Chipotle Mexican Grill (CMG) Q3 2024 Earnings Call Transcript

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Chipotle Mexican Grill (CMG -0.18%)
Q3 2024 Earnings Call
Oct 29, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Chipotle Mexican Grill third quarter 2024 results conference call. All participants will be in listen-only mode. [Operator instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator instructions] Please note today’s event is being recorded.

I would now like to turn the conference over to Cindy Olsen, head of investor relations and strategy. Please go ahead.

Cindy Olsen — Head of Investor Relations and Strategy

Hello, everyone, and welcome to our third-quarter fiscal 2024 earnings call. By now, you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.chipotle.com. I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements.

These statements are based on management’s current business and market expectations, and our actual results could differ materially from those projected in the forward-looking statements. Please see the risk factors contained in our annual report on Form 10-K and our Form 10-Qs for a discussion of risks that may cause our actual results to vary from these forward-looking statements. Our discussion today will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the Presentation page within the Investor Relations section of our website.

We will start today’s call with prepared remarks from Scott Boatwright, interim chief executive officer; Jack Hartung, president and chief strategy officer; and Adam Rymer, chief financial officer, after which we will take your questions. Our entire executive leadership team is available during the Q&A session. And with that, I will turn the call over to Scott.

Scott Boatwright — Chief Operating & Restaurant Officer

Thanks, Cindy, and hello, everyone. Before I get into the details of the quarter, I know I speak on behalf of everyone at Chipotle when I say that we are grateful for Brian’s leadership and for the transformation he led. Over the past several years, we’ve built a strong team with a great culture and had developed compelling and successful strategies together. With that said, after leading our operations for the last seven years, I’m excited and honored for the opportunity to lead Chipotle as our Interim CEO.

To start, there are three things I want to make very clear today. The first is that I’m extremely passionate about our brand and purpose. We are truly a special company that cares about the culinary heritage that Chipotle was founded upon, and our purpose of cultivating a better world resonates with our teams at all levels of our organization as well as with the guests we serve in our restaurants each and every day. I’m also passionate about our people, and I strongly believe we have the best in the industry, both in our restaurants and at our support centers.

Since joining Chipotle in 2017, I’ve had the privilege and responsibility of leading our restaurant teams as we have grown from under 2,300 restaurants to over 3,600 restaurants today, employing over 125,000 people. I can tell you firsthand how hard our teams work to provide our fresh, delicious, and customizable culinary experience at accessible prices to millions of people every day. These exceptional people are the backbone of our great brand. And the third is that our strategy is not changing.

I have worked alongside our talented executive team to craft and evolve our successful strategy and we will continue to execute against it. This includes our long-term targets of expanding to 7,000 restaurants in North America, increasing our AUVs to over $4 million, and expanding our restaurant-level margins, and growing internationally. Now, before I dive into our five strategies, I want to run through our third-quarter results. We had another outstanding quarter with positive transaction growth every month.

We saw momentum build throughout the quarter as the impact from summer seasonality normalized and as we successfully launched Smoked Brisket, which is off to a fantastic start. For the quarter, sales grew 13% to reach $2.8 billion, driven by a 6% comp with over 3% transaction comp growth. In-restaurant sales grew by 18% over last year. Digital sales represented 34% of sales.

Restaurant-level margin was 25.5%, a decrease of 80 basis points year over year. Adjusted diluted EPS was $0.27, representing 17% growth over last year. And we opened 86 new restaurants, including 73 Chipotlanes. The momentum in the business has continued into the fourth quarter with accelerating transaction trends, and we are maintaining our full-year guidance of mid- to high single-digit comps.

Now, let me provide an update on our five key strategies that have helped us win today and will grow our future. These strategies include running successful restaurants with a people-accountable culture that provides great food with integrity while delivering exceptional in-restaurant and digital experiences; amplifying technology and innovation to drive growth and productivity at our restaurants, support centers, and in our supply chain; sustaining world-class people leadership by developing and retaining diverse talent at every level; making the brand visible, relevant, and loved to acquire new guests and improve overall guest engagement; and expanding access and convenience by accelerating new restaurant openings in North America and internationally. Let’s start with running successful restaurants and our progress on throughput. We have mentioned this in the past, but it’s important to say it again, throughput is a core focus for Chipotle because it is the outcome of a strong operational engine that delivers a great experience for our guests and teams.

And execution in our restaurant is improving as we continue to build our throughput muscle. Last quarter, we began concentrating our efforts on the Expo position as it is a critical pillar of throughput. As a reminder, this is the crew member between salsa and cash, who helps expedite the order assembly and payment process. Restaurants with an expo in place are averaging five incremental entrees in their peak 15 minutes.

We are often asked why it’s so challenging to execute this key pillar of throughput. Well, the crew member responsible for the Expo position may be doing other tasks like prep, which prevents them from being properly deployed. In late August, we made a decision to have the management duty deployed to the Expo position during peaks. This has helped to improve the percentage of restaurants with an Expo in place to over 60%, compared to just over 50% last quarter.