing in our restaurants in Texas.

We made major changes to our operations teams there and put the right leadership in place.

And we returned to stressing all of the operational details that make a great restaurant experience at Chipotle, ensuring that our food is always prepared to our high standards, emphasizing excellent customer service and building relationships with our customers and making sure that our restaurants are always clean and inviting.

The result there has been a sharp improvement in financial performance, which now average better than $1.5 million per year.

In fact, with our current volumes and comparable restaurant sales increases, most of Texas is only a little more than a year away from reaching our national average unit volume.

So we continue to believe that the most powerful way to create value for our employees, customers and shareholders is to continue to focus on and improve what we already do well and build a culture that identifies and empowers our highest performance.

In nearly every case, the markets where we see the greatest development of people are the markets with the best performance.

Before I turn the call over to Jack, I'd like to give you a brief update on where we are and what we're seeing with throughput.

While the first quarter is generally not one where we usually see significant improvements with throughput, we're encouraged that we continue to hold on to gains we made last year as we head into our busiest season where throughput is most important to great customer service.

We just began to test handheld POS devices in 50 of our highest-volume restaurants.

And we'll be watching closely to see what kind of impact we can have with those once our crews have been trained to use them and we have an opportunity to test the units during high volume seasons.

In some of our busiest lunch restaurants we have seen that we're able to increase throughput with this new POS.

And we're also excited in that the handheld allows us to create a better customer experience by allowing us to communicate with our customers while they're in line.

Finally, I'd like to recognize two newly appointed regional directors, Phil Petrelli and Michelle Small, who will begin in their new roles on May 1st.

Phil and Michelle have played instrumental roles in two of our best-performing regions, the Northeast and the Pacific.

They have consistently shown the ability to develop people and ensure that our restaurants are delivering an outstanding customer experience.

By promoting them to the regional director position, we are recognizing their talents and contributions and expect that their influence will have even more impact on our business.

There is not doubt that the current economic environment has been challenging for restaurant companies, including Chipotle.

But our ability to produce such strong results in a difficult operating environment is the product of our focus on doing just a few things better than anyone else.

I will now turn the call over to Jack.

Thanks, Monty.

The first quarter of 2008 was a strong one for us, driven by the significant effort of our restaurant managers and crew to provide an extraordinary experience to every customer who visits Chipotle.

We're especially proud that we were able to achieve these results in such a difficult operating environment.

Our restaurant economic model continues to strengthen, with average topline sales now reaching $1,767,000 for the over 600 restaurants that have been open for at least 12 months and (inaudible - microphone inaccessible) restaurant margins.

Our margins expanded 50 BPs, even though we lost 80 BPs in food costs due to increasing commodities.

Our strong restaurant-level economics continue to be an important differentiator for Chipotle.

Efficiencies we create from having a focused menu and economies of scale we're able to achieve from higher restaurant sales allow us to invest in the premium ingredients that Steve talked about, which results in better-tasting and more wholesome food.

And serving better-tasting food helps us build greater loyalty with our customers, giving them reasons to share their Chipotle experiences with their family and friends.

During the first quarter of 2008, we increased revenue by 29.3% over the first quarter of last year from $236.1 million last year to $305.3 million in the first quarter of 2008.

This increase was driven by new restaurants, along with a 10.2% increase in comparable restaurant sales during the quarter.

The increase in restaurant comps came mostly from an increase in customer visits, with about 3.5% of the comps coming from menu pricing mostly associated with the rollout of naturally raised meat.

Now most of this 3.5% increase is related to menu price increases from last year, while a much smaller piece is incremental to this year and that's as the result of increasing prices in Minneapolis when we rolled out natural beef early in the first quarter.

We expect the menu pricing benefit to continue in this same range for the rest of this year.

Our first quarter comps also appeared to have benefited from comparing to a relatively lower comp last year, when more harsh winter weather effected many of our larger markets in the winter of 2007.

We don't expect our comps to hold at this level, as the comparisons become more challenging and based on actual trends we have seen so far in April.

However, we're increasing our comp guidance for the full year to the mid-single-digit range, up from our previous guidance of low-to-mid single-digits.

Food, beverage, and packaging costs were 32.4% in the first quarter of '08.

That's up from 31.6% in the first quarter of '07.

This increase from last year is due primarily to the higher cost of cheese, avocados, chicken and steak.

Our food costs were 50 BPs higher than the fourth quarter and that's as a result of higher cheese and tortilla and the tortilla costs are higher due to rising wheat costs and that's in line with our forecast during the fourth quarter earnings call.

Like all consumers and food retailers, we continue to see significantly higher food costs for most of our raw ingredients, which we expect to continue through the rest of 2008 and into 2009.

While we recently locked in our costs for cheese and tortillas for the year, we are anticipating additional pressure from other commodities, including avocados, rice, corn and our meats.

Labor costs were 26.7% of revenue in the first quarter of '08 and that compares to 27.7% last year.

This improvement was due to higher average sales, our national labor matrix, along with some benefit coming from the lower insurance costs associated with our switch to self insurance.

As we have now fully wrapped the implementation of our national labor-scheduling matrix, we expect to see little to no labor leverage as we move through the rest of the year.

Our G&A was $21.6 million for the quarter, or 7.1% of revenue, compared with $17 million in the first quarter of '07 or 7.2% of revenue.

This 10-BP improvement is primarily due to the effect of economies of scale from higher restaurant sales.

Our G&A for the full year will include an estimated $16 million in total non-cash stock-based compensation or about double the non-cash expense from last year.

Most of the additional $8.0 million in non-cash stock-based expense will hit in the third and fourth quarters of this year, while only about $300,000 incremental hit the first quarter and only about $1.2 million incremental is expected to hit the second quarter.

The non-cash stock-based expenses are back loaded, as the officer grants will not become effective until after the shareholder vote during our annual shareholder meeting in late May.

Excluding these incremental non-cash costs, we continue to expect to see slight G&A leverage for the full year.

Income from operations increased a very healthy 44% to $26.8 million for the first quarter, compared to $18.6 million in the first quarter of '07.

Interest income for the quarter was $1.3 million, down $147,000 or about 10% from last year and that's due to lower interest rates.

This decline would have been much greater, as our effective taxable equivalent yield on short-term investments declined from 5.5% to 3.8%, which is a drop of over 30%.

However, we shifted our investment mix from mostly tax-exempt securities last year to mostly taxable securities this year, as the interest rate benefit net of tax of the tax-exempt securities largely disappeared and that made it more economical to invest in the taxable securities.

Our thoughtful investment policy has worked well for us, inspecting our cash while avoiding issues related to the subprime mortgage situation that some other companies have faced.

The effective tax rate for the quarter was 38.4%, compared to 38% in the first quarter of '07.

This increase is due to the shift I just mentioned from tax-exempt to taxable securities, which negatively impacted us by about 110 BPs in the effective tax rate.

This was partially offset by a decline in our statutory state tax rate of about 60 BPs, as a result of a business restructuring initiative.

For the full year, we expect our tax rate to remain in this range, but it is sensitive to the overall interest rates as well as described between the tax-exempt securities and the taxable securities.

Net income for the first quarter grew 39% from last year to $17.3 million or $0.52 per diluted share and that compares with $12.4 million or $0.38 per diluted share in the first quarter of '07.

On the development front, we continue to benefit from a strong real estate pipeline, opening 28 new restaurants during the quarter.

All of these were in existing markets and that brings our total number of restaurants to 730 at March 31, 2008.

We continue to expect to open between 130 and 140 new restaurants this year, with the openings for the rest of this year expected to be reasonably level-loaded throughout the remaining three quarters.

We've historically discussed our new restaurant volumes as a percentage typically in that mid-80% range of our existing restaurant average unit volumes.

The existing restaurant volumes we referenced have grown dramatically over the last two-and-a-half years, since we first filed for IPO, from $1.4 million to the $1,767,000 we have today.

Our most recent restaurants are now opening at an average annual volume of about $1,350,000 to $1.4 million.

Now this is up significantly from 85% of the $1.4 million we were averaging just a few years ago, but it is less than the 85% of our current average volumes.

Our strong performing markets continue to experience strong openings and have not declined at all and that's where most of our new restaurants are opening.

New openings in new markets have not declined either, but we have opened in many new markets over the past two years and so the mix of our openings is shifting slightly away from existing markets and towards these new markets.

While our newer markets don't enjoy the high existing average volumes, these newer markets typically comp well above our Company average comps.

In fact, new restaurants in general comp at a higher rate than the Company average.

So a typical new restaurant, which opens at $1,350,000 with average new restaurant comps will become a $1.7 million restaurant by year three, which at our current margin and our current new store, new restaurant investment would result in a better than 40% cash on cash return.

So with these returned levels, we intend to continue to open as many restaurants in our strongest performing markets as we can find great sites and in our new and developing markets we'll continue to seed, develop and grow our brand.

We know that these newer markets with their strong comp trends will be strong performing growth markets in the very near future.

Lastly, though our industry faces significant challenges in the near-term, over the long-term we remain confident we can grow diluted EPS at an average annual rate of at least 25%.

Thanks for your time today.

Now we'd be happy to open the lines for questions.

Thank you.

(OPERATOR INSTRUCTIONS) We'll go first to John Glass with Morgan Stanley.

Hi.

Thanks very much.

Two questions, Jack, first just on the commodity outlook.

Could you maybe be a little more specific in terms of food costs for the back half of the year for the next three quarters?

Is the rate of increase going to be similar to what you saw this quarter or does it get worse sequentially?

You know, John, it's hard to tell.

At the last call we talked about two things that we knew at that time and that was tortilla and cheese costs.

We've been able to lock those in.

We thought that would be about 50 BPs and it was in that ballpark.

We know there's going to be pressure.

We don't know exactly what that pressure is.

I would say the best guess, right now, John, is that with some of the incremental menu price increases that we think we'll take in the second quarter, mostly associated with the rollout of natural meats, and with some of the pressure we've seen, we would expect our food costs to probably remain in about this range.

We did 32.4% for the first quarter, probably would remain in that kind of a range.

Now, the fourth quarter might spike up a bit because we do have a couple commodities like we have rice, we have soy oil and we have corn for our corn salsas, which we have prices locked until the end of the third quarter.

There does appear to be pressure on all three of those items and so it's possible the fourth quarter could spike up a bit, but we can give you additional information as the quarters unfold.

Yes and on your commentary on the new markets and the new volumes and were the $1.3 to $1.4 millions you're experiencing, was that in all new markets or what is the volumes of new restaurants in new markets coming in at?

Well, they're lower, John, and the range that I gave was $1,350,000 to $1.4 million, not $1.3 million to $1.4 million.

And what I can tell you is that our existing markets, which most of our new openings are in existing markets, is much higher than that, okay, and it's higher than the 85% that we've seen in the past and our new markets are lower.

They're meaningfully lower than that.

They open typically over $1.0 million, but not much over $1.0 million, okay.

And you've heard us talk about it when we open up a new market.

We do it very thoughtfully.

We'll open up a handful, maybe three, four, five restaurants within a 12 to 18 month period.

We'll see how that market opens.

We'll see how our teams build.

We'll see how customers respond to the building of our brand and then, based on how well we're doing, we'll either ramp up if we start out hot.

Or if it starts out a little slow, which a lot of our new markets do, we'll just be very thoughtful, open up a restaurant or two or so per year.

So we're very thoughtful about how we open in those new markets.

And just to finish that thought, you're not seeing a shift in the number of new stores and new markets relative to new stores in mature markets, right?

That's been relatively stable or even more biased to the existing markets?

Well, no.

We've seen a shift where -- we're opening more absolute restaurants in our existing markets, our best-performing markets.

But as we've expanded the number of restaurants we've open there has been a mix shift where we're opening proportionately more in the new markets.

And I would say -- the way I'd say it, John, is it was about three and four or So, still, the majority of our restaurants are opening up in our strongest-performing markets, but we've also been able to seed a lot of these new markets.

more about a year-and-a-half ago were in existing markets and now it's more like two and three.

And by the way, the new markets, when they open up at this over $1.0 million and when they're comping well above the Company average.

In typically our new markets, we see comping in kind of the 15 to 20% range.

It doesn't take long for these new markets to get up in that $1.5 million range where they're within striking distance of our current average.

Great.

Thank you.

Thanks, John.

Paul Westra, Cowen and Co.

Hey, good afternoon, everyone.

Hi Paul.

Hey.

Just a couple of follow-up questions, I guess.

One is, I guess, philosophically, again, as you manage against your margin for this year with the headwinds you articulated, I think last quarter you said a 3.0% price increase would kind of hold margins.

It sounds like you're running 3.5% now and make take some more as you rollout some more all natural products.

What would you -- is that changed?

I mean, are you still guiding or I should say gearing or your goal is to keep margins flat despite the headwinds and is 3.5% going get you there?

Well, I would say it's gotten tougher, Paul, because I think the 3.5% is about what we expected and I would say that you should think about that 3.5% as about 2.0% of that or so is a carry-over from last year.

And about 1.5% of that roughly is incremental; menu price increases that we're going to take this year.

Now the 1.5% on the last call, we thought, well gee, that ought to cover us and hold our gross profit based on about a 50-BP hit from cheese and higher tortilla costs.

Now that we're seeing more pressure from things like, later in the year, like the rice and the soy oil and actually near-term we've already seen a slight rise in avocados.

It's going to be tougher for sure to hold onto our gross profit.

And keep in mind, when I say hold onto our gross profit, we had food costs in the fourth quarter of last year of $31.9 million and we were talking, at that time, that if commodities didn't get worse we were hopeful that we could hold onto the $31.9 million.

We just delivered a $32.4 million and now I'm thinking we'll probably be more in that range.

So it is 40 or 50 BPs more pressure, I would say.

And at this point, you're not looking to take another 20 or 30 price set, whatever would offset that, to the store level?

Well, we're going to take -- as we've done, Paul, we're planning on taking menu price increases in a number of our markets in the second quarter.

We're going to get to 100% naturally raised chicken in the second quarter, so we're going to have a lot of markets where we'll take price increases.

We don't have any other price increases that are planned for the rest of the year.

I think what we'll do is let this unfold.

We're not going to be too hasty about this.

We'll watch what happens to commodities.

We'll watch our commodities.

Is it more cyclical where they're up and down?

Is it where it's going up and staying up?

And we'll consider whether we have to do additional increases near the end of the year.

Right now we just don't have anything planned.

Great and then clarity on your G&A comment.

We know you were backend loaded for that $8.0 million extra of stock comp, but mentioned your leverage goals.

Can you -- do you expect them including the $8.0 million?

With the extra stock comp would you expect leverage in the G&A lines?

Yes.

I would say, Paul, our G&A guidance that we talked about last quarter didn't really change.

We still think we'll see G&A kind of in that low 7.0% range, which is a little bit of negative leverage, but it's driven by the extra $8.0 million.

And we continue to expect that, if you exclude that incremental $8.0 million of non-cash charge that we expect to get hit with, we do expect to see some G&A leverage underneath that.

But when you throw that in, we expect our G&A to be in kind of that low 7.0% range, so that's really pretty much the same as what we thought last quarter.

And then lastly, if I may, just comment?

You mentioned April's trends as part of your -- incorporated into your guidance for comps.

Obviously you had some Easter shift stuff.

Would you say things have materially changed, underlying on day-to-day basis ex the Easter shift?

Well, you're right, Paul.

There was Easter shift and weather and things like that.

What became apparent to us is when we moved away from the first quarter and now comparing to the second quarter, the first quarter last year was an 8.3% comp.

The second quarter of last year was an 11.6% comp and it's looking like a lot of that was weather-driven.

So it's looking like, as we're going up against our dollars, our dollars, sales trends are not eroding at all.

So those are still very, very healthy.

But the tougher compare makes us believe that, gee, part of this 10% comp that we got in the first quarter is because of the easier compare to the 8.3% and it looks now -- looks like that was probably driven by harsh weather in some of our biggest markets.

So I don't want you to think that the trends are declining.

It's just a tougher compare.

Got it.

Okay, thanks a lot, guys.

Okay, thanks, Paul.

Nicole Miller, Piper Jaffray.

Good afternoon.

Hi Nicole.

I just want to confirm of the 10.2% comp for the whole quarter, was it 3.5% price in the entire quarter?

Yes.

Okay and I calculated the Minneapolis market like more than that 3.5%.

Is that right, calculated slightly more than that?

Yes, Nicole the way to think about it is up to 3.5%, most of that, about 3.0% or 3.1% was carry-over from last year.

Okay?

About four-tenths, 40 BPs or 50 BPs is incremental and that all due to Minneapolis.

And so, yes, whatever you calculated, we a kind of a mid-single-digit kind of increase, kind of a 5.0 to 7.0% in Minneapolis.

When you weight that impact across the whole Company and then across the quarter, it's about a 40 or 50 BP impact.

Oh, okay, from just Minneapolis.

But the 2.5% broke out 2.0% carry-over and 1.5% incremental in total?

No, no.

For the year it's about 2.0% from last year and about 1.5% incremental.

What we expect for the quarter is about 3.0 or 3.1% carryover from last year and about 40 BPs or so of incremental due to Minneapolis.

Okay.

Thank you.

Okay.

And then was the New York -- I'm sorry, the New Year's Eve and the Easter shift positive or negative and by how much?

Well, we ended up with the same number of days in the first quarter, because we picked up leap days, lost a day because of Easter.

We did pick up a slight trading day benefit because we picked up a Friday on the leap day and we lost a Sunday and Friday is our busiest day and Sunday is our least busy day.

So there's a slight benefit there, Nicole, but over a 90-something day quarter I wouldn't say it's overly material.

Okay and when you talk about your average unit volume growth, approximately 85% and then it goes to 100%, I think that's over like a one-to-two-year period?

Right.

And is that linear?

No, no.

Usually the first year of comp is higher and the first year of comp for all stores, existing markets, new markets, is kind of in that mid-teen or has been in that kind of mid-teens of late.

So you get maybe a mid-teens as kind of comp year one and then you get a low double-digit kind of comp year two.

So you can see that that's kind of my example.

You start out at $1,350,000.

You get a kind of mid-teens and then you get a low double-digit and you're at $1.7 million and you're doing a 40% cash-on-cash return.

Okay and you had also mentioned some outperforming markets.

I know there was a $2.5 million market doing that in average.

Can you tell us what region that's in?

There's a market.

Generally our highest volume markets, individual markets are in the Northeast.

Okay and if you can just think back the tax rebate in 2001, 2003?

Did that benefit your business and how so?

2001 and 2003, a tax rebate.

We're getting no benefit today, Nicole, on either our tax expense or our cash base.

Oh, I'm sorry, I'm sorry.

The tax rebates that the checks are being mailed out to consumers, just in May for --.

Oh, yes, I'm sorry.

I'm sorry, to clarify.

Got it.

I don't know, Nicole.

We've been fortunate that we haven't seen really any kind of decline in our business while the economy has worsened.

And we think that's because we have great customer loyalty.

We think we're affordable.

We think we offer a different experience, a better experience with the very high premium ingredients where the food is real food - it's cooked before our customer - and it's affordable.

So we've been fortunate we haven't seen a decline.

So I wouldn't be able to even guess whether those rebates are going to help us or not.

Let's hope it does.

Thanks much.

Congrats on another great quarter.

Thanks, Nicole.

Thanks, Nicole.

We'll go next to Jeff Farmer with Jefferies and Company.

Great.

Thank you.

Following up on Monty's comments, what percent of the unit base do you consider underperforming today and what was that number two to three years ago?

So I guess essentially what I'm trying to get to is how many additional California type market opportunities are out there for you guys?

Yes, yes.

I mean, it's a good question.

Really, we don't look at any markets as being California type markets, just because we don't have any that are low performing anywhere near the level that those--that California was performing.

And so, like Jack said, even our newer markets are opening up at 1 million or better averaging the volume in their first year.

So it's been kind of good news across the board in that we don't have any reason, like California used to be and like Texas used to be.

That being said, in the markets where we are, the lower performing markets, those markets are enjoying higher comps than the national average, kind of like my story about Texas, and so they continue to come around.

The newer markets, which have the lower volumes than our average, again, are having better comps than are--than the higher performing markets, kind of in that 15 to 20% range that Jack mentioned.

Okay.

And then, now that you're lapping benefits from the labor scheduling matrix and the shift to self-insurance, are there any other comparable opportunities out there on the horizon?

Obviously, probably not of the same magnitude, but is there anything else you guys see that you could potentially do to--?

--Jeff, I wish there was.

There's just not.

Really, the single biggest thing we can do is continue to develop our best people.

We know that our top performing managers, they do everything well.

They develop people well.

They run great restaurants.

They serve great food.

And they have the best financial performance, both in terms of comps and in terms of running the business.

And so, that is--and that's a lot of blocking and tackling and it's something we've got a lot of momentum behind.

But there's no silver bullet--there's nothing--no rabbits out of our hat that we can pull out and get some kind of an impact that we saw with the national labor matrix.

And I wish there were.

Got it.

And then, final question for me.

Assuming the reports that you took a 10% price increase in the New York City market are correct, is that the typical size increase you take?

And if so, do you test price increases of that magnitude?

And what type of pushback have you seen?

Yes.

Jeff, it's not typical.

I mean, we have had some markets, but let me tell you about New York.

We haven't had a price increase in New York in about three years.

Our real estate cost, our occupancy cost has about doubled since we entered the market about four years ago.

And so, we haven't come close to keeping up with the cost of living in New York.

We opened up the New York market with all natural meats, so we haven't had a food integrity rollout.

And frankly, we thought we were just too darn cheap.

We're offering these very high quality ingredients in New York.

And a lot of you spend time in New York.

And our food was just too darn cheap and we had to do something.

And we thought about 10% was about the right magnitude.

And so far, we've seen no resistance on that whatsoever.

All right.

Thank you, guys.

Thanks, Jeff.

Thanks, Jeff.

We'll go next to Steven Rees, J.P.

Morgan.

Hi.

Thanks.

I just wanted to ask about the composition of your longer term earnings growth target of 25%.

With the store base approaching I guess 840 units by year-end.

I mean, how are you thinking about longer term unit expansion?

Is that something that we should expect to remain relatively constant on an absolute unit basis with more earnings growth coming from perhaps margin expansion and cash flow, or are you sort of comfortable maintaining that 18 to 20% square footage target on a much larger base?

Yes.

Steve, we've never thought of our growth as being a percentage of the existing restaurants.

We've always focused on how we're doing in a market.

And so, we look at how are we doing from a people standpoint and do we have enough great managers to run the restaurant that we want to open.

And if it's in a market that's doing well financially where the customers are--they're coming to Chipotle and the volumes are good and the margins are good, we want to open up a lot of restaurants in those markets.

So we really look at it from every existing strong performing market - strong from a people standpoint, strong from an operations standpoint, and strong financially.

We want to get as many quality sites as we can in those markets and that's been our strategy for years now.

Other markets that we're entering or have entered recently and haven't really risen to that same kind of level I just described, we're planting seeds.

We're introducing the brand.

We're building the team.

And we do that--we'll do that over whatever period it takes until those markets become just top performing in terms of people, in terms of operations, in terms of financials.

And so, that's what guides us in terms of how many restaurants we have opened in the past and how many we will open in the future.

We just wanted to hit a growth rate.

We could add--we had a capacity to find and build restaurants at a much greater rate than we are today, but this is exactly the right rate based on the way our people are developing, based on the way that our restaurants are running, and based on financial performance.

So as those three variables change, you'll see our restaurant growth percentage maybe dial up or dial down, if you will.

But it's not based on a locked in percentage.

In terms of how we think we'll grow in that 25%, certainly new restaurants is a big part of that.

We do think we do have--over time we do have some G&A leverage.

This year it's tough because of the stock option expense that I mentioned.

And we'd like to think that there's some relief on the restaurant level margin as well.

We've been able to see margin leverage even with these very difficult commodity costs.

And we're hoping that that will level off [returns], so we can continue to get restaurant level margin as well.

But these are tough times.

Okay.

Thanks.

And then, just I guess on your local marketing efforts to raise awareness of the--naturally raised aspects of the brand.

It seems like I've seen a few magazine ads here in the New York market.

Is that something you're doing in other markets and sort of how are you thinking about that?

Well, we're still taking a very similar approach to our marketing, and the approach is to increase the awareness of our customers about the quality of our ingredients, the quality of the food.

In terms of market by market, we're taking a more strategic approach and trying to go to those markets where we're rolling out naturally raised ingredients.

New York does have 100% naturally raised ingredients, and so the marketing there will likely be geared towards that.

But more and more of our markets are getting to that 100% level where we can boast about our naturally raised ingredients, which is a nice thing to be able to do.

Okay.

Thank you very much.

Thanks, Steve.

We'll go next to Jeff Omohundro with Wachovia.

Thanks.

Just wondering if you could touch on how you're managing sourcing natural product volumes sufficient to match the company growth--the organic company growth as well as the expansions of the Food with Integrity program.

And perhaps touch on what you're doing in the area of local product sourcing.

Yes, Jeff.

In terms of the naturally raised ingredients, it's kind of the same as it has been.

With regard to chicken, we've been very successful over the last--really the last couple of years in finding more and more suppliers, either small suppliers who we can bring online once we find out that they're raising chickens according to our protocol, and also working with some of the larger suppliers to improve the way they raise their chickens, such that they can become--continue to be suppliers of naturally raised chicken.

So, as Steve said during his comments, we feel that we're only a couple of months away from having 100% naturally raised chicken in all of our restaurants.

So that supply is looking very, very good.

We do have plenty of--a plenty adequate supply of pork, such that we're going to be able to continue to have all of our restaurants carry 100% naturally raised pork.

And so, that looks very good for the future.

Beef is the trickiest one.

Right now, we've got about 54% of our beef is naturally raised.

And what we're doing in order--and basically there just isn't enough beef out there.

There's a lot of competition for that beef.

And the grow-out on beef is also much longer.

Chicken takes basically a couple months to turnaround and beef takes a couple of years.

So we would hope to see more and more growers get into the business of raising naturally raised cattle, but unfortunately that's not keeping the pace with the demand at this time.

Finally, we are doing some work to look at different cuts of meat to see if we can increase the amount of our carcass utilization, which is one way we'll be able to increase the amount of beef that we have in our naturally raised supply.

But to do that a lot of times it becomes a cost issue because some of the cuts we're moving into now are even more expensive.

And so, we're looking at bringing on some of those.

But we've got to balance that with maintaining the accessibility of the food to our customers, which is one of the core parts of our belief is to bring this new way of eating to a broad group of people and not make it an elitist thing, as it would be if we decided to increase our carcass utilization to cuts that were exorbitantly expensive in order to increase the amount of barbacoa and steak in our restaurants.

So we're very pleased with the continued progress in having more of these ingredients, but beef is still the struggle.

And we're going to be I think expanding the amount of beef over the next couple of years, but it's not happening as fast as chicken, unfortunately.

Thanks.

And also, I was wondering if you could maybe just touch on this Ohio situation and how you're responding to it.

Thanks.

Yes.

Well, in the--the incident in Ohio you're talking about was isolated to one restaurant.

It was our Kent, Ohio restaurant there at the University.

Health Department officials told us that the illness was caused by a norovirus.

It took them a little while to sort of figure that out, but we suspected that quite quickly.

This norovirus is something that was not anything in our food, not anything in our equipment, not anything in our food supply.

Norovirus is often called the 24-hour flu--you've heard it called.

And basically, we learned that next to the common cold, this is actually the most common cause of illness in the United States.

And it spreads like the common cold as well.

It's not something that originates in food.

So when the situation was brought to our attention, we took a number of voluntary steps to ensure the well being of our customers and employees.

Obviously, food safety is always our number one priority.

And in fact, we even temporarily closed the restaurant and completely sanitized it on a voluntary basis, and reopened the next morning with a completely new crew.

We actually allowed the crew who was there, even though they--even the folks who didn't have any issues, just we put them out of the restaurant for a week to make sure that they were healthy, put in a whole brand new crew.

And we have not had any reports of illness occurring among any people who ate there after the time that we reopened in Ohio.

Great.

Thanks.

You bet.

We'll go next to Bryan Elliott with Raymond James.

Good evening.

Jack, just a couple of clarifications to make sure I heard things correctly and a couple of questions.

On the stock options, you said the first quarter here we're up year-over-year about 300K from last year's non-cash stock expense.

Is that correct?

Yes.

And then, next quarter you expect 1.2, and then the balance of the 8 million will be spread evenly Q3, Q4?

Yes.

Not perfectly evenly, but yes, Bryan, pretty--reasonably evenly through Q3, Q4.

That's right.

Okay.

On the labor, you mentioned we're lapping the matrix and the self insurance, et cetera, and you expect no leverage going forward.

Was that--did I hear that right?

Little or none.

And let me give you some background on that.

I mean, we just saw 100 basis points of leverage in the first quarter.

If you look for last year, we only got 60 basis points of labor leverage in the first quarter of last year.

We're now moving against the second and the third quarter where we got 190 basis points of leverage in Q2 last year, 190 in Q3 last year.

Our restaurant teams just absolutely hit it out of the park, and they hit it out of the park not only with efficient labor, but remember, we took our throughput to a new level.

We feel like our operations moved to a new level.

And so, yes, I expect little or no leverage on the labor line as we move into the next few quarters, Bryan.

And so, as I think about that, that implies sort of per store labor cost growth similar to your comp growth, which mid-single-digits you're--are we adding--we're not adding people, are we?

We're just--does that--?

--Well, you are, Bryan, because it's--most of our comps are typically driven by additional transactions labor is a semi-variable line.

And so, you have to add some labor hours when you increase your transactions.

And we do have a pretty--what we think is a pretty normal wage rate inflation, kind of in that 3 to 4% range, so call it 3.5%.

So, yes, you do need a mid-single-digit kind of comp just to kind of hold your own to cover the wage inflation and to support the extra hours as you add additional transactions.

Okay.

All right.

Fair enough.

The--was there any advertising shift of magnitude year-over-year as far as how much you accrued?

Yes and no.

The answer is we did spend a little more on our marketing in the first quarter than normal--our average.

We spent about 1.75% .

We spent about 2.2% in the first quarter, so we did spend more.

But we reduced our promo by just about the same amount, so those two pretty much offset, Bryan.

So between promo and our marketing, we had a pretty normal

Okay.

And you'd expect strategically to continue at the historic rate--the combination of those two?

There's nothing to tell us that we should do it differently.

We are about to meet with our new ad agency in New York within the next week or so.

And so, we've--certainly, our strategy is subject to change based on our meetings with them.

And--but as of right now, we don't see any changes to that.

Okay.

And last question - pre-opening per store looked a little high.

Is that just a timing issue or has there been some inflation in that?

No.

You know what, Bryan?

That is--the average is about 101,000 per store and we're typically kind of in that 75,000 to 80,000 range.

The extra amount that you're seeing is all due to [pre-opening] rent.

Almost none of it is paid, so it's this straight line rent calculation that I know you are all familiar with, where we have to do a calculation even though we're not paying rent.

And then, we take that charge to our P&L.

And it's really just more a function of our pipeline, because we take that charge whether a store is open or not.

And so, the pipeline that we're building to open up restaurants in the second quarter is being charged as well.

So there's a little bit of a crossover.

And so, overall for the year I would expect to be more in kind of the 75,000 to 80,000 range for the full year.

Okay, great.

Thanks a lot.

Thanks, Bryan.

We'll go next to Jeffrey Bernstein with Lehman Brothers.

Great.

Thanks very much.

First, just on the comp for the quarter, obviously, extremely impressive considering the economic weakness that you mentioned as well as your competitors.

Just wondering if you can look--just looking in the detail whether you're seeing any signs of slowing in any particular market or region, or perhaps any mix shift or trade down within people's orders or perhaps a range of comps that you're seeing across the country.

Just something to get a little bit more color in terms of how you might be impacted by the economy.

Yes.

Jeff, the only thing that we've seen--and this is not different than what we said on the last quarter call--is we did see a little softening in two markets, and that's the Arizona market and the Vegas market.

And it happened at a similar time that other restaurant companies said that those economies were starting to take a hit and their sales slow.

Both of those markets have positive comp sales.

Both of those markets have at or above average volume, so they're both great markets for us.

But we did see a slowdown from the beginning of the year.

We're not seeing any other markets--and I'll mention the ones that others have talked about - Florida and California - are two strong performing markets.

And so, we think it gets back to that we have very loyal customers.

They appreciate what we do.

And we've been reasonably affordable.

We've been very cautious not to push the menu prices too hard, even though we're bringing better ingredients to our customers and we think that customer loyalty is paying off.

And is there any evidence--I mean, maybe the traffic is still there, but do you get any signs of mix shift, or how do you look at mix shift to see if people are perhaps ordering less per visitor?

Nothing meaningful.

Nothing?

No, nothing meaningful and nothing that tells us that there's a trend because of the economy or spending power or anything like that.

Nothing really meaningful.

Okay.

And then, in terms of--Monty, I think you mentioned throughput initiatives in the hand-held--I think you said were in 50 stores.

Is that right?

Yes, the handheld is now in 50 restaurants.

It's just very, very recently in most--in many of those 50.

And so, we're still sort of in the training phases of that.

Okay.

But in terms of the benefit you're seeing and you said some benefits during lunch, have you been able to quantify what type of benefits you're getting, or maybe a potential for rollout timing if you do see success in those markets?

Yes.

Let me put it this way.

Basically, it's too early to tell what the benefit is and that's because, frankly, we've had some technological glitches trying--with getting the handheld set up in a number of stores and there's also been a little bit more of a lag time in getting employees trained to use it.

It's very important to have a very skilled employee who is a good communicator to go out into the line and use this machine in order to make it a great addition to customer--to the customer experience.

And so, that's taken a little longer than we thought.

And also, like I say, a lot of these 50 have just recently reached restaurants.

But in a few of our restaurants we've had the handheld in place for a longer time and they've really sort of mastered it.

And in the restaurants where they've mastered it, where they do have a very, very long line at lunch, we have seen that they've been able to sort of break out of their historical highs on throughput.

So we're seeing that it has caused a trend change in the speed of their throughput during their fastest 15-minute increments.

And so, that's been very encouraging to us.

So we do think that when it--when it's fully up and rolling.

And what I mean by that is very consistently working from a technological standpoint, which we think we have the bugs pretty well worked out now.

And also, when we get it so that everyone understands exactly how to use it and lately we've been sharing a lot of information around the country from people from the restaurants having the most luck using it to the ones who were less knowledgeable about how to use it.

So that's taking place now.

When that happens, we're very optimistic that we're going to see that it's going to help us as we move into this busier time of the year in the second and third quarter when we have much higher transactions, we think we're going to see an increase, again, just during our very peak time.

You really can't use the handheld device unless you have a fairly significant line, because otherwise what ends up happening is the person using the handheld device is interfering with the flow of the customers as they reach the tortilla station and begin ordering.

So you've got to be careful not to let it actually throw a monkey wrench in your operation.

But anyway, so we're very optimistic that it will end up having a positive effect on throughput.

But we're even more optimistic that the thing is just going to be good in general.

And what I mean by that is a lot of our customers are really appreciating just the fact that we're going out into the line, that we're talking to them, we're able to explain our food better, we're able to have interaction with them during a time when, frankly, they've got nothing else to do but sit in line.

And so, we're able to give them some enjoyment and some service during that time and socialize with them and learn from them.

And also, they appreciate that we're trying to make it a faster experience for them because a lot of them in these long lines are busy folks who would rather be--get down to the business of eating.

So that's been really great as a customer service improvement as well.

Okay.

And then, just lastly, one clarification.

I think last quarter you had mentioned you thought about a 50-basis-point lift or pressure on the food cost line.

I know this quarter it came in a little bit above that.

I just want to clarify.

So earlier you said it was--were you looking at 50 basis points from what the percentage was in the fourth quarter of '07 or were you looking at it on a year-over-year basis?

Yes.

No, that was from the fourth quarter because what I had said was we're at 31.9%--.

--Right--.

--In the fourth quarter.

And then, moving into the first quarter, the two things that we knew would cause about 50 basis points of pressure - cheese and tortilla costs - they did cause about that amount of pressure.

That's why you saw it's exactly 50 basis points higher.

And now that we--we realize that--we now can see there's other pressures throughout the year, we think kind of that 32.4 is probably about what we're going to stick at, even with menu price increases that we expect to take in the second quarter.

Okay.

Because I was under the impression--last quarter you guys had said, obviously, the Food and Integrity comes with incremental pricing.

But that you thought that this might be the first time where you'd actually take a little bit of system-wide pricing above and beyond that, but that's not currently in the plan.

No.

Never said that, never intended to do that.

We're going to increase--we just did increase in New York where they already had all natural meats.

We do in the second quarter expect to have a few markets where they do in fact, like New York, already have all natural meats and it's been a few years since we've taken a menu price increase.

So there are going to be a few markets in the second quarter we'll take some price increase.

But never said and never intended to take a system-wide kind of increase.

Okay.

But 3.5 is a reasonable number for this year in terms of your pricing expectations?

3.5 for the full year, and keep in mind, about 2% of that is carryover.

Only about 1.5% of that or so is incremental price increase that we expect to take this year.

Got it.

Thank you very much.

Okay.

Thank you.

We'll go next to Mitch Speiser with Buckingham Research.

Thanks very much.

A few unrelated questions.

First, on the Other operating line, I believe it was leveraged by about seven basis points.

As you look forward, I guess I figured that there might be a little bit more leverage on that line given it's primarily fixed and you had a very strong top line.

I was wondering if you can comment on that Other operating line, if you feel you can leverage that line more so going forward.

And then, a couple of other questions.

Thanks.

Yes.

Mitch, I would say it's more of a combination of fixed and variable.

And so, we have seen leverage in that line.

The major items in there is our promo and marketing, which we already talked about.

Utilities is in there, and bank fees are the biggest items in there.

And bank fees, we're getting negative leverage on that.

It just seems like people cannot hold back from using credit cards more and more and more every single year.

And so, we project our banking fees and the banking fees are higher this year than they were last year just because of the use of credit cards.

I do think that there is potential for leverage, but you get it kind of a tenth here and a tenth here, Mitch.

And in this case we just didn't happen to get it.

I think the potential is there, but it's made up of probably about 15 or 20 line items and sometimes you get the leverage, sometimes you don't.

Okay.

And just to clarify, in the first quarter I guess there was an extra day in the quarter.

Maybe it was worth about a point.

But then, there was like the Easter shift.

I was just wondering if you could maybe quantify that net benefit to the comps in the first quarter.

Yes.

We actually did not get an extra day in the first quarter, because we close on Easter.

We always do.

And so, we picked up the Leap Day, but we lost a day on Easter, because that was in March.

And so--but we didn't get an extra day.

But as I mentioned before, we did pick up a Friday and then gave up a Sunday, so there was a slight training day advantage.

But when you look at that over a full quarter, it's hard to put a very meaningful amount on that.

We will pick up an extra day in the second quarter.

Okay?

So we will pick up call it 1%-ish or so, but keep in mind the day that we pick up is a Sunday and it's our weakest day.

Great.

And just lastly, just on the interest income and the tax rate.

Is that kind of a wash how interest income is going up, yet the tax rate is going up due to the shift in the securities that you're buying?

That's absolutely right, Mitch, because our interest income only went down 10%.

It would have gone down more than 30% except that last year we invested in mostly--like about .75 of our investments last year was in tax exempt securities.

Well, the benefit of doing that really evaporated with this whole kind of prices.

And so, we're now investing--and during the first quarter we're investing in mostly taxable securities.

And so, it looks like our interest line held up pretty well.

Well, we had to give it up in the tax line.

And so, those two did completely offset.

I understand.

Thank you.

We'll go next to Rachel Rothman with Merrill Lynch.

Hey, guys.

Can you talk a little bit about--.

--Hi, Rachel--.

--Maybe what drove the comp beat versus your expectation, or what surprised you the most about the strength in the first quarter.

And in that context, are you looking at the remainder of the year--is the mid-single-digit comp guidance--is that based on conservatism or is there some headwinds that you guys are expecting that's going to lead to the deceleration of the two--year trends?

How should we--?

--Well, Rachel, the biggest thing I can tell you about the first quarter was as we looked at the quarter now that it's over and as we're looking into April we did benefit from the fact that we're comparing in the first quarter to an 8.3% comp.

And in retrospect, now that you can look at the trend, it looks like that was suppressed by harsh weather last year.

And so, when we now compare in the second quarter to an 11.6% and know how to compare it in the third quarter to a 12--I think 12.4 or 12-something comparison, just kind of that two-year trend is going to take you down from that 10.2% into kind of that mid-single-digit range.

Okay?

So in terms of surprise, listen, we don't claim to have a great crystal ball.

We have to earn our comp every single year.

We don't have promotions.

We don't have gimmicks.

We don't have games.

And so, it's really hard to predict as we start the new year what kind of comp we're going to deliver.

And so, we're just delighted that our restaurant teams--our restaurant managers and our crews have just done another great job in this first quarter of delivering this kind of a comp.

But just the pure math alone of the comparison of the 8.3 versus 11.6, and then the 12.4, is going to lead you to a lower comp for the rest of the year.

And is having a larger portion of your stores opening in new markets that are comping higher moving the overall blended comp up, or is it too small a percentage of stores to actually be moving the needle?

It's relatively small, Rachel, because you're talking about a roughly 20%--20% of our base is new stores.

And then, there's a mix shift within that 20%, okay?

So if there is a 10% mix, for example, you're talking about 10% of a 20%, you're talking 2%.

And so, that's not going to have a meaningful impact on the comp.

It helps, but not something that I would expect to see a meaningful change.

Okay.

And as we think about--just following up on the labor, the degree to which the labor costs are fixed versus variable, should we think about it as being 60% fixed, 40% variable, or how should we think about the step function as you continue to build transactions?

There is no perfect one formula like that, Rachel.

I mean, our labor matrix is a lot more sophisticated than that.

I think if you're just kind of looking at how much of it is fixed, how much of it is variable, it's probably roughly half, maybe 40 to 50% or so is variable.

So you're in the range when you're talking kind of a 40, 50, 60% is variable.

But then, you also have to build in inflation, okay, into that as well.

So would you say at the mid-single-digit comp, if we're not expecting any more margin improvement, that you wouldn't expect labor margin deterioration either?

So anything above that level would flow through to labor margin expansion?

Is that fair?

Yes.

Excluding the impact of rising commodities, we would expect that with kind of little or no labor leverage with a mid-single-digit kind of a comp.

And with the other line items we can hold our own.

So I would expect that--ignoring the impact of commodities, I would expect that we could hold our own on margins.

Okay, great.

Thank you so much.

Okay.

Thanks, Rachel.

We'll go next to David Tarantino with Robert W.

Baird.

Hi.

Good afternoon and congratulations on another great quarter.

Hi, David.

Thanks.

Monty, last year you talked about the throughput run rates reaching the prior year level earlier than you thought in 2006.

Is there a similar comparison that can be made this year?

I was just trying to figure out what I was talking about last year.

During--basically, during the first quarter, like I said during my prepared remarks, we pretty much held what we had last year.

Right now, in the sort of April-May-June, is when we should really see whether our additional training, whether the handheld POS, whether through our improved crews and managers can drive throughput to higher levels.

But we--I would say that there was a bigger difference--from 2006 to 2007 we did show some improvement even in the first quarter.

And now, we're not showing that improvement in the first quarter, which is sort of in line with our expectations when I talked--I guess it was during one of the last couple of calls about how even during the sort of off season times - first and fourth quarter - it's just--it's frankly much tougher to hold on to these much higher levels of throughput that we have.

And so, this time we didn't have the improvement that we had '07 over '06.

But--so we think that we still have the ability to continue to improve our throughput and hope to do that actually quite soon in these next--in these coming weeks as our volumes begin to build.

And just a follow-up to that.

Do you think you still have the type of demand that would allow you to show the throughput improvements?

And I'm talking specifically about long lines that cause people to balk?

Oh, well, I think there's really no question about that, David.

Yes.

In our highest volume stores--in these--take like, for instance, the top 20% of our stores, have significant lines at lunch, lines which our customers report sometimes being intimidated by.

And also, at dinnertime they have significant lines.

And our throughput at dinner is still much, much, much slower.

I mean, kind of on the order of half as fast as it is during our lunch hour.

So--and that's because of a lot of families, more children, multiple orders, and just perhaps a more patient customer I guess to some degree.

But--so we think that there are--there is room for improvement, not only at lunch, but also at dinner.

This handheld POS, a couple of our regional directors have told me that they think that the handheld has real potential to help us at dinnertime, because you do have the time to spend the time with the family, with children who might not be very decisive, to help them make up their mind and have the luxury of doing that without slowing down the main line.

Also, when the person is out in the line with this handheld device, one of the nice things that can take place is you've got a very--usually a very knowledgeable, skilled employee, usually someone at the hourly management level who's out in the line.

And they really know how Chipotle runs.

And so, when someone--when a group comes up and says--and has a six or seven or eight-burrito order, that person can very politely say, hey, you know what?

Let me take you over to the register.

Let's get this made on our second make line for you.

And they can literally pull that gang right out of the line, shorten the main line by eight people right away, and give a great custom--or a great personalized customer experience to the person--to the people with the large orders.

So there's a lot of ways that this can help us.

But that's a long answer to your very short question, which was do we have the lines where we can improve?

We do.

Okay.

Thank you.

Thanks, David.

We'll take our final question from Jason West, Deutsche Bank.

: Yes.

Thanks a lot, guys.

I was wondering--you mentioned the new store volumes and new market, so just over 1 million.

Has that changed over time or is that--I was wondering why you had highlighted that particular issue and has it come down recently or anything along those lines we're supposed to read into that?

Well, over a long period, Jason, that is up.

I mean, years ago, our new markets opened up really, really slow.

Nobody had any idea who Chipotle was.

And I would say over the last couple of years it's held kind of in that same kind of range, in that 1 million to 1.1 million kind of range.

And even though at Chipotle we think everybody knows about Chipotle, we still go into markets that we've been in for a long time and we find people--lots of people that have never visited Chipotle.

And so, when we enter these new markets that kind of volume has kind of been about in that same kind of range for the last year or two or so.

The great news about it is once we have our great people running great restaurants, serving great food, and people start to discover Chipotle, that's when the momentum grows and that's when you see pretty consistently these new market comps in that 15 to 20% range.

And it's not just a year of that; it's multiple years of that.

And then, you see these markets with a few years of comp like that turn into strong performing markets.

So--and I mainly--that is a lot more detail than we've normally given.

And I really just want to be transparent, so that you can see a little bit more of what we see.

And so--and not be too overly concerned about whether we're hitting 85% or not.

We're still very, very bullish on both our existing markets and both our new markets.

And so, that was the reason for giving a little more texture than normal.

Okay.

I appreciate that.

And just one quick one - the CapEx number for '08.

I don't remember if you gave it already, but just if you could update that it would be great.

Thanks.

Yes.

Jason, yes, we--we have not changed that.

So whatever guidance we gave in our 10-K last time--we're thinking it's in that 140 to 150 million range.

But I don't have it at my fingertips.

So if you wouldn't mind, just check the 10-K and if you can't find it, please give me a call offline.

Got it.

Thanks.

Thanks, Jason.

Thank you.

And I think that's our last call.

So thanks, everyone, for joining us today.

Ladies and gentlemen, this does conclude today's teleconference.

We appreciate your participation.

You may disconnect your phone lines at this time.