奇波雷墨西哥燒烤 (CMG) 2009 Q1 法說會逐字稿

Good afternoon, and welcome to the Chipotle first quarter 2009 earnings conference call.

All participants are in listen-only mode.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded.

I would now like to introduce Chipotle's Communications Director, Chris Arnold.

You may begin your conference.

Hello, everyone, and welcome to our call today.

By now you should have access to our earnings announcement, released this afternoon, for our first quarter 2009.

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 our restaurant comp sales trends, the number of restaurants we intend to open, the timing and amount of our planned share re-purchases and expectations regarding our new advertising campaign, as well as 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 2008, as updated in our subsequent 10-Q 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 second quarter it will begin June 1 and continue until our second quarter release in July.

On the call with us today are Steve Ells, our Founder, Chairman and Co-Chief Executive Officer, Monty Moran, Co-Chief Executive Officer and Jack Hartung, 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.

We are pleased with our first quarter performance, particularly in light of an overall operating environment that remains challenging.

For the quarter, we delivered a 2.2% comp compared with a 10.2% comp in the first quarter of 2008.

And we saw revenues increase 16.1% from a year ago.

This brought our revenue to $354.5 million for the first quarter, and diluted earnings per share of $0.78, a 50% increase from the first quarter of 2008.

Our ability to grow our business in this difficult economy is a direct result of our disciplined and focused business model which emphasizes doing just a few things, but doing them better than anybody else.

It is also the result of our belief in constant improvement and taking a hard look at everything we are doing with an eye toward doing it better.

While there are many things that we are always looking to improve, I would like to discuss a couple of specific areas that we have been reviewing over the last several months.

The first is our menu, which has remained largely unchanged since I opened the first restaurant nearly 16 years ago.

The other is our marketing, which has not kept pace with our food and people culture improvements that we have made over the last several years.

Before I discuss the details of these changes, I'd like to go over some findings from a research project we completed at the end of 2008, because this research was a factor in leading us to try some new things.

The goal of the research study was to learn more about how Chipotle fits into the lives of our customers, what factors influenced their choice of restaurants and what parts of the Chipotle experience they like and dislike the most.

While the research reinforced many things we are already knew about Chipotle, for instance, that our customers love our food, our service and the value of what we offer, it also taught us some things that were new to us.

We learned that while our customers prefer our food to that of our competitors, most of them were not aware that the superior quality of our raw ingredients is one of the reasons for the great tasting food.

We also learned that there are some drawbacks to our simple menu design.

Our current menus display the individual ingredients and leave it to the customer to figure out how to combine them.

We found that this design leads to a perception of limited variety, and is often very intimidating to new customers.

We also found that it actually discourages experimentation, even with our most regular customers.

Others commented that due to the lack of a kids' menu, they perceive Chipotle as a less kid-friendly place than other restaurants.

In response to these findings, we are testing a new menu design in all of our Denver area restaurants.

This new menu includes new entree options, several featured items, new, smaller lower-priced options and a complete kids' menu.

Collectively, these changes, and the resulting changes to the design of the menu boards themselves, are intended to address much of what we learned from our research study.

They are intended to present greater variety, offer suggestions to customers who do not understand how to customize their order, provide options for customers who want something smaller or who want to spend a little less money and to be more welcoming to families and kids.

All while preserving the simplicity and efficiency of our streamlined service format.

Please understand that we are in the very early stages of this test.

We will learn a lot from it.

But we know that it is unlikely that we will love everything about it.

Instead, we are looking at this as a chance to better understand our customers, and to improve the experience they have in our restaurants.

When we are comfortable that we have a clear understanding of the effects of this new menu, we will decide what, if anything, to do next.

In addition to the changes to our menu, we are launching a new advertising campaign in many of our major markets early next month.

The campaign, called My Chipotle, is designed to help us engage directly with our loyal customers in a way we never have before.

We are very lucky to have an incredibly passionate customer base who chooses to talk about Chipotle in a way that's so genuine.

This has always been a big part of our marketing, building the brand through word of mouth.

Through this new campaign, we are capturing the enthusiasm and passion of our customers and harnessing that to bring more influence to that-word-of-mouth marketing.

The new campaign will use many traditional forms of media, including radio, print, outdoor and a significant online component.

The centerpiece of the online campaign is a website called mychipotle.com.

At mychipotle.com, customers will be asked to tell us what they love about Chipotle, and to upload images, audio clips and video about their favorite Chipotle items.

Customers' submissions will be featured on the site where they can be rated, discussed and shared with other customers.

Some of the content created by our customers may become part of our ongoing My Chipotle advertising campaign and be featured in print, on the radio or online.

This campaign is the beginning of our effort to form a deeper, more meaningful connection with each and every one of our customers.

We believe that our food and people cultures are strong and will continue to be key drivers of our business.

Our commitment to fine-tuning these and other elements of our business will help us continue to deliver strong performance and increase shareholder value over the long-term.

I'll now turn the call over to Monty.

Thanks, Steve.

You've all heard me talk about the people culture that we are developing at Chipotle, a culture that appeals only to the highest performers.

And you've heard me talk about the priority we place on moving our highest performers into the highest impact positions.

The restaurateur program and the newly created team leader position are examples of changes that we have made to reward top performers and to help guide them into positions where they can be even more effective.

This culture has really taken hold in our restaurants, and it seems every time that every time I visit our restaurants, our top performing teams are raising the bar higher and higher in terms of the strength of their teams, the way they prepare and cook their food and the extraordinary customer service they deliver.

Our customers recognize the difference, as we have seen the number of positive comments regarding customer service double since the same time last year.

and we have also seen the number of negative comments decline.

You have also often heard us talk about the discipline that we bring to our business.

Our continuous efforts to identify ways that we can become more efficient, to use our resources more responsibly and to improve the quality of our customers' restaurant experience.

I'm pleased to report that we continue to see real, tangible benefits from this commitment and from the programs that we have developed.

These benefits are apparent throughout our business model and in nearly every facet of the customer experience.

For example, we are providing better customer service and better food while improving the cost of labor and food and reducing our G&A expenditures.

Since the creation of our national labor matrix in the second quarter of 2007, we have enjoyed a very efficient labor model, with labor costs lower than most restaurants even though our employees do so much more food preparation and real cooking in our restaurants.

Our new restaurant teams, with their focus on attracting and retaining only the top performers, have proven that they can beat this labor matrix even while continuing to create better experiences for our customers.

Another consequence of having higher-performing teams in our restaurants than ever before is they were able to reduce the average size of our restaurant crews.

In 2006, for example, the average crew size was 22 people when our average volume was around $1.5 million per restaurant.

Today we have an average of 19 people working in each of our restaurants -- I'm sorry, 19 crew people working in each of our restaurants with an average value of $1,750,000.

Top-performing teams can accomplish more with fewer people.

And when our managers reduce their crew size by removing low performers, they can spend even more of their time developing our future leaders from the crew ranks.

Our restaurant teams are also doing a better job of managing food -- ordering the right amount of each ingredient, ensuring each ingredient is delivered to the restaurants in a way that meets our very high standards and preparing and properly cooking the the right amount of food so it's always fresh and tastes great while minimizing waste.

So this high-performing culture that we continue to build in our restaurants is clearly paying off in our financial performance.

We are providing a better customer dining experience and better business results at the same time.

Without this strong culture in our restaurants, I would be concerned that finding these efficiencies would lead us to compromise our customer experience in some way.

And we're getting these better results even while our field support ratios continue to improve.

Where area managers supervised five restaurants on average about five years ago, our team leader area manager group now oversee nearly 10 restaurants each today.

These greater field ratios, combined with a culture of top performers in our corporate office, have allowed us to continue to improve what we are doing while delivering G&A efficiencies each year.

While we can't do anything about the economy, we will continue to strengthen our brand and our business by continuing to build this culture of top-performing people in our field and in our office, empowering our restaurateurs and team leaders to constantly raise the bar in terms of great food, great service and a strong business.

The strength of our food culture, combined with our people culture, along with our constant drive to improve everything we do will allow us to emerge from this recession stronger than we were when it began.

And I'll now turn the call over to Jack.

Okay, thanks, Monty.

Our restaurant managers and their teams are working harder and smarter than ever, treasuring each customer who visits Chipotle, running their business with discipline and strengthening their teams by hiring and developing only top performers in their restaurants.

They respect the fact that in this tough environment, you have to earn every single customer visit.

And while we are pleased with the overall results of the quarter, we know our customers are watching every dollar they spend, and we are focused on making sure they feel rewarded each time they dine at Chipotle.

Our results for the quarter continue to demonstrate that we are operating a business -- the business in a disciplined manner so we can maintain financially strong.

Our already-strong balance sheet continues to strengthen, and our superior unit economic model has allowed us to continue to open new restaurants, with expectations of superior returns, funded by operating cash flow while we continue to opportunistically pursue our $100 million share buyback.

Our revenue increased 16.1% in the first quarter, to $354.5 million from $305.3 million last year, and our comps increased 2.2%.

Menu pricing increases from last year contributed about 8.5% in the quarter with no new price increases during the first quarter.

Prep was down about 4.5% in the quarter, and average check was up about 7% from last year, less than the full 8.5% menu price increase.

As we mentioned, last quarter is very difficult to quantify how much decline in traffic is due to the economy and how much is resistance to our price increase.

This is especially true because we began to see traffic declines in the third quarter of last year, before the price increase.

Overall for 2009, the price increases taken last year will result in an effective increase of about 6% for the full year, with effective pricing of around 6% for the second and third quarters and less than 3% in the fourth.

Based on transaction trends we have seen so far this year, and assuming the economy does not worsen significantly, we continue to expect sales comps in the low single digits for the full year.

The second quarter comp will include a number of pushes and pulls, specifically we lose a day as a result of being closed on Easter this year, and we lose about 2% as [wrap] menu price increases from last year.

On the positive side, we have begun to see the benefits of comparing to a softer comp last year, and as we are about to roll our new advertising to several of our major markets we hope to see a benefit there as well.

Restaurant level margins increased 230 basis points over the first quarter of 2008 to 23.5%.

But the menu price increase more than offset the de-leveraging from fewer transactions.

More than half of the improvement, about 120 basis points, came from lower advertising expenses in the first quarter this year versus last year.

We expect that benefit to reverse over the next few quarters, as the advertising campaign Steve talked about is rolled out.

For the yea,r we expect our total marketing and advertising costs to be about the same as a percentage of sales as it was last year.

Food, beverage and packaging costs for the quarter with were 31%, 140 basis points lower than Q1 of last year, and down 110 basis points from the fourth quarter of 2008.

The decrease on fourth quarter 2008 is mainly due to the impact of menu price increases in that quarter along with some easing in many commodity costs, along with effective management of our food costs.

While the commodity cost environment has stabilized significantly in the past few months, we do expect modest upward pressure from a few key ingredients, including avocados and meats.

Labor costs were 26.4% for the quarter, down 30 basis points from last year.

The positive effects of our menu price increase on labor were largely offset by inflation and the de-leveraging effects of declining transactions.

Nonetheless, we drove leverage on the already efficient labor line as a result of our continued focus on hiring outstanding crew and managers, which has allowed us to run better restaurants with fewer labor hours, as Monty outlined.

Occupancy costs for the quarter were $27million or 7.6% of revenue, up 40 basis points from the same quarter last year.

The increase continues to be driven by opening proportionately more restaurants in more expensive, densely populated areas such as Boston, New York,[Philadelphia] and Florida, combined with lower comps.

Other operating comps were 11.5% for the quarter, down 110 basis points from last year.

And this decline is due to the difference in the timing of our advertising expenditures this year versus last.

We expect this timing benefit to reverse over the next few quarters as our are new marketing campaign is rolled out across many of our major markets.

G&A for the quarter was $23.7 million or 6.7% of revenue, down 40 basis points from last year due to the impact of menu price increases last year and a managed reduction of spending in travel, in meetings and outside services.

And this was offset by increased stock comp expense.

We anticipate our stock comp expense to be around $15 million in 2009 up from $12 million last year.

Pre-opening costs the quarter were $1.9 million or .5% of revenue, down from $2.8 million or .9% of revenue for this quarter last year.

Last year's pre-opening costs were high in Q1 as a result of a significant number of restaurants under construction to support the 49 openings in the second quarter of last year.

We expect total 2009 pre-opening expenses to be similar to 2008.

Interest rates continue to remain at historic lows, causing our interest and other income to decline to just .1% of sales in the quarter, down 30 basis points from last year.

And we have no expectations that interest rates on the safest liquid instruments will increase this year.

Our effective tax rate for the quarter was 38.5% compared to 38.4% of last year, and we expect our effective rate to be at this 38.5% rate for the full year.

We opened 26 restaurants -- new restaurants in the quarter, and continue to expect to open 120 to 130 for the full year.

Delays have caused our timelines to be extended, and about two-thirds of our restaurants will open in the second half of the year, with a majority of those occurring in the fourth quarter.

So with that in mind, along with the growing financing and leasing challenges facing developers, there may still be risk in this guidance, which is outside of our control.

And we will provide updates as needed.

Our new restaurants continue to open with annualized sales in the $1,350,000 to $1.4 million range.

With stabilizing commodity inflation and resulting rebound in our margins, we can invest in opening new restaurants, even in this difficult environment, with expectations of generating returns in 35% to 40% range within a few years.

When the economy fully recovers, our return expectations will move back above 40%.

We've made good progress on the $100 million share re-purchase plan we announced in October.

Through the end of last week, we re-purchased about 1,170,000 shares for a little over $54 million, and this was at an average price of just over $46 per share.

And this includes about $29 million invested in the first quarter.

It is difficult to predict when the buyback will be completed, as it is dictated by the market and is dependent upon the share price and the trading volume.

Our re-purchases did slow down further over the past several weeks based on price and trading volumes.

So I caution you again, simply extrapolating our progress so far and predicting when we might finish the re-purchase.

I want to close with with an update on our progress in investigating the possibility of collapsing our class A and class B shares into a single class.

And we've been working very hard on this issue.

We've contacted the IRS, we've hired additional outside counsel, a law firm that recently led the successful collapse of a dual-class structure, and we've spoken with McDonald's.

After discussions with outside tax counsel and the IRS, an IRS ruling in favor of the class looks unlikely as a result of the technical and procedural issues.

So we've moved on to pursue an opinion of counsel, as required under our separation agreement with McDonald's.

Our tax counsel just recently provided an initial working draft of an opinion letter, which is currently under review.

And as a reminder, the separation agreement requires that the opinion needs to be an unqualified opinion that the collapse will not jeopardize the tax-free nature of the split-off, and the opinion must be acceptable to McDonald's.

And because of the significant potential liabilities involved, I'm sure you can appreciate the very high comfort level that we must achieve.

We will continue to work closely with our counsel and with McDonald's and try to resolve issues that come up.

And we will continue to provide updates as we get more information.

Thanks for your time today.

At this time, we'd be happy to answer any questions you might have.

Operator, please open the line.

Thank you.

(Operator Instructions).

Our first question comes from John Glass with Morgan Stanley.

Thanks.

Two questions.

First, Jack, just on your commentary about comps in the second quarter.

Just to be clear, you're talking about the benefits of easier comparisons.

Does that mean you're actually seeing comps improve relative to the first quarter results?

And if you're making those comments, is it with or without Easter?

Yes John, in the second quarter so far, which is just a few weeks, last year we saw our comps begin to soften in the second half of April.

And as we are going against those softer comps, we are seeing some improvement relative to the first quarter.

I'm not including Easter in that, and so, John, the way I would think about it is, Easter -- it hits us negatively by about 1 percentage point or so overall for the full quarter.

Menu pricing that we're lapping hits us for another 2% or so, so we are down about 3%.

But overall for the quarter, we did do a 7% comp last year versus 10% in the first quarter, and so hopefully the positives and the negatives kind of offset there.

And then we are optimistic about what we might see from advertising.

So that's the way I would think about the comps.

Great.

And then just what is the timing of the testing of these new menu boards?

How long -- what's a reasonable timeframe for you to test them and then to consider rolling them out system-wide?

Is that something you would expect to do this year?

Or is it really a 2010 event?

How long does it take?

Yes, John, we will be testing in Denver for four weeks now, and we are about halfway into that test today.

We don't have enough information yet though, to determine what parts of it will be rolled out nationally.

There are some things that I think we might like about it and some things that might not be perfect.

But the test really does incorporate a lot of different things, and so we will pick and choose from those things that might be applicable for a national rollout.

But that hasn't been determined yet.

All right.

Thank you.

Thanks, John.

Our next question comes from Jeff Farmer with Jeffries & Co.

Thank you, Jack.

I apologize if I missed this.

But did you provide an update on the full year restaurant level margin guidance that had been [19 to 20]?

No, I didn't, [John.]

Are you willing to provide an update?

Not a specific update.

We did that last year, John.

It was the first time we ever did it because we were raising prices, we were trying to offset the impact of commodity inflation and were a lot of ups and downs with that.

What I did do, though, was tell you this quarter was a -- it was a great quarter.

We are very proud of the results.

I did point out one item -- advertising was unusually low in the first quarter.

We only spent 1% versus last year we spent 2.2%, and overall for the year we'd expect to spend about 1.75% for the full year.

And so that's something that I would point out as being maybe a little bit on the unusual side.

Other than that, it was kind of a normal quarter.

Okay.

And then final question for me.

It is my understanding that an early March [some] markets ran a newspaper insert promotion offering a free burrito.

Assuming that's true, how widespread a promotion was that?

Have you ever done anything like that before?

And did that have an impact on your traffic?

Yes, John, we have done that a lot.

We have always been willing to invite customers into Chipotle.

We will do this a lot in new markets.

We will do it in existing markets just to kind of create some excitement.

We just did that on a market-by-market basis.

You probably saw that more in the central region, which is where we did a bunch of it in the first quarter.

It is a nice way to one, reward our customer and it is one way to bring new customers or customers that haven't been in a while back into Chipotle.

And generally that's been a good experience for us.

And we have done it a bunch, and we'll continue to do stuff like that from time to time.

All right.

Thank you.

Thanks, Jeff.

Our next question comes from Steve Rees with JPMorgan.

Hi, thanks.

I just wanted to ask a little bit about your philosophy on pricing.

This 6%, I guess in hindsight, was maybe a bit aggressive given where the cost trends are coming in now.

And I guess as you look back in hindsight, would you have taken that much anyway?

Did you think you had a pricing gap relative to the competition?

And I guess what have you learned through your experiences of this price increase that may shape your future increases down the road?

Yes, Steve, our pricing philosophy is that we want to remain accessible.

We have the highest quality ingredients -- or higher quality ingredients than any of our competitors.

But historically, we've still manage to remain priced at or below the prices of our competitors.

That's been a deliberate act on our part, and we have done that because we want to make sure that we can bring this new way of eating to a broad, broad group of people instead of making it elitist.

But at the time we raised prices throughout the fourth quarter, it was a time when we were looking at commodity pressures which looked to be in that sort of mid-single digit range at the time in terms of inflation, which gave us a lot of concern obviously.

Because normally, we don't like to raise prices unless we have a food with integrity story.

like if we're adding naturally raised chicken or naturally raised beef to a market.

In those cases, we would bring the new prices into that market in order retain our margin on those items.

And so in this case -- and we had told you guys about this, that we may have to do this, and it came a point where we did have to do this in order to allow our margin to remain solid.

Now, that being said when we raised prices we only raised prices so that they matched our competitors.

We actually did not price ourselves higher than our competitors even though it was a pretty significant price increase.

But, yes, I think in hindsight had we known everything we know now, we may have taken a different approach, at least a slightly different approach to the way we raised prices.

Okay.

And then just finally for Steve, I appreciate the color on the upcoming advertising campaign.

We definitely look forward to it.

But I guess what have you learned so far in terms of how important is the value message in the current environment to drive traffic?

Do you think that's important?

Or your consumers' [scores around value

Certainly,

value is important and I think there's a lot of different ways to provide value.

One of the ways that Chipotle has been providing value for the past 16 years is to provide customers with something that they can't get anywhere else.

And that is food that is prepared in front of them according to classic cooking techniques, super high quality raw ingredients that are raised sustainably.

People know what is good for them.

They see it, they feel it.

And so to be able to provide that on sort of a mass scale in our efficient delivery system, I think, is very much a value.

And certainly the transaction degradation that you have seen is due to a tougher economy, for sure.

But there are ways that we can compensate for that and make sure that people really see the value in what we offer through great execution, through improving our teams and making sure that we are delighting every single customer that walks in.

Our advertising campaign, My Chipotle, is leveraging the excitement from our loyal customers.

And these are the customers that throughout the years have been helping us build our business.

In fact, they have been the most important part of our marketing.

So this new My Chipotle campaign really systematizes and leverages the excitement of those customers, and will encourage new trial.

The value is built into that as they go through the Chipotle experience.

Okay, great.

Thank you very much.

Our next question comes from Jason West with Deutsche Bank.

Thanks.

Jack, I was wondering if you could go through again the comp breakdown on the quarter.

I just missed the numbers there on exactly what the traffic and ticket was.

Yes, comps were 2.2[%].

Menu price increase was 8.5%.

Transactions were down 4.5%.

And the check only went up 7% instead of the 8.5%, so we lost a little on the check.

Okay.

You're within 20 basis points or so.

There's some rounding that didn't get us exactly there.

And then can you give us any help, just given how volatile the environment has been out there just on the trend of traffic through the quarter?

I know you guys don't like to talk about monthly comps, but if you could give us any help on that, that would be great.

Yes.

Jason, it was pretty steady throughout the quarter.

It was pretty consistent in that same kind of low single digit range.

We saw a period in the first half of February where we had great weather throughout most of the country and comps did pick up during that period.

But for most of the rest of the quarter they were pretty steady in that low single-digit kind of range.

They kind of continued as we left the quarter.

And then as I mentioned in response to an earlier question, they picked up a little bit as we are now going up against softer numbers.

So I would say our traffic has been relatively steady other than like weather and Easter and things like that, it has been relatively consistent.

Okay.

And a couple on the food side.

Any way you could help us understand the leverage on the food line?

How much of that was reduced waste versus lower commodities?

Well, there are so much moving pieces, Jason.

We are always working to improve our food quality to make sure we serve the freshest, best-tasting food we can while minimizing waste.

It's always been a balancing act.

Our teams have just gradually, quarter by quarter by quarter, just always done a better job and so I don't know that we want to spell off exactly how much that is.

But commodities pulled back, and we expected to already see some pressure in a number of areas, and we got breaks.

And we didn't get any huge breaks in any commodity, but all of the things that we thought would pick up a little bit, if anything, stayed flat or ticked down.

And we thought we'd be closer to that maybe 32% range or 32.1% that we saw in the fourth quarter.

And so we were delighted that the combination of better food controls and better commodities knocked that down 100 basis points.

So we are able to eke out this 31%.

And last one.

Can you update us -- I don't know if you said this on where you see aggregate commodity inflation for the full year.

I think you had been low single-digits in February.

I called it modest pressure, Jason.

I think low single-digits is probably the best guess right now, and we do feel some pressure is likely in avocados and likely in meats.

And so I think a low single-digit from here, from the first quarter through the rest of the year, is probably a pretty good estimate at this time.

Okay.

Thanks a lot, Jack.

Thanks, Jason.

Moving on we will now go to Larry Miller with RBC Capital Markets.

Yes, thanks guys.

Could I just follow up on the commodity picture?

Should we be thinking about kind of an even sort of inflation picture for the rest of the year?

Is there some contracts that come in and out that we should be aware of?

Well, there are some minor contracts, Larry, that do come in and out.

I think thinking about it relatively even right now is probably the best way to think about it.

The contracts that do end later this year include rice, corn and soy oil and then -- so the fourth quarter we may see some change there, but I don't know what to expect right now.

We will know as we get closer to the fourth quarter.

Cheese actually should get a little bit better for us.

We locked in for six months, and then we just recently locked in for the third quarter and we will get a little bit of a break there.

So there are little ticks up and ticks down, or possible changes later, Larry.

But I think kind of an even inflation throughout the year is probably a fair way to do it right now.

Okay.

That's helpful.

And then I might have missed, but when does the advertising start and how much of that 120 basis points of lower costs comes in in say Q2 versus Q3, or do you spend that up front?

And then just to close the advertising loop.

Is it your intention to use that messaging to talk about the new menu at some point in 2009?

Well, let me first hit how we spent last year, and then I'll turn it over to Steve.

We are not going to say exactly what we are going to spend quarter-by-quarter this year, Larry.

We are still figuring that out.

We want to give ourselves a lot of room there.

But what you I can tell you, is last year we spent 2.2% in the first quarter, 2.5% in the second quarter, 1% in the third and .7% in the fourth.

Overall for the year we spent 1.75% last year.

Overall this year, we expect to spend about 1.75%, and in the first quarter so far we only spent 1%.

So we expect our advertising to pick up.

We expect overall to average 1.75%.

So you get an idea of the different comparisons.

The advertising started in Denver two weeks ago.

And then --

So I think if I understand the question, there were sort of two parts to it.

Will you use the advertising -- in the advertising campaign, will you talk about the new menus?

Well, there are two things.

There is My Chipotle, which starts early next month, and My Chipotle is about harnessing the enthusiasm for Chipotle from our existing customers.

They are going to be helping drive new people into the restaurant and increase frequency through sharing their passion for Chipotle and the combinations of things that they make when they go into visit.

And so that's one piece.

The other part is this new menu and that is a test that's going on in Denver.

And we don't know the results of the test.

There are a lot of new components to the menu board.

There are new items.

There are low-priced things like single tacos and cups of soup and side salads and a kids' menu.

So there are lots of things -- lots of moving parts now, and we are going to really dig in and make sure we understand what part of that test delivered good results, and what things might not be applicable for rollout.

So we will decide when that test is over if there is something we might want to roll out nationally.

But that would be independent of My Chipotle campaign that starts next month.

Thank you.

Thanks, Larry.

Our next question comes from Craig [Biss] from Jasper Funds.

Hi.

Did you guys break out the non-comp revenue?

Are you there?

Yes, I'm sorry.

Break out the what?

Non-comp revenues?

You mean from new stores?

Correct.

Well, it's 2.2% of the increase.

2.2% came from the comp, the rest of it came from the new restaurants.

We don't typically do a further breakdown than that.

You guys actually were until third quarter.

Are you talking about the average restaurant volume for new stores?

Well, I'm trying to get to what's going on with the AUV on the non-comp stores?

Okay.

In our -- in my prepared comments I said that new stores are still opening up [at an] annualized rate of $1,350,00 to $1.4 million.

That's our new stores, and that is still intact.

And then our comp stores, we did put it in the release, that they are averaging, I think it's $1,755,000.

So the non-comp, the new units, are not opening -- they are opening at a lower pace then they were a year ago or 2007, but not at a lower pace than --

They are not opening up at a lower level than a year ago.

A year ago at this time we started talking about they were not keeping pace as a percentage of our mature restaurants.

But a year ago at this time we talked about our new restaurants opening up in this $1,350,000 to $1.4 million range, and they have been really opening for the last year at that same kind of annualized level.

So we've held very, very steady.

Okay.

Thank you very much.

Thanks, Craig.

We will now go to Matthew DeFrisco with Oppenheimer & Co.

Thank you.

To go back on the commodity costs and [COG] share, did you have in the quarter by any chance a switch over to chicken?

Or were you off of naturally raised for a short period of time at all during [first quarter]?

I'm sorry.

Oh yes.

We had -- I would call it slight interruptions in our supply of naturally raised chicken.

It wasn't such that any whole market was without it, but we had patches that had to go without it for a couple of days at a time a couple times.

And the reason for that was just supply issues which came from some of the suppliers having a difficult time financially justifying putting enough -- raising enough birds because of the lack of demand for the breast meat.

So we did have some supply issues for a while, but it has been steady since that time.

I guess on a year-over-year basis is it anything of meaning?

Did you have more interruptions than you did last year?

Is that potentially something?

I'm just a little perplexed by the degree of the beat on the COGs line given your February update of around 2% to 3 inflationary pressures.

Well, Matt, none of the supply [issues] Monty talked about -- it doesn't really impact our cost of sales so it is more of a supply interruption where we've have had to for -- like Monty said, for a few days in a handful of stores where we had to switch over to commodity chicken for awhile.

We certainly don't like doing that.

We never really ran out of chicken where we weren't able to serve chicken, but we did have to switch over and we had to put a message to the restaurants saying that we are temporarily serving -- temporarily not able to serve naturally raised chickens.

But in terms of the impact on the cost of goods sales line, there really isn't any impact at all.

Just to be clear.

This is just a couple of our -- this is just a few restaurants on two different occasions for a couple of days each.

So this is literally not material at all from -- in terms of our cost of goods sold.

If it were, we would have probably done something in our pricing, if we were going to have a long-term reduction in the amount of naturally raised chicken that we serve.

But this is -- one time was a couple days, the other time might have been three or four days that we had to be without that chicken in a 20-store, 25-store market.

So, absolutely not material at all to our food cost.

And also I guess with respect to the comment about you're losing a little bit average check.

How is that happening with little variation on the menu?

[Or] customers not dancing around the menu?

Are you seeing less bulk orders?

Or people just not buying beverages?

Where are you seeing -- how is the average check going down if people aren't really trading around your menu too much?

Yes, I mean first of all, it's a very small adjustment.

It is about $0.15.

And when you break it down it is -- it looks like the group sizes are just ever so slightly smaller, and literally like 1% smaller.

Typically it looks like our group sizes are about 1.33 transactions -- or customers in a transaction, and that moved down to about 1.31.

That had a very slight -- matter of a few-penny impact on our average check.

And people are buying fewer drinks.

And that's been a trend we have seen really over the last several quarters and last few years.

So that had an impact as well and that knocked off a few pennies.

And we are seeing fewer of the -- fewer orders through our fax and online ordering.

Which means you're losing some of those bigger orders as well.

We think that's got to do with the economy where you don't have these business meetings where they are ordering a lot of food to be brought in.

And so we are losing some of those larger orders.

All those things have each contributed just a few pennies here and there and it's added up to about -- about $0.15 in total.

Okay.

And then looking at your stores.

Is there anything to be concerned about with the weight of stores in the back half.

It doesn't seem as balanced as in prior years.

I know you've always had the fourth quarter a little heavier.

But is this a byproduct of the slower overall macro, and you're giving yourself more lead time?

Or is it the markets you're going into, that they are just seasonally -- they need that time or they are seasonally -- that's their growth period is in the fourth quarter is when construction is easier to get done?

It's really, Matt -- it's really a function of the developers and the struggles that they are going through.

And some deals are falling to wayside completely, and that's why we pulled back on our opening guidance a few quarters ago to [120 to 130], and a lot of our developers are just -- they are not moving the developments through as quickly.

And so a lot of them are just sliding.

And so these deals continue to slide to the fourth quarter.

It's outside of our control.

In terms of concerns, there is not really concerns on our end.

We feel -- we are ready to build these restaurants.

We are ready to go in and have our teams go in and finish the restaurants from our standpoint.

We are ready to go in and staff the restaurants.

Our people culture is doing great.

There is [P&L] pressure in the fourth quarter temporarily because new store P&Ls are really inefficient.

And so if we have a bunch of openings, disproportionate number of openings in the fourth quarter, that is going to impact our margins temporarily.

But in terms of concerns, from a long-term basis or anything like that, no, there is not really any concern on our end.

Okay.

And are these sites similar to what you have opened in the last couple of years?

Are you skewing a little bit more maybe to an older -- retrofitting QSR or taking over an old Starbucks?

Obviously the size of a Starbucks doesn't make it applicable.

But --

It is a good [fit].

They are similar in size.

They're similar in terms of the markets that we are going into.

Two-thirds of them are still immature markets.

But there is a skewing that's moving more away from new developments and into existing sites, where a tenant went out of business and we 're taking over an existing site.

And so there is a slight mix change from that standpoint .

Okay.

And then my last question, just on variation of markets.

You've been pretty forthright about your correlation between unemployment and your same-store sales.

So I'm just curious.

Are you seeing where you are seeing the larger job losses, are you seeing also the traffic fall off?

And given your substantial surprise on the commodity cost side or COGs, is it an opportunity maybe to get more competitive on the menu there?

Because you made a comment -- I was curious -- competition you're below -- you're always below competition.

I'm from New York ,and I'm sitting here and I can't find a place you're cheaper than.

Qdoba is the only thing that looks like you guys.

But there is no real competition for you also here.

So you might open up your demographic by lowering the price point or bringing a different type of menu here.

That's what I was just curious about.

With regard to the first part of the question, basically are we seeing reasonable differences in sales with regard to parts of the country that are having a tougher go of it or higher unemployment in various parts of the country?

We have spent a lot of time looking at that, and overall we do certainly see some correlation between national unemployment numbers and our sales.

That we have seen.

When we try to pin it down by looking at the places that have been the hardest hit by unemployment, such as California or basically the West Coast and Nevada or Ohio or that kind of thing, I mean -- the correlations aren't that good, aren't that true.

So basically, I would say no, there isn't a true correlation between those areas of the country with the most significant unemployment.

And our sales are tracking, although there is a national correlation.

So a sentiment issue probably more than a tangible direct correlation?

I think that's right, yes.

Yes

Thanks.

Thanks, Matt.

We will know go to Sharon Zachfia with William Blair.

Sharon, your line is open.

Sharon, are you there?

I think we lost Sharon.

Can't hear me.?

Okay, Sharon, your line is open.

Hi, can you hear me now?

Yes, there you are.

Okay.

So two quick questions.

For the ad spending, just so I'm clear on that.

I know you don't want to give out quarter by quarter what you're planning this year But should we expect it to peak in the June quarter?

It sounds like you're doing a larger launch here in June, or am I misunderstanding that?

I wouldn't expect a peak yet.

We really want to give ourselves room to see how things play out and decide how we want to spend it, where we want to spend it.

So really the best I can tell you, Sharon, is we are going to spend 1.75% for the year.

We only spent 1% in the fourth -- for the first quarter.

We are going to make that up over the next three.

And so assume it's going to be relatively level.

But we are going to make adjustments along the way, and so we will update you as we -- as the quarters unfold.

And I gave you what last year's quarters were and so you can get an idea of what we are up against.

And that's really the best detail I can give you at this time.

Okay.

And then one more quick question.

So presuming you stay at this kind of low single-digit rate of comps, do you anticipate continuing to get labor leverage throughout the remainder of the year?

Well -- no, in a word.

We had the labor matrix we put into effect in 2007, and we are delighted that, like I said, that we've actually been able to beat that.

And when I say we've been able to beat it, it's really not we, it's really our very best restaurant managers throughout the country have found ways of staffing their restaurants more efficiently, allocating their labor more efficiently and undertaking their tasks in the restaurant more efficiently.

So they've actually been able to beat the matrix while delivering great, great sort of operational results and customer service in their restaurants.

And we are delighted by that.

Certainly, we will continue to work hard to build even better -- an even better people culture.

Make sure that we appealing even more to top performers, and hope that what our very best managers are doing today becomes more of the norm in the future.

But short-term, I certainly wouldn't anticipate that you are going to see a drastic increase or a substantial increase in labor leverage at a low single-digit comp.

What, out of curiosity, would you anticipate your break-even comps to be [to hold] labor?

Well, Sharon, it depends on the environment, when you're talking about a low price increase environment.

We had always talked about you need like a mid-single digit kind of a comp.

In this environment, you've got 8% pricing and that offsets -- you have to get de-leveraging first because of lower transaction and the lower check.

And those two, along with inflation, kind of offset each other.

And so when we worked through all those pieces, we did eke out some leverage.

And so with this kind of pricing, a low single-digit comp in this kind of a range, we were able to eke out the 30 basis points.

We would hope to be able to kind of keep at about that level.

Can we get more?

We would love to, but I wouldn't count on that, is the way I would think about it.

Okay, thank you.

Okay, thanks.

We will now go to Jeff Omohundro with Wachovia.

Thanks.

On the advertising effort, I wonder if you could just help me understand your thinking around the goals of the campaign regarding building brand awareness versus building traffic.

And to the extent it is designed to build traffic, what elements of it do you think will achieve that?

There was a reference to mychipotle.com.

Maybe you could expand a little bit on that.

And if the traffic gains were not to materialize, what your thinking might be around enhanced affordability options.

Thanks.

To answer the last question first, we are doing this test in Denver now, where there are lower-priced items -- single tacos, side salads, soups.

We have an entree, new entree called the Chicken Posole, which is priced at $5.55?

-- $5.55, which is less than the traditional burrito or bowl or salad.

So we will know the results of this test in a few weeks' time.

And so having that information will help.

To mychipotle.com, it is certainly intended -- the goal is to drive traffic, to increase sales, to get more people into Chipotle.

One of the things that we have found through our research is that people are not aware of the -- of all the different varieties, the variety that we have, all the different combinations that you can make.

A lot of people who have never been to Chipotle don't get a sense for what Chipotle is, and mychipotle.com is leveraging, again, our passionate customers who are the ones who have built the business in the past through word of mouth marketing.

But this is sort of a turbo-charged version of that, where it is a very systematized approach to taking their passion and delivering it out through different media -- outdoor billboards, Internet-based, things like this.

And so we know that it -- we expect it to deliver more transactions.

Thanks.

We will now go to Nicole Miller with Piper Jaffray.

Good afternoon..

Hi, Nicole.

Hi.

I came across channel checks in the space -- like in the kind of premium convenient space in different regions of the country.

For example, the Northeast had really bad weather in the first quarter.

Some concepts that were similar to yours were reporting drops in traffic, whether it was just less positive or even in the negative territory.

But then the less -- like the Central US seemed to be doing quite a bit better.

Did you see that same kind of variation?

Nicole, we saw variations in weather.

So you watch the weather come and go and then you look for the trend without the weather.

But I would say in terms of Northeast weak and Central strong, I would say no.

I'd say if anything, if I was going to comment on those two, we saw strength in the Northeast relative to Central..

Okay.

And any certain reason why there, then, especially given the weather being what it was?

No.

I mean Northeast has always been strong for us.

We have typically seen most of our strength, Nicole, in terms of comp, in terms of volumes, in terms of brand acceptance on the coasts, on the West Coast and the East Coast and in the South.

And so that has been kind of a trend that we have seen for a while.

So it is not really a new trend.

But I just think we have been in those -- a lot of those areas for a long time.

The South -- we're newer in the South, but we have great brand awareness.

We have great teams out there.

And those have generally performed well for us.

Okay.

And then back on the advertising because I'm so extremely curious and excited to see how this starts to be represented.

I'm thinking back to Food with Integrity and always kind of top of mind for your concept.

In good times, pre-recession, I think the challenge or what you guys always talked about was getting the credit for Food with Integrity.

And now, obviously, things aren't as good.

In fact, we have a survey -- albeit a teen survey, I think it is still interesting -- where value is moving up over even convenience or nutrition as a source of influence.

And so I'm just wondering how is your marketing going to address Food with Integrity?

How much focus do you allocate to that?

How much are you going to focus to an actual price point in value?

And then how much to just products themselves?

And then finally how has the Food with Integrity philosophy changed, if at all I guess, so that you can get credit for that?

Well, first, Nicole, one of the things that we found in our research is that we have not been getting credit for the Food with Integrity initiative.

People understand that Chipotle food tastes better.

They don't necessarily associate higher-quality ingredients, sustainably raised ingredients, with this Food with Integrity.

They are not making that connection.

And so, again, I think through all of our messages going forward, we are going to get away from -- in the past we talked about antibiotic-free chicken, dairy that was -- that's raised without RGBH.

These kinds of things are important, we think, in how we source our food.

But our customers tell us this is not the kinds of things that are important to them.

So we are making sure that we are now going to combine the message that our food tastes great because we have great quality raw ingredients, and that's the connection that we failed to make in previous marketing efforts.

All right.

Thank you very much.

Thanks, Nicole.

Our next question comes from David Tarantino from Robert W.

Baird.

Hi, good afternoon.

Hi, David.

David, are you there?

(Operator Instructions).

David, did we lose you?

(Operator Instructions).

David, your line is open.

Hi.

Jack?

There you are.

Hi, David.

Sorry about that.

No problem.

Jack, a question on the mix.

It sounds like that might have emerged in Q1.

Is that right?

Or have you seen that prior to Q1?

You mean the impact on the check?

Yes.

We did not really see that really emerge until Q1.

And your low single-digit comps guidance for the year, are you contemplating that continuing for the balance of the year?

Yes.

Okay.

Thanks for that clarification.

And then another clarification on the cost line.

The cost of sales, you mentioned a couple of -- or at least low single-digit inflation from here.

So would that imply that you would expect the ratio to increase as the year progresses?

Yes, David.

I mean -- like a 2%, if it ends up being 2% would be about 60 basis points, and so I would expect kind of just steadily throughout the year.

But it is modest inflation, and we expected some inflation in the first quarter and it didn't happen, so maybe we will get lucky.

But the areas of avocados and meats, everything we read, everything we see suggests there is more upward pressure than flatter down.

Okay.

Thank you very much.

Thanks, David.

Our next question comes from Paul Westra with Cowen & Company.

Good afternoon everyone.

Hi Paul.

Hi Paul.

I wonder if we dive a little bit more into the consumer research and the test in Denver.

Just a couple questions.

First, how will you be defining success both from I guess qualitative and quantitative perspective?

Paul, there's the obvious stuff that we are going to look at -- sales and product mix and trade-down and stuff like that.

But we are also doing a bunch of customer surveys because, frankly, we are worried about -- or we are very concerned about the impact on the brand.

We are throwing a lot of changes out all at one time.

We are doing things that -- we don't know if it is going to enhance our brand even if it does enhance our sales line.

And so we are going to ask customers to try the new items, try the kids' meal, try the Posole, try the new items, what their reaction is.

Is it consistent with the brand?

And what's their overall experience?

But we're going to ask the people that come in and don't try the new items.

What do they think about the experience, and is this -- these new things that we are trying, is that somehow taking away from their experience.

So we're going to be really thoughtful in the way we look at this.

We are going to be really patient.

We are not any hurry to take anything from what we are doing in Denver and try it anywhere else throughout the country.

Because we want to do a really, really thorough analysis of exactly what the impact is, of course, on our financial results, but also the impact on the brand, which is more of a longer-term thing that we really want to be careful with.

[You answered] my second question was whether the acceptable costs, the labor costs, [speed of] service costs and [unintended] consequences.

So I guess I assume you're willing to take some hit on some labor costs and speed of service if the -- obviously if the payoff is large enough?

But I don't think there is a speed of service issue.

I mean -- some things actually help speed of service now.

For instance, there are on this test menu, there are featured items.

One can come in and get the Classic Burrito, or one can order a Chicken Posole, and that's all you have to say.

So the crew can go ahead and then make that and deliver that final meal to you without any further interaction.

And if every customer ordered, say a Classic Burrito, that would dramatically increase through-put.

However, when kids go through with a kids' meal, that takes a little bit more, especially kids who are curious and ask a lot of questions.

So, again, we need to do a lot more research to figure out the effects of speed of service.

But it is on both ends.

Some things are actually making it more efficient, and some things might make it less.

Are you moving toward a second warmer?

And I'm just curious, any new equipment that you are testing as well?

Well, we actually are testing, completely independent of this new menu, yes we have different warmers and configurations of the kitchen we are working on, but that's a completely different topic.

But nothing to report on that.

Nothing that you meant, Paul, in terms of the Denver test, did we add a tortilla warmer or something like that.

No, we have not done that.

That would be something if we identified a through-put issue, where customers love what we are doing but we have a through-put opportunity that -- we would then look to equipment or look to the way we -- the way that our operations run on the line.

We would look at all that.

But you're right in, I think in your original question.

What are you going to look at?

We are going to look at everything.

We're going to be very thoughtful.

We don't have any pre-determined approach here where we are in a hurry to get this thing rolled out to any market over any kind of time frame.

We are going to be very thoughtful,we're going to look at every single angle here before we take another move.

Okay.

And then, in a related -- less of the[ test] and more of the research.

I mean, is the opportunity for [day par] perspective -- you mentioned families, kids and women., Is it more of a dinner opportunity thing?

Can it [pre-balance more sales] throughout the day?

Certainly the dinner business is where we would see more kids' meals served Monday through Friday for sure.

I think you're going see kids' meals served all day at -- on weekends.

But again, we are not ready to report any of these findings.

This is just sort of casual observations so far.

Great.

Okay.

That's it.

Thanks so much.

Thank you, Paul.

Our next question comes from Bryan Elliott with Raymond James.

Good evening.

I wanted to address the new unit volumes.

From your disclosure and just from doing some simple arithmetic, it appears that we've seen AUVs drop a couple percent here in this quarter, give or take.

First meaningful decline ever.

And wondered if that relates to whether the performance in some of these retrofitted versus the new strip centers might be -- what is impacting that?

They are actually not down, Bryan.

And so I don't know -- you have to make certain assumptions to calculate what the impact of new stores, non-comp stores are, including things like when they opened during the quarter because we don't provide that.

What I can tell you is that when we take the new stores, the non-comp stores that we've opened over the last 12 months, and we annualize those, we are still right smack in that $1,350,000 to $1.4 million range.

We have been in that range really for the past year.

I have noticed that the analysts' models generally end up being a little bit higher than our numbers.

So I can't tell you mechanically why that is, whether it is an assumption on the timing of the opening, whether -- maybe there's a seasonality.

If you are comparing the openings in June to the openings in January, there is seasonality in there, and so I don't know how you consider that in your model.

But I can tell you that the annualized volumes that we're looking at, and we haven't changed the calculation in that at all, have stayed steady right in that $1,350,000 to $1.4 million range.

All right.

The 12-month AUVs that you do disclose dropped almost a point.

That's just a function of -- these new stores are coming in at $1,350,000 to $1.4 million, Our average is -- last quarter was in the $1,760,000 range or something like that.

So when you're layering in these new layers of new openings at $1.350 million to $1.4 million, and we only had a comp of 2.2%, the 2.2% is not enough to offset bringing in these new stores at the lower volumes.

So that is why you're seeing the slight slide in the last few quarters in our average mature volumes.

Wouldn't the same thing be impacting the 0-to 12-month stores?

It is not.

That's a separate calculation.

That we take all the stores and we do it every single month, and we do it every quarter, and those restaurants have stayed at $1.350 million to $1.4 million.

So actually-- but to your point, Bryan, what's happening is we used to be at the 85% range and we kept pace.

And then we weren't keeping pace, but we stayed at the $1.350 to $1.4 million.

But what's going to happen, is they're going to start moving up to the high [70s and maybe low 80s] or so.

So they're going to be catching up again if you will, as the averages kind of decline.

But we are going to stop talking about the new stores as a percentage, because what's more important, and the way we have always looked at it is -- What is the opening volume, what are the comp expectations, what are the margin expectations, and what's our investment?

And as long as those combine to give us high confidence, we can generate within a few years a superior return on investment.

Which in good economy times was better than 40%, and in today's times, with this kind after margin it is in the 35% to 40% range.

That's how we look at it, and that's how we will continue to report on it.

All right.

Thank you.

Thanks, Bryan.

Our next question comes from Jeffrey Bernstein with Barclays Capital.

Thank you.

Just first kind of big picture take-away from what's we've learned in the Q-and-A here.

The upside to the earnings was pretty significant versus what people were expecting.

I know you had previously said you thought expectation for perhaps modest EPS growth in 2009 but nowhere near the 25% that you guys historically have targeted.

The comps are still up low single-digit.

Just wondering if you can isolate perhaps the greatest changes or surprises since the middle of February.

I think you mentioned that COGs came in below your target.

I'm just wondering whether you would say that was the biggest surprise.

It seemed like the Other Operating line was also well below plan.

I wasn't sure if the marketing represented just 75 basis points of that.

What were the biggest surprises relative to what you were thinking a couple months ago?

I would put them into three categories.

The first was our expectation for food inflation commodities, and in every commodity that we thought we would see some pressure and some move-up, we saw either flat or decline, so that obviously helped our food line.

The second thing is -- deleveraging is a very damaging thing to the P&L.

If you go through the math and go through the modeling, and you look at what it looks like to take out 4.5% transactions, and another 1.5% out of a check, that can have a devastating effect on the margins.

And that's been an environment we've not been in before.

So we had very significant concerns about the impact of de-leveraging, and so we are delighted with the fact that we were able to manage the business and as transactions have been falling with this economy and whatever resistance to the price increase, that our teams have done a nice job of running the business.

And then the third bucket is our top performers are leading the way in terms of what efficient labor looks like while you're delivering a great experience, and what effective management of food line is.

We have really challenged our teams to strengthen the business in this environment, and they have done that.

So those were concerns we had at the time and we are fortunate that this top-performing culture has delivered when we have asked our teams to raise their game and make the business stronger while delighting our customers.

They did both.

And so our positive customer comments are up, negative customer comments are down.

And our business is stronger than ever.

And so we have to attribute that to our field teams.

And that's in essence -- those are the three buckets that I would describe as what we achieved or over-performed compared to what we were concerned about just a few months ago.

That's helpful.

On the cost of goods, you said you would love for it to come in at those levels again but you wouldn't expect it.

But the other two lines -- the other two buckets I should say, are those reasonable to assume you could see further leverage?

Should we still assume that the top performers are going to deliver more efficient labor and better managing of the business, less to leverage, for the rest of the year?

We would hope that we could keep this kind of level.

You've got to do it every single day and every single week and you've got to do it while delivering superior customer experience.

So we feel good that we delivered this quarter the right way, without squeezing the line item and worrying about customer experience.

So we think these types of results are sustainable.

But you've got to do it in 850-some restaurants and every single customer visit and every single day.

And so it's not a guarantee, but we certainly hope we can deliver these types of results.

And then did you say something about -- I know the margins were up 230 basis points.

If you had streamlined the marketing spend, it would have been 1.75% each quarter, and you only spent 1%, so that that helped your margin by 75 basis points?

Is that reasonable?

There are two ways to look at it.

Compared to last year, it helped to buy 120.

Last year we spent 2.2%.

This year we only spent 1%.

So we picked up 120 when you compare year to year.

But if you were going to just average, if we would spend the exact same percentage each quarter, that would be about 1.75%.

So depending on how you are looking at it, you could look at it one of two ways.

Then just lastly, I think in your comments earlier you said it is obviously very difficult to tell in terms of pricing how much that drove down the traffic versus just the broader macro.

I'm just wondering from your own surveys and whatnot, what's your best guest or what are your surveys telling you in terms of the magnitude of macro versus pricing?

I'm assuming you would like to know that for future price increases?

We didn't do surveys to ask that specific question.

Our survey is more around trying to understand what our customers love and -- about Chipotle and don't understand about Chipotle so we can come up with this ad campaign that's being talked about.

I really don't know.

It is kind of not that important right now in this environment.

What is important is that our customers are under pressure.

We did have to raise prices.

We didn't want to but we had to last year.

And so the reality is, we have to make sure every one of our restaurant managers, every one of our crew feels like they have to earn that price increase and earn the customers' business in this environment every single time.

And that's what our focus is on.

And so we are not really spending time trying to figure out how much is resistance and how much is due to the economy.

If we do our job, with satisfying or delighting the customer every single time, our business will be strong.

Thank you.

I appreciate the clarity.

Okay.

Thank you.

And that is all the time we have today for questions.

I'd like it turn the conference back over to our presenters for any additional and closing remarks.

That's all on our end.

Thanks everyone for joining us.

Thanks, everyone.

Bye-bye.

This concludes today's presentation.

Thank you for your participation, and have a wonderful day.