Chipotle Mexican Grill Stock

Good afternoon, and welcome to Chipotle Mexican Grill's Third Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Christian D'Souza, Vice President, Investor Relations. Please go ahead.

Hello, everyone, and welcome to Chipotle Mexican Grill's Third Quarter Fiscal 2026 Earnings Call. By now, you should have access to our earnings press release. If not, it can be found on our Investor Relations website at ir.chipotle.com. Additionally, supplemental investor information is available on our site as a reference for today's call.

I will begin by reminding you that today's discussion includes forward-looking statements, including projections about our future business, financial and other performance results. 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 today's earnings release and the risk factors contained in our annual report on Form 10-K and in 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 Presentations page within the Investor Relations section of our website. We will start today's call with prepared remarks from Scott Boatwright, Chief Executive Officer; and Adam Rymer, Chief Financial Officer, after which we will take your questions.

And with that, I will turn the call over to Scott.

Thank you, Christian, and good afternoon, everyone. We are pleased to see the momentum in our business continue in the quarter as we delivered revenue growth of 9.6%, once again, including positive comparable sales and transactions. These results were fueled by our Recipe for Growth strategy as we continue to improve restaurant execution, deepen engagement with our rewards members, bring new craveable innovation to the menu and expand occasions.

Additionally, our marketing connected with consumers in new and culturally relevant ways, including through our 100 Creators campaign. And we've been opening a new restaurant nearly every day of the year and see tremendous opportunity to continue to do so even in our most dense markets.

Our focus remains clear: strengthen what differentiates Chipotle, execute with greater consistency and create more reasons for guests to choose us. Broader consumer and industry headwinds may continue, but initiatives across our Recipe for Growth strategy are building and giving us more tools to win in any environment. We are still in the early stages of this work, and it's gaining traction.

The progress we delivered this quarter gives us even greater conviction in our strategy and the multiple avenues we have to drive sustained growth at scale. In short, we are a category leader. We have a uniquely differentiated brand with strong fandom, and we believe much of our growth opportunity is still in front of us.

Now I'll walk through our progress across each of the 5 strategic pillars, starting with our first pillar, protecting and strengthening the core, because everything begins with running great restaurants. For our guests, that means delicious food made from high-quality ingredients, generous and consistent portions, exceptional throughput, on time and accurate digital orders, clean restaurants and genuine hospitality. These are fundamental to our brand promise, and we remain focused on delivering them consistently throughout the day across every restaurant globally.

Our high-efficiency equipment package is showing how targeted investments in our restaurants can drive better outcomes for our guests, our teams and our business. Restaurants with HEEP are delivering hundreds of basis points of comparable sales uplift, improvements in guest satisfaction and taste of food scores and over 2 additional entrees during the peak 15-minute period. HEEP is now installed in over 1,700 restaurants, and we continue to work toward approximately 2,000 restaurants by year-end.

HEEP is designed to simplify morning prep and grill operations, improve culinary consistency and flavor, reduce menu outages and help our teams deploy more effectively during peaks. Importantly, we continue to reinvest the labor efficiencies created by the equipment back into our restaurants, giving our teams greater capacity to focus on throughput and hospitality.

Throughput remains a key focus and one of the most important ways we believe we can improve the guest experience and drive incremental transactions. When we have the 4 pillars of throughput in place, our teams can move guests through the line faster while creating more opportunities to engage with them in a genuine and hospitable way. We have been focused on [ linebacker ] and [ expo ] deployment for the past several quarters and have made great progress on execution.

We are now expanding our focus to drive consistent execution across all 4 pillars, including [ mise en place ] and [ aces in their places ], which is happening in fewer than half of our restaurants today. We fully recognize the importance of exceptional throughput and know this is our strategic advantage. While we've made progress, I know we can be better. We will be emphasizing this evolution in Q4 so we are well prepared for the seasonal ramp in 2027 and we enter the new year with the momentum necessary to be great.

At the same time, we are reinforcing accountability around hospitality and execution. I attended our team director conference during the quarter, and this year's agenda was focused on being brilliant at the basics that bring guests back time after time. Preparing exceptional food is central to this, and Jason Kidd, our Chief Operating Officer, had a simple message for our teams: run to the food, taste it every time and ensure it's delicious for our guests. That focus is already paying off, with taste of food scores up nearly 1 point year-over-year.

We're proud of that progress, but just like throughput, we know we can be even better. Great execution starts with great leadership in the restaurants, and we continue to optimize general manager and apprentice deployment to ensure our busiest dayparts are supported. These efforts are collectively leading to the better outcomes we are seeing an operational metrics, and we have made meaningful progress, but we know there's more opportunity ahead. Our goal is to deliver the Chipotle experience with consistency in every restaurant every day.

Turning to our second pillar, modernizing our business through technology and digital innovation. Our goal is straightforward: use technology to make our teams more effective and make the Chipotle experience easier, faster and more rewarding for our guests. Under Chief Digital Officer Arlie Sisson's leadership, we are building the capabilities to accelerate progress, and Arlie is strengthening her team with the addition of AI and architecture leadership to help accelerate innovation across the business.

We are still in the early stages of what AI can do. One example is our AI-enabled cook to needs tool, which entered pilot during the third quarter and has now rolled out to over 500 restaurants. The tool, which we plan to roll out nationally early next year, uses AI-based demand forecast to recommend the right amount of freshly prepared food at the right time. This helps reduce manual data entry, increase prep efficiency and readiness, reduce waste and support better deployment and more consistent culinary execution.

Alongside this, we are also developing Ava Cado, our in-restaurant AI assistant. [indiscernible] see the potential to expand its scope and assist general managers with operational insights and actionable coaching that can help our team leaders make better decisions in real time. Our proprietary digital makeline interface, which we call Chipotle Kitchen, is also currently rolling out to our restaurants, with plans to reach several hundred by year-end. The technology is designed around improving the outcomes that matter most for our teams and guests: order accuracy, on-time fulfillment, speed, ease of integrating new menu items and guest satisfaction. We will continue scaling to the entire system throughout 2027.

In April, we revamped Chipotle Rewards and are continuing to see strong results from the program, with our highest comps consistently coming from loyalty occasions. In-store enrollment has also remained elevated, driving our active membership to reach over 24 million guests for the quarter, and we continue to see significant opportunity to deepen engagement with members.

Summer of Extras was a strong example, with 6.8 million rewards members opting into the program, an increase over last year. Members earned 25 million badges and completed approximately 600,000 challenges. Most importantly, our loyalty share of sales increased to over 33%, our highest ever. This is exactly what the program is designed to do: deepen engagement and give guests more reasons to visit Chipotle.

We also continue to progress with our frictionless rewards pilot. Around 30% of our guests use Apple Pay in store, and they will be able to automatically earn points while paying, eliminating the need for a separate reward scan. It's a simple change, but an important one because it reduces the key friction point while also supporting throughput. We will advance the test through stage gate in Q4 and plan to take the technology across the enterprise in 2027. Longer term, we see a significant opportunity for technology to make rewards increasingly personalized, improve in-restaurant identification and help us more effectively reengage lapsed members.

Our third strategic pillar is evolving our brand messaging, accelerating menu innovation and expanding the occasions where guests choose Chipotle. At the center of this work is the value proposition that has defined Chipotle for more than 3 decades: real food made with high-quality ingredients, freshly prepared using classic culinary techniques, served with generous portions in speed at an accessible price point. Our brand tracker revealed that our value scores and overall brand health remains strong in Q3, with sequential gains in both amount and quality of food for the money.

Under Chief Brand Officer Fernando Machado's leadership, we are supercharging how we communicate our value proposition and connecting what makes Chipotle different with what matters to consumers today. And we are doing it in ways that are more ambitious, culturally relevant and distinctive to the brand. We are showing up across creator content, sports and entertainment, gaming, fashion and other spaces to meet guests where they are, and guests are recognizing the differentiation. We saw stable or improving wallet share across the quarter, with broad strength across income and age cohorts. Importantly, we saw lower income cohorts outperform higher income cohorts for the first time this year, with the greatest strength in September, when promotional activity was at its lowest.

Driving this in Q3 was our 100 Creators campaign, which brought popular creators directly into Chipotle kitchens to experience the brand firsthand and capture the care, craft and fresh preparation that goes into our food every day. Our work with Cardi B and the Bardi Bowl created another meaningful connection while promoting our Chili Lime Chips. The [ Sales Schneider ] kids meal helped us engage families with younger guests, while our PGA 2K25 integration allowed us to tap into the strong affinity between Chipotle and the golf community.

And recently, we revealed that the music within our 100 Creators campaign was the result of a partnership with the London Vegetable Orchestra. We enlisted them to record an original track at the legendary Abbey Road Studios with instruments made from our 53 real ingredients. These activations are designed to do more than generate attention. They help us tell the story in fresh ways, broaden our reach and keep the brand top of mind.

Menu innovation is another important factor in enhancing our value proposition, attracting new guests and giving existing guests more reason to visit, all while staying true to our food with integrity commitment and the culinary principles that define Chipotle. On August 31, we broke new ground by launching 2 limited time offerings together, bringing back Pollo Asado with an all-new recipe and our Chili Lime Chips, our first innovation in the category. Pollo Asado features freshly grilled adobo chicken seasoned with garlic and Mexican spices, [ handcuff ] cilantro and bright citrus. Guest response has exceeded our expectations, driving incremental transactions and an attachment rate in the low 20% range, which is significantly higher than our prior launch.

Chili Lime Chips were inspired by a viral fan food hack and are made fresh daily and hand seasonsed with fresh squeezed lime and chili peppers. Guest response has been very positive, driving incremental growth in overall [ chip incidents ]. Cilantro Lime Sauce also remained on the menu throughout the quarter and has maintained a strong attachment rate while outperforming the benchmark set by prior sauce innovation.

Next week, we are excited to bring back Smoked Brisket for a limited time with a new and even more delicious recipe, featuring responsibly raised beef that is seasoned with spices including [ smoked serrano ] and Chipotle chili peppers before being smoked over Mesquite wood. Once in our restaurants, teams sear the brisket on the plancha, finish it with spices, toss it in a savory sauce made with smokey chili peppers and hand chop it in small batches throughout the day. Smoked Brisket has demonstrated both broad guest appeal and incremental transaction growth in the past, and we look forward to bringing it back.

We have been hard at work this year on our innovation pipeline, which remains strong. In 2027 and beyond, we see considerable opportunity across proteins, sides and beverages, giving us multiple ways to create fresh news around Chipotle while staying true to who we are. We also continue to make progress on our efforts to expand catering nationally, and we intend to begin rolling it out in Q1 of 2027. We have been working on refining our approach and developing the [ spoke load ] bouncing tools to help optimize the process. And our pilots have delivered the operational marketing and technology insights we need to feel confident we can grow without disrupting the core lunch and dinner business. Catering guests have heightened expectations, and we intend to deliver flawless execution as we scale.

Additionally, Chipotle Family Meals, which are also available in Canada, are resonating as a convenient, high-value solution for groups of 4 to 6. To drive awareness for the Family Meal offering, this month, we launched a memorable marketing campaign, which I'll just say, like its name, is an enormous bag to highlight the oversized meal offering. This was a fun and distinctive way to connect the branded culture, drive buzz and showcase value. Early results have shown a step up of over 30% in Family Meal sales.

Together, catering and Chipotle family meals represent approximately 3% of sales today. Both remain highly incremental and operationally efficient, giving us another meaningful runway for growth.

Turning to our fourth pillar, cultivating the best talent in the industry. Our people remain our greatest competitive advantage. The quality of our restaurant teams and leadership directly influences consistency, hospitality, restaurant performance and our ability to sustain growth. We continue to make progress building the pipeline of general managers, apprentices and field leaders needed to support new restaurant openings. And we're proud to see both general manager and crew turnover down year-over-year.

We also understand the value of a second tenured manager in the restaurant, with better operational and guest-facing outcomes occurring in restaurants that do have an apprentice. 3/4 of our restaurants have apprentices today, and we will begin expanding coverage incrementally in 2027. We will keep a keen focus on hospitality and measuring the sustained benefit of this investment, and we believe the returns will justify further expansion across the year.

Central to our people strategy is offering world-class benefits, and educational assistance continues to be a strong driver of retention. In August, we celebrated the 10-year anniversary of our partnership with Guild, which provides debt-free education and greater career mobility for our team members. Nearly 25,000 team members have enrolled in the education program, and more than 14,000 have completed one.

Those programs reinforce something fundamental to our culture: Chipotle is a place where people build meaningful long-term careers. And as we strengthen leadership across the organization, we're continuing to add capabilities and expertise at the Board level to support our long-term ambitions. In September, we added Sabir Sami to our Board of Directors. Sabir brings extensive global restaurant leadership and operating experience with capabilities that align with our international growth ambitions.

Finally, turning to our fifth pillar. We are expanding our global footprint. Our approach to development remains disciplined, site selection, restaurant economics, expected returns and the strength of our talent pipeline all inform the pace of growth, and each remains strong. Chipotlanes continue to be an important part of that model. They provide greater convenience, drive higher digital mix, generate stronger sales and returns and reduce friction for our guests.

During the third quarter, we reached an important milestone with the opening of our 1,500th Chipotlane. In the U.S. and Canada, we opened 83 new restaurants during the quarter, including 53 Chipotlanes. We continue to see significant white space in both countries and remain confident that we will open around 350 restaurants this year. Looking ahead to 2027, we expect to open approximately 340 to 360 company-owned restaurants in the U.S. and Canada.

Our company-owned international business also continued to expand during the quarter with a new restaurant in the U.K., which has seen opening performance consistent with our strongest London restaurants. Alongside our company-owned growth, our partner operating model is allowing us to enter new markets with experienced local operators and expand access to Chipotle around the world.

The third quarter marked an important step forward in our ambition to build Chipotle into an iconic global brand as we entered Mexico, Saudi Arabia and South Korea, meaning Chipotle is now available to enjoy in 11 countries across the globe. Each region has demonstrated strong local demand, which can be seen in the long lines of guests waiting for us to open the doors on day 1 in each new market we enter.

In Mexico, our first restaurant opened in July to an extremely positive reception in the Monterrey Metropolitan area with our partner, Alsea. Opening volumes exceeded our initial expectations, and this has reinforced the appeal of the Chipotle brand within the country. We plan to open our next restaurant nearby, as well as our first location in Mexico City in 2027.

We entered Saudi Arabia this quarter in partnership with the Alshaya Group, and we were thrilled to see new opening volumes set yet another record and build on the demand we have seen across the Middle East. We also opened new restaurants in the UAE and Kuwait, bringing our total across the region to 18 restaurants. Our long-term outlook in the region remains unchanged, and we continue to believe it can support hundreds of Chipotle restaurants over time.

Additionally, our first restaurant in South Korea opened last month near Gangnam Station, where lines stretched several city blocks for weeks and average daily sales trends built throughout the quarter. In fact, earlier today, we opened our second location in Seoul and have additional restaurants in development as we build the business with SPC Group, including our planned opening in Singapore next spring.

So far in 2026, 8 restaurants have opened outside the U.S. and Canada, and the response we are seeing across markets reinforces our belief that the appeal of Chipotle is borderless. Consumers around the globe value high-quality food prepared fresh with real ingredients, giving us confidence that our model can resonate well around the globe. In 2027, we expect to open around 15 to 25 restaurants outside the U.S. and Canada.

To close, our third quarter results reinforce that our Recipe for Growth strategy is gaining traction and creating multiple levers to navigate a dynamic industry and consumer environment and drive sustained growth. We are improving restaurant execution, throughput and hospitality. We are scaling technology and AI while building a more engaging rewards ecosystem. We are accelerating menu innovation and evolving our marketing to keep Chipotle relevant and top of mind.

We are also building new occasions through catering and family meals. We continue to develop a deep pipeline of talent and are expanding globally with discipline. I'm confident we have the right strategy, the right leadership team and a significant opportunity ahead as we continue to build Chipotle into an iconic global brand.

With that, I'll turn it over to Adam.

Thanks, Scott, and good afternoon, everyone. Our third quarter results reflect the continued traction of our Recipe for Growth strategy as well as our ability to respond quickly and decisively when we see shifts in demand. In the third quarter, sales grew 9.6% to $3.3 billion, including a comparable restaurant sales increase of 2.1% and a positive transaction comp of 0.8%. Digital sales of $1.3 billion were 38.8% of total sales compared to 36.7% in the prior year. Restaurant-level margin was 23.3%, a decline of 120 basis points year-over-year. Adjusted diluted earnings per share was $0.27, down 7% versus last year. And we opened 84 company-owned restaurants and 5 partner-operated restaurants, expanding into 3 new markets: Mexico, Saudi Arabia and South Korea.

We entered the quarter with strong sales trends, supported by our Recipe for Growth initiatives. However, industry headwinds beginning in mid-July slowed our momentum. We quickly acted to reengage our guests with promotional offers, and I am proud of how thoughtfully our teams responded. We were pleased to see trends normalize by late August, and we saw further improvement in September after the launch of Pollo Asado and Chili Lime Chips as well as our 100 Creators campaign.

October trends have softened, consistent with the broader industry. However, we continue to see positive underlying engagement with our menu innovation and activations. We look forward to building momentum with the launch of Smoked Brisket next week, and we are confident we will deliver on our guidance of low single-digit comps for 2026.

On pricing, the impact in Q3 was around 2.7%. We anticipate it will increase to about 3% in Q4, bringing total pricing in 2026 to around 2%. As we look ahead to 2027, we currently anticipate overall inflation to remain in the low to mid-single-digit range and expect to continue managing that inflation over the long run with our new approach to menu pricing.

Before I walk through the P&L, I want to take a moment to highlight the economics behind our promotional strategy and how we approach our overall marketing investment. Promotions such as our buy-1-get-1 activations and protein limited time offers are designed to connect with our guests in a culturally relevant way. They do more than drive a single day or a single quarter of sales. They bring new and lapsed guests into our restaurants, increase frequency among existing guests and keep Chipotle top of mind.

As we shared earlier this year, our protein limited time offers typically generate a few hundred basis points of transaction lift over the life of the promotion. And we generally [ the same ] part of that lift longer term as many new guests continue to dine with us after the offer ends. Our buy 1 get 1 activations have followed a similar pattern, and the benefit is amplified when we find opportunities to connect with a cultural moment. It is this stickiness that makes these investments so productive over time.

We evaluate marketing and promotional investments through a return-focused lens. When we have great ideas that deliver attractive returns, we will lean in as we did this quarter. This discipline gives us the flexibility to respond quickly to shifts in demand while protecting the long-term strength of our economic model.

With that, I will go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter was 29.5%, a decrease of about 50 basis points from last year. The benefits of menu pricing and tariff relief were more than enough to offset inflation, which was primarily driven by beef and freight. For Q4, we anticipate cost of sales to be around 30.5%, primarily due to the impact of our Smoked Brisket limited time offer. On an underlying basis, this puts cost of sales inflation at around 3% for Q4.

Labor costs for the quarter were 25.7%, an increase of about 50 basis points from last year. The increase was driven by sales volumes, wage inflation and higher labor usage in support of promotional activity. In addition, we recognized some discrete costs related to insurance. These factors were partially offset by the benefit of menu price increases. Excluding these discrete impacts, we saw underlying inflation in the low single-digit range, and we expect this to continue into Q4 with labor costs around 26%.

Other operating costs for the quarter were 16%, an increase of about 100 basis points from last year, primarily driven by higher marketing delivery mix and inflation across several items, including utilities and maintenance. Marketing costs were in the mid-3% range during the quarter, an increase of about 40 basis points from last year as we leaned into promotional activity to reengage guests following the industry headwinds mid-quarter.

In support of the brisket campaign in Q4, we expect marketing costs to land in the high 3% range, bringing other operating costs to around 16%. Altogether, this will put Q4 margins at just under 22%, which is roughly 150 basis points lower than last year. After normalizing for a 70 basis point gift card breakage benefit in the prior year and the shift in marketing spend to support brisket, the decline is driven by sales volume. With pricing now in line with inflation, our unit economic model remains intact, and we expect margins to expand as we drive additional transaction growth.

G&A for the quarter was $185 million on a GAAP basis or $184 million on a non-GAAP basis, excluding retention equity awards granted to key executives in August of 2024. G&A included $155 million of underlying G&A, $29 million of noncash stock compensation, offset by $0.5 million related to lower bonus accruals and payroll taxes. For Q4, we expect G&A to be around $189 million on a non-GAAP basis, which will include $156 million in underlying G&A, $31 million in noncash stock compensation, although this amount could move up or down based on our actual performance, and $2 million in higher bonus accruals and payroll taxes.

As we continue to scale, our G&A growth is predominantly driven by field leadership roles supporting new restaurants, and we have leveraged G&A over the past several years, thanks to our disciplined approach to investments in technology and other areas. In 2027 and beyond, we intend to fuel our recipe for growth strategy while also leveraging G&A.

Depreciation for the quarter was $103 million or 3.1% of sales. And in Q4, we expect it to remain in the low 3% range. Our effective tax rate for Q3 was 25.6% on a GAAP and non-GAAP basis. For fiscal 2026, we continue to expect our underlying effective tax rate to be in the 24% to 26% range, though it may vary based on discrete items.

Our balance sheet remains strong, as we ended the quarter with $1 billion in cash, restricted cash and investments and no debt. Share repurchases are an important part of our capital allocation program and a meaningful way to return value to shareholders. Year-to-date, we've repurchased $1.4 billion at an average price of $34.32, and we have about $1.6 billion remaining under authorization. During the quarter, there was a period where we were unable to repurchase our stock. However, we believe our shares are undervalued, and we look forward to returning to the market as soon as the earnings blackout lifts.

To close, this quarter demonstrated the strength of our Recipe for Growth strategy and our ability to respond quickly and effectively when we see shifts in demand. Few brands can invest in the highest quality ingredients, offer an accessible price point and still deliver industry-leading economics. That unique model gives us the flexibility to invest behind our guests while protecting the long-term strength of the business. We are optimistic about closing out 2026 on a strong note, and we remain well positioned to continue creating long-term value for our guests, our teams and our shareholders.

And with that, we can open it up for questions.

[Operator Instructions] The first question comes from David Palmer with Evercore ISI.

I wanted to ask about this fourth quarter and what you think it means so far. I think you know that this quarter was supposed to be a payoff quarter of sorts where pricing was ramping through the year. You got the new kitchen equipment. You have more stores with that, the marketing improvement, the renewed focus on operations, that diminishing cyclospora headwinds and comparisons. And I think there was some expectation out there that the comps would continue to ramp maybe 3% plus, and you were kind of going there, it looked like, in the third quarter.

I think there's a perception that comps are down so far in October. And so that's making people jump to conclusions about wondering what's working, what's not working. So perhaps you can comment more specifically on October to date, what's happened? And then what's your diagnosis? What implications does this have for your strategy? And what sort of same-store sales expectation you might have for '27?

Dave, it's Scott here. Thank you for the question. I'll tell you, we entered the quarter -- I'll tell you, we finished September up 3.8% with little to -- very little promo activity, which gave us a lot of confidence that we're on the right track. We saw some broader industry pullback in the first part of October.

I'll tell you, we have since regained positive transactions. And we have high confidence in the balance of the quarter on the back of what is an extraordinary product in Brisket, which has had incredible demand over the past few years when we offered it. We see no difference this year. We think the product's improved and even better. And so we feel very confident that November and December set up very well for us with a potential exit rate on the year of 3% to 4%.

Yes. And I'll add to that, David, just to give you an idea for Q4. So taking into account the choppy start for the quarter and the dynamic consumer environment, we anticipate that our Q4 comps will actually be around a plus 2%. But like Scott said, we'll have an exit rate in that 3% to 4% range. And again, that's going to be fueled by the launch of Brisket next week as well as several marketing initiatives that we have planned.

And we're really excited really to continue to build upon this momentum in 2027. Too early to give any kind of guide at this point for comps. We'll do that at the next call. but it's still early days, with many of our sales building initiatives from our Recipe for Growth strategy. So you can imagine that we're excited as this continues to build into 2027 and beyond.

Yes, Dave, I'll just -- one more I'll add on there. I think it's a really important note to say that there's only a few core tent poles of the strategy that are actually working for us here in 2026. Much of the strategy is yet to continue to build scale and unfold. And most of the growth is still well ahead of us.

The next question comes from Sara Senatore with Bank of America.

Just maybe a question on throughput and then a quick question on, Adam, your comment on marketing. I think with the throughput piece, one of the things that we've heard from others is that maybe there's been too much focus on speed of service at the expense of hospitality. I'm just curious, I know you mentioned both, but as you think about measuring some of these other metrics to ensure that your -- the experience is better, has that changed what your checklist or your metrics that you measure for your management teams or how they're compensated?

And then the question for Adam was, you mentioned normalizing for marketing behind Brisket. I guess, I was trying to understand that comment about normalizing since it sort of seems like just this is a step-up in spending around marketing that has worked for you, but it's not necessarily onetime.

Sara, Scott here. I'll start with the throughput question. I'll flip over to Adam on promo spending. I think it's important to note that Q3's performance and throughput was very consistent with what we saw in Q2. Bonus is still tied, so crew bonus is still tied to quarterly throughput measures.

In the restaurants where we have HEEP and fully loaded, it's about 1,700 restaurants today. We're seeing plus 2 entrees in those restaurants as compared to the base, which gives us confidence that the HEEP investment is the right investment for our brand. And we'll finish that rollout as we've talked about or near complete that rollout by the end of 2027. I assure you, we are going as absolutely fast as we possibly can there.

Also important to note, we are -- as Jason and team are about to go under the tent once again with throughput 2.0 and cascade the throughput fundamentals back to the organization once again, which is something we do on an annual basis. That work has started here this quarter to ensure we are front-footed going into 2027.

Can we get better? I am absolutely positive we can get better. Is it still an absolute focal point for this organization? It is core and center to Jason's operational strategy. We all know full well, how critically important it is to our brand, and we're going to lean into that momentum that's building in a really meaningful way here in Q4.

Yes. And Sara, it's Adam. So to answer your question on marketing, you have to think about the fact that switching to this [ 4 protein ] LTO strategy that we've had this year is causing some shifts in marketing. So with Brisket coming on in November, there's a little bit more spend in the last 2 months of the year than kind of prior year. So that's where -- when we kind of talk about in support of that campaign, we expect marketing cost to be a little bit higher in Q4. So that was where that comment was based on.

The next question comes from Danilo Gargiulo with Bernstein.

Great. Scott, I wanted to expand on the comment that you were making earlier regarding your bias to action. I mean, it's clear that so far you've demonstrated greater bias to actions. You had 4 [ FTOs ], greater market spending, more locations being driven. Yet the -- on a traffic level, especially on the third quarter, it has been relatively flattish this year.

So I know you're not giving any guidance for 2027, but just directionally, what's your expectations on traffic? Meaning, do you think that you can get into positive traffic over there, even if the market overall is not improving? And if so, can you help us understand maybe the building blocks of the traffic -- of the positive traffic growth into 2027?

Yes. Danilo, I think I heard you asking about traffic. I'll tell you, we've had positive transactions all 3 quarters of the year thus far. And we feel like we're in early days of the Recipe for Growth strategy, which is designed to do just that. It's a demand-driving strategy across the core tenets of technology, restaurant execution, innovation, brand messaging, group occasions. And we feel like we're in early days of that strategy.

So if you're asking can we drive transactions in a really challenging consumer environment, I think we've demonstrated for the past 3 quarters, we can do that. And the strategy is only in the early days, and we'll continue to build and scale as the year unfolds and as we enter 2027. So if you're asking me if I have confidence in this team's ability to drive transactions in this environment, the answer is absolutely yes.

The next question comes from Dennis Geiger with UBS.

Wondering if you could talk a little bit more about the 4Q margin expectations? Adam, great color, but by line item, always helpful. I guess just relative to the comp expectation for the quarter, any other moving pieces? I guess that the marketing, it seems like a pretty big piece of this. Any other moving pieces for the 4Q margins that maybe you didn't touch on, if anything, on labor hours, investment in in some of the labor programs that you've got, anything on promo impacts? Anything else to flag beyond some of those items you called out earlier?

Yes. Sure, Dennis. So yes, what we called out earlier, of course, when you're kind of looking at it on a year-over-year basis, it's down about 150 basis points. Half of that is that gift card benefit that we got in the prior year. So you kind of have to look at that as a discrete item based off of that comparison.

And then really, the ad promo shift to support Brisket, call that another 30 basis points or so. And then the remainder is really sales volume. So we're expecting with that 2-ish percent guide about a flat transaction, but a mix impact of probably about a minus 1%. And then, of course, you've got the year-over-year impact from new restaurant openings.

And so that gives you the bridge. But taking a step back and really thinking about margins in total, that will get you -- based off of our guidance, it will get you to about a 2026 margin of somewhere in that like mid-23% range. However, you have to remember that, that includes about 100 basis points of kind of that price inflation dislocation, right? Because we're going to be around 2% pricing this year, but our OpEx inflation is closer to 3%.

And so when you're thinking about 2027, I would consider that 23.5% plus that 100 basis points, so call it a mid 24% margin is kind of the baseline, assuming that we're able to utilize price to offset inflation and then drive at least a point of [ trends ] to offset the impact of our NROs next year. And then any additional traffic growth on top of that, that will be margin accretive at our usual pass-through of somewhere around 40%. So I think those give you the pieces not only for Q4, but kind of looking forward.

The next question comes from Chris O'Cull with Baird.

Just as a follow-up, Adam, on the response to the margin question. The company has been making some sizable investments. Obviously, the increased traffic. What comp do you believe is necessary to stabilize margin performance with this inflation outlook?

Yes. I mean, assuming that we're covering our inflation with pricing, which is what we intend to do -- we might not get that right every quarter, but we intend to get that right over time. We need about 1 point of [ trends ] to offset the impact of new restaurant openings. So when you get north of that 1% [ trans ] comp, that's when you start to see that 40% flow through.

So if you're looking at 3% inflation, you're thinking 4% nominal comp might be necessary to stabilize margin?

Yes, that's correct.

Okay. And then how are you thinking about overall level of marketing investment that's right for the business as you go into '27? I think your spend is up over 20% year-to-date. So I'm just curious if you expect a similar rate of growth in marketing spend next year?

Chris, this is Scott. I think 3% is the right range for us to think about, and that could flex up or down. We will lean into return-generating opportunities and pull back when we don't see that same opportunity is how I would think about it. Right now, the baseline for that budget for the upcoming year will be in that 3% range. And we think that gives us a really strong calendar to support what I believe to be a best-in-class LTO platform for the upcoming year.

But we'll see. There could be opportunities where we want to lean in where we know there will be a return to be gained or to be had. And so that's where we'll spend our dollars.

The next question comes from John Ivankoe with JPMorgan.

The question on the physical asset itself outside of the high-efficiency equipment package, really looking at the aesthetics of the box. We have talked about this before, but as over 2,000 Chipotle restaurants are over 10 years old, how much of an opportunity from both an employee and a customer perspective might a refresh give you? I say that because the vast majority of Chipotle customers, they might not dine in your restaurants, but they actually come to your restaurants, whether to order on-premise or pick up a digital order. So that must be a very important touch point for a lot of people. So as you've begun to stage gate the process in terms of refreshes, how big of an opportunity do you think it might be to modernize the brand further?

John, thank you. I think it could be a really big opportunity for the brand. We're in the very early days of testing a group of restaurants here in California, Florida and Texas. We're almost through. We're done with California. Texas is up and running. I think Florida is still in early days of the remodel program.

And what we're looking to do is really resurrect some of the legacy restaurants that are, let's call it, the first 1,000 restaurants we've built in the brand, gosh, now over 20, 30 years ago. And what we're looking to do is bring them up to date, more open format, more modern, more differentiated. We think there's a strategic opportunity. We're seeing early signs that give us confidence that we're on the right track.

But we will -- we'll have more to say in the -- probably in the Q1 earnings call and how we think about a remodel program, if you will, or a remodel strategy, but we think we're on the right track. We know there's an opportunity to make the environment more appealing, soften up the environment a bit and make the consumer feel more welcome in our restaurants.

The next question comes from Peter Saleh with U.S. Bank BTIG.

Great. Scott, you just mentioned a great LTO lineup for 2027. Just trying to understand if you guys can help us out with how many of those LTOs next year will be new products versus existing LTOs that are coming back to the menu?

Yes, it's a great question, Peter. So we'll bring in some new innovation you'll see on the calendar -- you won't see it on the calendar, but you'll see it as we launch those products in the marketplace. And then you'll see some tried-and-true favorites, items that we know consumers want because they tell us daily to bring them back.

And so we have -- we're setting up the calendar to have about 4 center-of-the-plate LTOs, and then we'll continue to lean into sides, dips. And we're going to really be a little more front-footed on beverage innovation in the upcoming year. We think there's a really strategic opportunity for our brand to drive incidence in a meaningful way through our partnerships with our beverage partners. And so you'll see more of that.

But I don't want you to think that LTO -- and I get this all the time -- means additional complexity necessarily for our restaurant teams. Our center of the plate LTOs are really just a sauce change on our core protein. Our teams are executing that with ease in our restaurants, and transition from one to the next is more simple than you would find in most brands that have an LTO strategy.

So don't be discouraged by the pace of innovation there. Just know that we're going to put forward products that are on trend, on market, on brand, and that will drive demand and create value. We've learned that our consumers are looking at value in different ways. Price isn't the only way they look at value. They look at innovation, menu innovation is a really meaningful point in the overall value equation.

The next question comes from Andrew Charles with TD Cowen.

You talked about high 3% of sales spent on marketing or planned for marketing in the fourth quarter. And I'm curious, with Fernando in place for the full quarter, should we expect this to be a fair run rate for the first half of 2027 and beyond?

We haven't gotten to the point yet where we're going to kind of give an idea of how it's going to be from quarter-to-quarter next year. But as Scott said earlier, we're somewhere in that low 3% range or around 3% for next year. But we'll ebb and flow that as we see fit, whether it aligns with what we're doing from a TV standpoint or from a big advertising standpoint around when certain LTOs drop or different investments that we want to make that we believe we can get a great return from.

Okay. That's helpful. And then just on the pricing side as well. We know there was the ramp throughout this year. Are you guys happy with the 2% rate, do this at a sustainable level? I know you talked about Adam, for instance, low to mid-single-digit inflation for 2027. What's kind of your philosophy on pricing as we look ahead?

Yes. I mean, it really hasn't changed. I mean, I'd say, over the long run, we're going to continue to look at utilizing price to offset inflation, but we want to do it in a very measured, patient way. And I say that because if there's temporary or transitory increases in inflation that we know is only going to last a few months, we won't utilize that opportunity, of course, to pass it on. We'll eat those costs. And so it's more of that longer-term inflation.

But primarily in the past, it's been closer to that 2% range. And so we hope to get back to that sooner rather than later. It's just not looking like that's going to happen in 2027 at this point, but we'll give more color on that as we get into next year.

But I think it's important to note that the way we're rolling out pricing across the system allows us to measure pre and post net of control, the impact of that price lift to ensure we don't see resistance greater than we should. And so we're able to flex pricing up or down or discontinue altogether based on what we're seeing happening in the consumer environment.

The next question comes from Brian Harbour with Morgan Stanley.

The high-efficiency equipment package is -- does that comp lift that you talked about sustain quite nicely? I mean, has this been like an increasing contributor through the course of this year to your same-store sales? Is that what you expect in '27 as well?

Yes. I mean, I expect it to continue to build. So as we talked about on the call or in the prepared comments, we're at about 1,700 restaurants. But as we've said in the past, it takes a few months for us to really start to see that comp lift come into fruition, right? The teams have got to get used to the new equipment, and then it takes a little while for the guests to really see kind of that better hospitality. Taste of food going up, all of those elements take a little bit longer as well. And so there's a bit of a lag.

And so I would look at it as even though we're through 1,700 restaurants, it's probably only half of those restaurants that we're actually seeing that have been in place long enough to get that comp lift. So I expect this to continue to build. And everything that we look at, whether it's that first phase of restaurants or the ones that have kind of hit that 2- or 3-month mark, those comp lifts have sustained in that couple of hundred basis point range. And so we're excited to continue to build on this because I think it will build on our comps in 2027 and also in 2028.

Yes. And the current note there as well, to follow on, is we're seeing in those restaurants where we're fully loaded, stronger guest satisfaction scores, stronger taste of food scores and better throughput at max 15, which tells us we're on the right track. And as that continues to roll out to the entire system, we'll continue to scale and build.

Okay. Great. Do you still expect kind of the mix dynamics that you've been seeing, just within same-store sales? Do you still expect that to continue?

Yes. I mean, for the near term I do, so mix impact in the quarter, for example, was about a minus 1.4%. It's still driven by lower group size, which again is being driven by increased rewards engagement. And our rewards percent of sales has been growing nicely. I think we're at around that 33% or so right now. We were at about 30% or 31% last year at that same time. And so seeing nice improvement there.

So think of that as people coming in and redeeming 4 free entrees or certain elements there that's lowering that group size. And so that we expect to continue, especially as we continue to lean in on rewards. But we're also seeing a nice offset from extra meat, for example. So still up about 20% from the protein campaign that we launched in January. We'll, of course, start to lap that this January. But we're also seeing offsets in Cilantro Lime Sauce. We only had about a month of Chili Lime Chips, but that was in there as well. And then, of course, family meals. But again, I expect that roughly 100 basis point drag from group size to continue as we continue to lean into rewards, but it will ebb and flow based off of some of this LTO activity.

The next question comes from Jon Tower with Citi.

I'm curious if you could speak to the delivery business, what you saw in the quarter and frankly, if there's any channel shifts you're seeing with consumers? And specifically, are there any initiatives underway to try and build the value perception with consumers in that channel specifically?

Yes. I kind of start with just kind of what we're seeing. I mean, it was kind of a low single-digit comp. But in all honesty, it was the least in terms of growth in the digital channels. Order ahead was our primary grower. I mean, there's a lot of things going on in there, especially around rewards. And as Scott mentioned earlier, 1,500 Chipotlanes, that's driving a lot of people to order ahead. And then catering actually out comped delivery as well. But delivery is still seeing growth on a year-over-year basis, just not as much as the other digital channels. Scott, I don't know if you want anything to add?

Yes. I think delivery is still a huge growth channel, and we've seen a lot of growth over the last 3 quarters. But we're seeing a lot of progress with loyalty. I think loyalty comps are up over in restaurant comps for the quarter. The relaunch has really paid huge dividends. We now have 24 million people in the rewards program that are driving 33% of our transactions for the entire system. We think that number can move much higher. If you talk to Arlie, she'd tell you it should be in the 40%, 50% range and has aspirations and plans to get there. But there's a lot under the hood that's being worked on to continue to drive demand through the channel.

The next question comes from Brian Bittner with Oppenheimer & Co.

It's interesting to hear that you're going to begin this catering rollout in the first quarter. Can you talk to us about what percentage of your markets you can scale the catering strategy to? Or should we actually be thinking of this as a national strategy? And can you give us an idea of the performance you've been seeing in these pilot markets that maybe give you the confidence to really get after this opportunity?

Yes. Thanks for the question. We think it's a really strategic opportunity for us. So it's more of a national rollout in the upcoming quarter, but we'll continue to add elements of the offering that will continue to have it scale and ramp for the consumer, whether that's third-party marketing, third-party delivery and/or the technology advancements we need to make to ensure we're load balancing correctly across restaurants.

We think today -- so group occasions today represent 2% to 3% of sales. If you look at what are some of our competitors in the space are doing upwards of 5%, 10%, dare I say, 15% of total sales and catering, we know there's an enormous opportunity. We're not trying to get to 15% tomorrow morning. What we'd like to do is see 1 or 2 points of growth year-over-year in the next couple of years, and we continue to ramp and scale. The goal here is to ensure we can deliver an incredible consumer experience and not disrupt the core business, which is priority #1 for us.

Thank you. I understand there is time for one last questioner. That will be Gregory Francfort with Guggenheim Securities.

My question is just on international and maybe what you're seeing there? I think you called out kind of opening up 15 to 25 stores overseas next year. I'm not sure if you'd be willing to break out how many of those might be company-operated? And then kind of what sort of ramp maybe we should expect from there in the next couple of years?

Yes. So those 15 to 25 will be all partner-operated across the regions where we're open today. The 340 to 360 will be equity owned, so take U.S., Canada and Western Europe with some limited growth in Western Europe. We are now actively building a development pipeline there, which takes time, as you can imagine.

So most of that growth will come through partner-operated. Alshaya Group in the Middle East, our Middle Eastern partner, has really aggressive plans for growth there. We'll expand to Singapore in Q1 with our partner, SPC, and then opened up Mexico City early Q1 as well or Q1, Q2 of next year.

So that's where the growth is coming. Can they go faster? Perhaps. It will really depend on what's going on with the conflict in the Middle East and how fast our partners in Latin America and Southeast Asia can get up to speed.

Yes. And I would just add one thing on our company-operated in Europe. We continue to show better economics, and we actually had comps in the low double-digit range in Q3. I think we mentioned they were in the high single-digit range in Q2. So that is driving increased restaurant margins and our cash-on-cash returns in Central London and Frankfurt are still very attractive. So like Scott mentioned, we're going to continue to grow in those areas.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Scott Boatwright for any closing remarks.

Well, thank you for joining us today. I'm really proud of the progress our teams delivered in the third quarter. The [ 140,000 team members ] out in our restaurants that work so hard for us every single day to deliver an incredible experience to our support center staff here in Newport Beach and Columbus.

We're in the early days of our Recipe for Growth strategy and believe much of the growth is still to come. I think that's a really important note. And we've seen measurable progress across 2026 with positive transactions in every quarter. And we've been -- we see promising results in multiple areas of the 5 pillars of our strategy.

Looking forward, we're going to continue to build momentum in this dynamic environment, and many of our initiatives are in early stages of the rollout. As I said earlier, I know we have the right strategy and the right team and more growth levers in place today than any point in our history. And I'm confident in our ability to build Chipotle into a global iconic brand while creating long-term value for our guests, our teams and our shareholders.

I think it's a really important note to say that we are still a category-defining brand. That is the way people want to eat in the world today. And so I think that's an important note, and that there's more growth in front of us than there is behind us.

And if you're asking the question, are we still a growth brand, we absolutely are. We have industry-leading economics. We have incredible growth in front of us, an extraordinary team of professionals that are committed to our strategy. That said, I just want to say thank you for your continued support, your confidence in Chipotle, and we look forward to updating you our continued progress next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day and welcome to the Chipotle Mexican Grill Second Quarter 2026 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michael Johnston, Vice President of Finance. Please go ahead.

Hello, everyone, and welcome to our second quarter fiscal 2026 earnings call. By now, you should have access to our earnings press release. If not, it can be found on our Investor Relations website at ir.chipotle.com. Additionally, supplemental investor information is available on our site as a reference for today's call.

I will begin today by reminding you that today's discussion includes forward-looking statements, including projections about our future business, financial and other performance results. 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 today's earnings release and the risk factors contained in our annual report on Form 10-K and in 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, Chief Executive 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.

Thank you, Michael, and good afternoon, everyone. We're pleased with the strength of our second quarter results, which were driven by continued positive transaction growth and clear evidence that our Recipe for Growth initiatives launched at the start of the year continued to gain traction. These proof points reinforce our confidence as we strengthen restaurant execution, accelerate innovation, and invest in the long-term health of the business.

For the second quarter, we delivered revenue growth of 9.3% to $3.3 billion, including positive comparable sales and transactions. Our results reflect the team's disciplined execution of our Recipe for Growth strategy. Over the last several months, we have seen the successful return of Chipotle Honey Chicken, continued strength from our Cilantro Lime Sauce, our revamped Rewards program and marketing initiatives that helped keep Chipotle top of mind, including several culturally relevant activations. Together, these initiatives drove incremental transactions while reinforcing the strength and relevance of the Chipotle brand.

At the same time, we continue to make targeted investments to strengthen the guest experience and improve hospitality. Our Recipe for Growth strategy is creating multiple levers to drive transactions, improve execution, and reinforce the competitive advantages that differentiate Chipotle. As a reminder, the five pillars of our strategy include: protecting and strengthening the core by driving operational and culinary excellence to deliver exceptional value for our guests, modernizing our business model with industry-leading technology, including leveraging AI and relaunching our Rewards program to elevate the experience for our guests and our teams, evolving brand messaging and accelerating menu innovation in new [ location ] that drive demand, cultivating the best talent in the industry, energized and focused on speed and agility and expanding our global reach by scaling with intention through proven company-owned and partner-operated markets as well as strategic new regions.

[indiscernible] exceptional throughput and exceptional hospitality. That is what we are focused on every day, and it's why we're making targeted investments to strengthen the execution across our restaurants. Throughput is the cornerstone of great hospitality. And across the first half of 2026, we've seen steady progress across all 4 pillars of execution.

The two most important pillars to building throughput are Linebacker and Expo. And in addition to strong export deployment, we also drove Linebacker deployment in over 70% of our restaurants for the first time this quarter. The team's focus on delivering the basics through throughput drove year-over-year Max 15 performance to accelerate for the second quarter in a row. In addition to our weekly throughput reviews and consistently high staffing levels, our investments in the back of the house over the last 2 years have been a key enabler of this progress. This includes last year's introduction of Produce Slices and the ongoing rollout of HEEP, our high-efficiency equipment package. HEEP is designed to make food preparation, more delicious, more efficient and more consistent.

Because we're reinvesting the labor efficiency back into our restaurants, our crews can spend more time with our guests, strengthening hospitality and delighting them by being properly deployed during busiest periods. The equipment is now installed in more than 1,000 restaurants, and we still expect to reach approximately 2,000 restaurants by year-end. We are excited by the results we've seen so far, including improvements in food quality, guest satisfaction and throughput gain are perhaps the most notable where we see HEEP restaurants outperforming the enterprise by 2 to 3 entrees in their peak 15-minute period. These tangible gains are translating at hundreds of basis points of improvement in comparable sales.

Beyond HEEP, we're also reinforcing our commitment to exceptional hospitality through enhanced training and greater accountability. While food quality and general [indiscernible] bring guest through our doors, it's the experience we deliver that keeps them coming back. To help ensure we're consistently meeting our standards, we're bringing back Mystery Shoppers to provide more frequent feedback to our teams. These insights will help us identify opportunities for improvement and raise the bar across the enterprise.

Additionally, our restaurant leaders held a Hospitality Huddle with the crews in June to help every team member understand their duty to say yes to the guest and [indiscernible] the role they play in delivering a great experience. We carry this message further. We're also empowering our team leaders to identify more moments to surprise and delight our guests. We're also optimizing how general managers and our practices are deployed throughout the week. Through enhanced training and a strategic reallocation of manager time to support our busiest day parts, we're seeking to strengthen execution where it matters most. We're starting to see these investments pay off with no year-over-year increases in overall guest satisfaction scores and digital on-time percentage alongside a meaningful reduction in refunds.

The second pillar is modernizing our business through technology and digital innovation. [indiscernible] we are now even better positioned with the addition of Arle Sisson, our Chief Digital Officer. She has quickly impacted the culture and direction of her teams and is bringing a new and inspired vision for how we can move faster in implementing technology to better serve our restaurant teams and engage with our guests. [indiscernible] we're already starting to see this come to life through the launch of our modernized Cook to Needs tool live in pilot this month. The tool helps to ensure our teams are ready with the right amount of freshly prepared, food at the right time. It also automates a cumbersome daily task by eliminating data entry and automatically incorporating AI-based forecasts.

Early feedback from our crews has been strong, and the tools utility will only grow as our AI breadth expands, providing dynamic adjustments, intelligent insights and actionable coaching. This is complemented by Chipotle Kitchen, our proprietary crew interface on the digital make line, which is designed to improve digital order accuracy, speed and consistency. We are currently rolling out this new technology to all restaurants and continue to see encouraging improvements in accuracy, on-time fulfillment and overall guest satisfaction.

Within Chipotle Rewards, we relaunched in mid-April with an enhanced experience designed to increase personalization, deepen guest engagement and strengthen our digital ecosystem. The relaunch introduced more personalized offers simplified onboarding, increased proactive reengagement [indiscernible] users and expanded redemption options. One of our largest opportunities remains increasing Rewards participation in our in-restaurant business, where are only about 20% of the transactions scan for Rewards compared to nearly 90% of our own digital transactions. To help close the gap, we introduced new in-restaurant enrollment tools, including Menu Panels, QR codes and enhanced team member engagement.

These have all driven a nearly 20% step-up in [indiscernible] enrollments since launch. Encouragingly, in-store loyalty comps have outpaced order ahead loyalty comps since the relaunch, reinforcing our belief that simplifying the in-restaurant rewards experience can meaningfully increase engagement over time. We're also preparing to pilot a new frictionless in-restaurant rewards experience beginning in August that will allow our guests to automatically earn Rewards points while pay, eliminating the need to also scan the Rewards card at checkout. This is an important step to not only create a more seamless in-restaurant loyalty experience, but another component of our relentless focus on throughput, making payments faster and easier for our most loyal guests. Over time, we believe this will lead to a meaningful improvement in both rewards engagement and speed of service.

In June, we brought back our Summer of Extras campaign. Building on the momentum of our Rewards relaunch and new offers designed to reward frequency and deepen engagement. Compared to last year, more members have engaged with Summer of Extras with the house gains coming from our lowest frequency guests and we have seen overall frequency increase. With 23 million active members in our Rewards program, we continue to see a significant opportunity to strengthen our digital ecosystem by reducing friction, increasing personalization and creating additional opportunities to drive guest frequency over time.

Our next strategic pillar is evolving our brand messaging, accelerating menu innovation and expanding on new occasions. At the heart of this pillar is ensuring guests understand what makes Chipotle different, real food made from high-quality ingredients, prepared fresh every day using classic culinary techniques. Combined with generous portions, speed and accessible price point, we believe Chipotle continues to offer one of the strongest value proposition in the industry. This was reinforced by our most recent branch tracker which showed meaningful improvement in guest perception that they are getting good value at Chipotle.

It has been great to welcome Fernando Machado, our Chief Brand Officer to the team this quarter. In its first 2 months on the job, I've been impressed with his enthusiasm and urgency he has brought to the organization and evolving our brand messaging. He was already an admirer of the brand and that has only been reinforced as he has taken time to truly understand Chipotle. His vision is to enhance the way we tell our story and he's quickly moving the team to implement marketing strategies that highlight the differentiated value of our real food, stretch our creative ambition and resonate on a cultural level. Later this quarter, we will begin to see the first elements of this ongoing evolution in our brand messaging.

On menu innovation, we kicked off the quarter with the return of Chipotle Honey Chicken, one of our most popular limited time offerings that delivers a balance of smoky heat from Chipotle peppers and a touch of sweetness from pure honey. Guest response has been strong, outperforming last year's launch and achieving a cumulative attachment rate north of 25%. Our Cilantro Lime Sauce, which is prepared fresh daily in our restaurants also continues to perform exceptionally well. It has maintained attachment rates above both Red Chimichurri and Adobo Ranch. Reinforcing the demand we're seeing for flavor-forward menu innovation. Together, these offerings demonstrate our ability to introduce compelling new innovation while staying true to the culinary principles that define the Chipotle brand.

We also refreshed our High-protein campaign of new athlete and Chipotle superfan orders, reinforcing one of our key points of differentiation, delicious high-quality protein prepared fresh every day. Looking ahead, we have a strong innovation pipeline plan for the second half of the year, including two additional limited time protein options and continued innovation across the menu. These offerings will give our guests more reasons to choose Chipotle and reinforce exactly what makes our food unique.

We're also focused on expanding Group occasion where guests choose Chipotle, particularly through Catering and Build Your Own Chipotle, which we are now positioning more clearly as a family meal solution. This helps guests better understand its convenience and value. And the response has been clearly positive with a notable increase in orders since we implemented the change. The results from our Catering pilots in Chicago, Boston and now Phoenix have been very encouraging. The Catering guest comes with the highest expectation of flawless execution, and these tests have provided valuable learnings as we prepare to scale our operation and technology across both first and third-party marketplaces. We are now confident we can grow the business while maintaining the quality, speed and hospitality that defines the Chipotle experience.

Together, Catering and Build Your Own Chipotle represent 2% to 3% of sales today, but they are highly incremental and operationally efficient. We are working through the remaining pilot learnings now positioning ourselves for a national launch in 2027.

Finally, our culturally relevant marketing continued to resonate with guests throughout the quarter. Our Tatted Like a Chipotle Bag promotion earlier this year only briefly held the title as our highest sales day ever as it was outdone by the Matchday BOGO, which set a new single day sales record and became the most successful BOGO in our history. These campaigns are an important part of the broader effort to tell the Chipotle story in a more authentic and culture-forward way while giving guests more reasons to choose us.

Now shifting our focus to developing world-class people leaders. At Chipotle, our people are our greatest competitive advantage. And when we invest in our teams, they deliver better experiences for our guests, and that drives sustainable growth. A great example is Hamed Harizi, who joined Chipotle as a crew member 13 years ago. He rode his bi-cyle to work, had no college degree and came to work each day determined to learn and improve. Today, Hamed is the Team Director responsible for developing talent across his market and is nearing completion of his master's degree, his journey reflects what makes Chipotle special. Culture that recognizes potential rewards dedication and creates pathways for advancement fueled by our growth. His story is one of many that demonstrates the impact Chipotle can have on the lives and careers of our team members.

Just as importantly, we see the strength of that culture reflected in our results. General Manager turnover remains at a multiyear low and crew turnover has returned to historical norms. We believe Chipotle has become one of the industry's best developer of restaurant operators and that capability is critical to delivering consistent execution today while supporting our long-term growth.

Next, I'm pleased to provide an update on how we are expanding our global reach through disciplined growth across both Company-owned and Partner Operating markets. We opened 100 company-owned restaurants during the quarter and still expect to open approximately 350 restaurants this year with about 80%, including the Chipotlane. We see substantial growth potential in North America, and we're applying the same disciplined operating model that has driven our success here as we expand internationally.

In Europe, we saw each country deliver high single-digit comp sales growth during the quarter. As our continued alignment to North American culinary operations and training standards translated into stronger restaurant performance. And just 2 weeks ago, I had the privilege of attending the opening celebration of our first restaurant in Monterrey, Mexico. We believe that real food delivered with excellent culinary will resonate strongly with the Mexican consumer and are entering the market with world-class operational capability and our partner, Alsea. It was a pleasure to see this come to life with incredible energy and enthusiasm for our market entry. We will build on this momentum with additional openings planned in the Monterrey Metropolitan area later this year and expansion into Mexico City 2027.

We also opened our first restaurants in Seoul, South Korea this year with Singapore expected to follow shortly thereafter in early 2027 of our partner, SPC Group. Each of these new markets represents an important step toward our vision of building Chipotle into an iconic global brand.

Now turning to our Partner Operating markets in the Middle East. In late April, we opened a new restaurant in Abu Dhabi, followed by our second location in Qatar last week. Additionally, we plan to enter the Saudi Arabian market in the near future. We're also encouraged to see sales across the region returning to pre-conflict levels. While near-term development remains dependent on geopolitical conditions, our long-term outlook remains unchanged, and we continue to believe that the region has the potential to [ support ] hundreds of Chipotle restaurants over time. Consumers around the world are increasingly looking for high-quality food prepared fresh with real ingredients, and we believe totally is well presumed to meet that demand.

To close, we're encouraged by the progress we're making of our Recipe for Growth strategy has gained traction in the last 2 quarters. We're strengthening restaurant execution, accelerating innovation, enhancing our digital capabilities, investing in our people and expanding our global reach. What gives me the most confidence is our team, both here in North America around the globe. They're energized, aligned and focused on delivering exceptional food, throughput, hospitality and value every day. I'm confident we have the right leaders in place, the right strategy, and a significant opportunity ahead as we continue building Chipotle into an iconic global brand.

And with that, I'll turn it over to Adam.

Thanks, Scott, and good afternoon, everyone. Our strong second quarter performance provides further evidence that our recipe for growth strategy is delivering results. Within the quarter, sales grew 9.3% to $3.3 billion, driven by a comparable restaurant sales increase of 2.2%, including a transaction comp of 1%. Digital sales of $1.2 billion were 38.3% of total sales compared to 35.5% in the prior year. Restaurant-level margin was 25.2%, down 220 basis points year-over-year. Adjusted diluted earnings per share was $0.33, flat to last year, and we opened 101 new restaurants, including 80 Chipotlanes and 1 international Partner-operated restaurant. These trends were supported by the return of Chipotle Honey Chicken and continued strength from Cilantro Lime Sauce. They were further amplified by the Rewards revamp, Summer of Extras and targeted investments we are making in our restaurants to strengthen the guest experience.

We were pleased to see this momentum carry into early July, but trends have been softer in recent weeks and they've heightened consumer caution around the broader restaurant industry. As a reminder, comparisons become more difficult in the third quarter as we lap increased promotional activity in the prior year. However, as we navigate both industry and consumer challenges, we are confident that we will continue to build upon this momentum for the rest of the year, and we now expect full year comp sales growth in the low single-digit range.

On pricing, the impact in Q2 was around 1.6%, and we anticipate it will increase to the mid-2% range in Q3. For the full year, we expect to land near the high end of the 1% to 2% range we communicated earlier this year. Before I walk through the P&L, I want to take a moment to spotlight new restaurant performance and the trends informing our development strategy in North America and beyond.

Over the last 7 years, we have steadily and thoughtfully increased the pace of new restaurant growth in North America and are thoroughly impressed by our team's ability to deliver excellent sites with well-trained crews as we've scaled. New restaurant productivity has remained stable in the 80% range, and year 2 cash-on-cash returns continue to be around 60%, both of which are among the strongest in the industry. Importantly, as our development pace has increased, the net impact from the new openings on our comparable restaurant sales is approximately 100 basis points, which is in line with what we have seen for many years. We are also encouraged to see these results hold even as we add restaurants in our most dense markets, which builds even greater confidence in our ability to operate at least 7,000 restaurants across the region.

Opening a Chipotle nearly every day of the year is no small feat, but the results give us confidence that our talent and real estate pipelines can support this level of growth while preserving the strength of our existing restaurant base. In Europe, our results this year reflect our multiyear effort to align the region with North American standards. This has taken unit economics to a level that warrants additional investment and has given us the confidence to build our pipeline for meaningful growth in the coming years. At the same time, the strength of our company-owned operating model is [ influencing ] how we're able to approach partner-operated growth. As we enter new markets, Chipotle is highly attractive to best-in-class local operators because of what I just outlined, our proven brand strength and leading unit economic model.

Our unique partnerships allow us to expand access to [indiscernible] globally while still participating meaningfully in the long-term growth and profitability of each new market. With that, I will now go through the key P&L line items, beginning with cost of sales.

Cost of sales in the quarter were 29.7%, an increase of about 80 basis points from last year. The benefits of menu price alongside lower avocado and dairy prices were more than offset by inflation, primarily in beef and freight as well as increased usage of several ingredients, including chicken, steak and [produce]. For Q3, we anticipate cost of sales to be just under 30% as sequentially higher avocado pricing will be offset with menu. Overall, we anticipate cost of [indiscernible] inflation to be in the low single-digit range for Q3. Labor costs for the quarter were 25%, an increase of about 30 basis points from last year. The increase was primarily driven by wage inflation and performance bonuses in addition to labor execution in restaurants as we lean into the guest experience, including our Hospitality Huddles held during June.

These were partially offset by the impact from menu price increases. For Q3, we expect our labor cost to be in the mid-25% range with wage inflation in the low single-digit range. Other operating costs for the quarter were 14.9%, an increase of about 90 basis points from last year, primarily driven by higher marketing and inflation across several items, most notably insurance, maintenance and utility costs. Marketing costs were 3% of sales, an increase of about 30 basis points from last year. In Q3, we expect marketing costs to remain in the low 3% range and for the full year, also in the low 3% range. For Q3, we anticipate other operating costs to be in the mid-15% range.

G&A for the quarter was $190 million on a GAAP basis or $176 million on a non-GAAP basis, excluding $13 million related to certain legal settlements and restructuring costs associated with our Recipe for Growth strategy and $1 million related to retention equity awards granted to key executives in August of 2024. G&A included $148 million of underlying G&A, $25 million of noncash stock compensation, $5 million related to higher bonus accruals and payroll taxes offset by a $2 million benefit related to our All Managers' Conference. We expect our G&A to be around $180 million on a non-GAAP basis in Q3, which will include $152 million in underlying G&A $25 million in noncash stock compensation, although this amount could move up or down based on our actual performance and $3 million in higher bonus accruals and payroll taxes.

As we continue to scale, our G&A growth is predominantly driven by field leadership role supporting new restaurants. Our disciplined approach to investments in technology and other areas has resulted in efficiencies across the P&L while still delivering meaningful leverage to underlying G&A over the past 5 years. We believe that in the coming years, we can continue to fuel our recipe for growth strategy and leverage G&A.

Depreciation for the quarter was $98 million or 2.9% of sales. For 2026, we expect it to remain around 3% of sales. Our effective tax rate for Q2 was 24.3% on a GAAP basis and 24.0% on a non-GAAP basis. For fiscal 2026, we estimate our underlying effective tax rate will be in 24% to 26% range, though it may vary based on [ discrete ] items. We ended the quarter with $800 million in cash, restricted cash and investments, a decrease of $1.3 billion compared to a year ago as we continue to utilize our balance sheet to opportunistically repurchase stock, including $631 million in the second quarter at an average price of $32.55. This brings our year-to-date total to over $1.3 billion at an average price of $34.35. With access to our $500 million revolver and no debt, we will continue to opportunistically repurchase stock. And during the quarter, the Board authorized an additional $1.3 billion to our repurchase authorization. At the end of the quarter, we had $1.7 billion remaining.

To close, I want to thank our nearly 140,000 employees for their hard work and commitment to delivering real hospitality in every restaurant every day. It's exciting to see our Recipe for Growth strategy continued to gain momentum this quarter, and we know there is significant opportunity ahead, where Chipotle's uniquely positioned brand and the leading economic model [indiscernible] foundation, I'm confident we have the right priorities and teams in place to build on this momentum and drive sustainable growth for years come.

And with that, we'll open it up for questions.

[Operator Instructions] The first question today comes from Sara Senator with Bank of America.

I guess I wanted to ask maybe about -- you mentioned the kind of core underpinnings of what you -- what is driving your comp delicious food, generous portions quality. I guess, maybe two questions about those two components. One is, can you talk about bringing back LTOs from the pantry. I think in the past, you've said the lift kind of builds every time different card data, may be such a different things. Is it still the case that as people kind of revisit these LTOs, the lift you get from Honey Chicken, for example, is as good or better than the last time you brought it?

And then I guess on the sort of generous portions, are you seeing any changes in value perception? I mean, it's obviously always been very good value for the money, but I think maybe the perception hasn't has fully reflected that. So anything on that and just the impact of how underpriced the industry for so long?

Sara, Scott here. Thanks for the question. I'll tell you, Chipotle Honey Chicken did perform better the second time around as do many of our LTOs. So we're excited about the pantry items that we have. I do think there's a point of diminishing returns. I don't know what -- if that's the fifth or sixth time around. That said, we have ramped up innovation in menu 4x what it was just a couple of years ago. And you're going to see new items come on to the calendar in the coming months ahead and just revisit tried and true [indiscernible] that continue to perform better and better, the second and third time we introduce those to the consumer or reintroduce those to the consumer.

As it relates to value, Sara, I'm happy to report our brand tracker showed really solid progress across all income groups and age cohorts on value perception. Our affordability scores were better in Q2 than they've been in probably the past couple of years. And so I think we're making meaningful progress as it relates to value at Chipotle. What we also learned, I think, is an important note is value isn't just about discounting and price point, it's about convenience, it's about execution, it's about menu innovation. There's a host of things that the consumer is looking at to determine value. Obviously, the introduction of the High-protein menu is playing a part in that as well as an approachable price point with an emerging trend around protein and who better to capitalize on great protein than Chipotle Mexican Grill. We have the best proteins in the world, with the best [indiscernible] practices in the world, and we should own that category.

The next question comes from David Palmer with Evercore ISI.

Thanks. Good evening. Just want to talk about sort of a pushback that I hear and that is that it feels like Chipotle is doing a lot and spending a lot to get the 1% to 2% same-store sales growth lately. And how do I know that they're really going to be picking up momentum into '27? And I know you have a different view on that, but maybe you could take a crack at helping maybe give a sense of how you can feel confident at this moment, meaning you even talked about lately dealing with some tough comparisons and some slowdown lately, but you're taking up the guidance to up low single digits. So clearly, you feel confident about some bit of momentum picking up either in the current business and the underlying, but also something in the initiatives ahead. So maybe you could help give us a sense of where you have that confidence?

David, thank you. I'll tell you the transaction growth we saw in Q2, was really the early days of the Recipe for Growth strategy, hard at work for us, specifically around menu innovation. And so if you think about what we're doing is we're investing in our restaurant execution, and that investment is in the form of High-efficiency Equipment Package and really investing in their throughput and hospitality, and the proof points, the early proof points in guest satisfaction, food quality and operational consistency tell us we're on the right track.

And then we're building additional transaction growth drivers through I talked about menu innovation, deeper rewards engagement, stronger brand communication, and expanded group occasions. And all of these things, Dave, are starting to show green shoots of positive momentum, but they will continue to build and sale as the year unfolds, which will add layers of growth as it sets up for the balance of the second half of '26 and into 2027. And we're early days on what Arlie -- I believe Arlie will do in our digital properties and digital commerce for our business. The early thinking I won't share here on the call today is really innovative, really creative and really pushing our creative ambition. That's what we talked about with Fernando as it relates to our brand communication, culturally relevant branding that is not only a part of culture, but leading culture, and he also is really stretching the team on creative ambition. And again, the idea that he and I have discussed over the past couple of weeks are really industry changing and leading. And so I'd say we're early days. The momentum is already building, and we have more levers that we will continue to pull as 2026 unfolds.

The next question comes from Dennis Geiger with UBS.

I was wondering if you could provide a little bit more color on the guide for the positive low single in 2026 on the comps, including perhaps any insights into the third quarter or early days? I know you talked about the softening in recent weeks. But just anything on that trajectory, maybe where the trend was into some of the challenges for the industry in recent weeks, Scott, and just how you're thinking about cadence from here if anything to share there?

Yes. Thanks, Dennis. It's Adam. I'll jump in. So traffic in the second quarter really improved throughout the quarter, and we're really encouraged by the momentum that is building as we continue to execute on our Recipe for Growth initiatives, and that momentum continued into the first half of July. And then in the second half of July, we did see a softening, call it about 200 basis points or so right around the issue that's affecting the industry around cycler. And so we took that into account when we're looking at Q3, so you do have to keep in mind, like I said in my prepared comments, Q3 is the toughest lap that we have this year. But at this point, we anticipate our comps will be somewhere around plus 1% in Q3, which does assume a continuation of that roughly 200 basis point impact, because it's really tough at this point to predict how long it will persist.

And so as we took that into account, and we started to think about the full year, again, excited about the momentum that we're getting, and we're confident that we can continue to build upon this momentum for the rest of the year. And then based off of our year-to-date performance as well as how we're setting up Q3 and what we have in store for Q4, that gave us the confidence to raise our guidance to that low single-digit range.

And if I could jump in here. I know cyclospora is really on everyone's mind. I want to start by saying the health and safety of our guests and team members remains our highest priority, and Chipotle maintains a very robust food safety program. We work closely with various governments and agencies and they monitor issues in the supply chain conduct their investigations and take responsive action as appropriate, including trade back and the removal of product if necessary. And together, these measures really help protect our guests and reinforce our commitment to serve safe, high-quality food every day. So I just want to make sure we put that to rest. We're not impacted or we are impacted from a sales perspective, but we're not involved in the cyclospora conversation today. The products that are caught up in that conversation we don't use in our -- on our menu and our lettuces are sourced here in California.

Next question comes from Danilo Gargiulo with Bernstein.

My question is about capital allocation and the link to that one to your stores. I think, Scott, last time we met you, you were mentioning that you are seeing an opportunity to refresh the store base to allow for the elevated market [indiscernible] flat also in the operating season and in the floor, in the store. And I think you were identifying 3 level of investments for about 1,000 to 1,500 stores in North America. Now assuming that some of the stores would have been refreshed anyway, given that they are hitting the 10-year mark. So I wonder if you've been able to size up the incremental CapEx needed? And if you have any early indication on any expected sales uplift that could generate and the time line of that?

And then still on capital allocation, have you considered leveraging partners in other international markets instead of owning and operating your stores?

Yes. Thanks for the question. We're always reinvesting in our restaurants. I think that's a really important note, even our oldest assets. But we haven't done an [ aesthetic ] model in the brand's history. And so what I wanted to accomplish this year stage gate, if you will, the idea of a remodel refresh program. And is there a return on that investment. We're in early days. We have selected several locations across several geographies to make different levels of investment in today. So think I want you to think between $100,000 and $300,000 per restaurant to see what the return -- what the consumer perceptions are and then what the overall return will be.

I have nothing to report today, unfortunately, but I'll tell you that work is in flight I'm optimistic, but we remain patient to see how the returns shake out by each level of investment. As it relates to partner-operated restaurants, we are building partnerships around the globe, very strategic in a very slow measured way. We talked about Alshaya and Middle East. We've talked about Alsea in Latin America and SPC in Southeast Asia. And those are partnerships either through just partner-operated and/or JVs, and we will leverage the strength of the partner, the quality of the partner our operational ability in those markets to garner the most -- I think the healthiest return for the Chipotle brand based on the strength of the brand and strength of the economic model. So I don't know if I answered your question, but as we think about growth globally, we'll continue to own and operate Western Europe and grow from that base. But you can think about the rest of the world as Partner-operated.

The next question comes from Greg Francfort with Guggenheim.

My question, I guess, on digital sales. I mean, I think digital sales grew 18%, including the unit growth in the quarter year-over-year, and you kind of 4 quarters ago really turned that on. And was there something like a big catalyst that kind of unlocked this? And I guess what you're seeing in the digital sales versus the non-digital sales what's driving some of these changes at the register around loyalty and ability to pay and all that. I'm just curious if that's all linked?

It is all linked. I'll tell you, and the launch of Summer of Extras last year really helped us understand where we have the right to win with the consumer in digital. And we learned things that would work and things that don't work quite frankly for our brand. And so that informed really the refresh that we did and relaunch just a couple of months ago around Rewards on repeat where we remove some friction from the app. We gave you greater flexibility in how you earn rewards, we give you greater flexibility on how you redeem those awards. And then building out Summer of Extras this year has really all helped to accelerate our digital ability to drive revenue, which is really important is -- and I think we're also capitalizing on an emerging trend. We were just positioned right place, right time. But I think the team is doing incredible work to make sure we're relevant.

I will tell you, Arlie is taking a holistic look and approach to digital. There's more work to do. We are early days. I think the innovation that she's going to bring to digital commerce over the next many weeks and months is going to be game changing.

The next question comes from John Ivankoe with JPMorgan.

This is Crystal on for John. I wanted to ask on the HEEP rollout. Should we expect all of this to kind of be reinvested into labor back into the production line? And so do you think any of that could be helped to drive positive traffic customer satisfaction on the front line?

If I understand your question was how is HEEP impacting restaurant performance and are we reinvesting the labor? The answer is yes. We see about -- I think it's 2 to 4 hours of efficiency depending on volume, and we are leading that labor in restaurant to really help support getting prep done in the morning, so we're actually deployed during peak, and then having that labor deployed on the line to move throughput, and we're seeing that translate into transactions left in those restaurants, both in MAX 15 so think throughput efficiencies as well as overall total sales. We're also seeing better taste of food scores which is obviously meaningful for the consumer. So we're on the right path.

We're rolling out as aggressively as we can. We'll be in 2,000 restaurants by the end of the year. Hope to have the entire portfolio completed sometime in 2027. And then all new restaurants that we're building today come standard with the heat package today. So we know we're on the right track. We're growing as fast as we can, and there's meaningful upside getting the package installed.

The next question comes from Andrew Charles with TD Cowen.

This is Zach Ogden for Andrew. So Scott, a [indiscernible] back in May, you talked about how 350 company-operated openings per year is the right level for Chipotle. Can you talk about why you view that as the right level versus maybe the prior ceiling of 400 stores? And maybe what the gating factor is to accelerating above 350?

Yes. As I look across the landscape of what we do compared to our competitors, the white space that exists in the U.S. today. And quite frankly, our ability to develop ready now capable leaders, I feel like 1 restaurant per day is meaningful growth and something we can continue to handle and support as an organization. We've demonstrated historically our ability to own restaurants successfully. I know, I never want to lose that edge I think there could be a point of diminishing returns either in how the restaurant opens beyond 350 or could possibly fracture the base if you get too aggressive. But I like 350 number. The team likes it. We feel comfortable with it, and we're developing ready now capable leaders to support that growth.

As it relates to incremental growth, think about global expansion, whether that's company-owned in Western Europe, but also think about development with partner-operated restaurants really in the early stages today. that will ramp very quickly, evidenced by what we're seeing in the Middle East. We had -- our partnership started just a couple of years ago, and we're already at 15 restaurants with Alshaya across 3 or 4 different countries. They have meaningful acceleration in development this upcoming year for 2027 and think about other partners ramping at that pace. I think we can still target the number we've talked about historically and feel good about that growth number.

The next question comes from Jon Tower with Citi.

Maybe, Scott, just you have a new CMO on board and obviously, he's relatively new to the brand, but I'm just curious in terms of how you see the brand being positioned in the market. I know the For Real campaign has been out there for a very long time in front of guests, and my own opinion is it's kind of gone a little stale. So I'm curious to hear from your perspective where you think it should go? And will there be specifically around value and/or kind of the quality of the ingredients? Is that going to be something that is going -- to be highlighted for more prominently than in the past? And especially when you contrast it against a number of, say, limited service competitors that aren't really doing the food rep that you're doing within stores. Like just trying to get a feel for what direction do you think this is going to end up going

If you keep talking, and I think Fernando is going to hire you on the team. Here's what I would tell you, the For Real campaign was extraordinary. And the creativity around that launch of that campaign was just exceptional, and it served us well for many, many years. So if you think about what Fernando is going to do, it's not a not a 180-degree pivot. It's really the next evolution of what For Real looks like for us. And so you can -- you've already tied to it already, but I'll tell you, you're going to see more of how we prepare our food fresh in restaurant. You're going to see more of our ingredient usage and how we think about ingredients, you're going to see more around how we think about the Chipotle brand and how we're creating this opportunity to cultivate a better world.

He's going to really -- I talked about this earlier, but stretched our creative ambition and do things that break through the sea of sameness that's on television today. And it relates to value, it will highlight our value, but different than you think about price pointed or discount. It'll highlight the extraordinary value that is Chipotle based on the best ingredients in the world, prepared fresh in restaurant daily and abundance and speed you really can't anywhere else at a really approachable price point, and that's what we're going to celebrate.

The next question comes from Brian Vaccaro with Raymond James.

Just had two quick clarifications. The first one was just your comments around the third quarter comp guide, Adam, I think you said about 1%, and I think you also said that the cyclospora impact is about 200 basis points. So is it right to think ballpark that you think the underlying trend is up about 3% that you assumed this 2% headwind sustains for the rest of the quarter. Is that the right interpretation of that 1% guide?

Yes, that's correct, and that's what our expense line guidance was based off of was that 1% guide because, again, it assumes the continuation of that impact through the rest of the quarter because, again, very difficult to predict how long this could last.

Understood. Okay. That's helpful. And then just on the HEEP benefits to throughput, obviously, encouraging to hear that. Can you just level set where Max 15-minute throughput is for the system overall? The sort of ex HEEP for the stores that don't have HEEP in place?

Yes, absolutely. So we mentioned that the restaurants that have HEEP in place, they're doing about 2 or 3 entrees more in their Max 15. And so when you think about it, overall, we're kind of in that low 20% range in store. And then that doesn't count digital, of course, and digital being almost 40% of our sales digital tends to be somewhere in that mid-teens. So when you combine both, we're kind of in that low to mid-30s on our MAX 15 for each restaurant each day.

The next question comes from Brian Mullan with Piper Sandler.

Just a question on loyalty and the efforts to promote the program in restaurant. Can you just elaborate a little bit more on those efforts, maybe what's working well and what can you potentially do better on that front? And related to it, just for clarification, those in-store transactions, where I think you said 80% of them don't have loyalty, do those over-index will correlate with your lower-income guests? I'm not sure if it's right to draw that relationship, but if you could just comment on that?

Yes, I'll start with the last part of your question. No, they don't. In fact, I think it's more broad-based. And so the 20% we know could have a meaningful lift if we can get them into our Rewards program. But I think there are some components of our business that prohibit that from having in a really frictionless way, and Curt and team are working on how do we make it some more seamless experience for that consumer, visiting with your phone, trying to get your Loyalty App up, pay with your credit card. It's really a clunky experience. And so what Curt and team are going to do in August is now have a one-stop pay and once you pay, you get your Rewards points. You can asked to be enrolled in the program. So it's going to be more seamless execution and execution that happens behind the scenes without being overly reliant on the restaurant team, which I think would impact throughput, which we are obviously not going to do -- and so we have more work to do there and really educating the consumer on the loyalty program in restaurant and then creating that frictionless experience, which we think we have a handle on, so more to come.

The next question comes from Peter Saleh with BTIG.

Great. Scott, a few minutes ago, you mentioned some new items maybe coming to the menu in the months ahead. I was hoping you could elaborate a little bit more on this. Are these center of the plate items that you're talking about? Or is this side items? And any more detail you care to provide or can provide would be helpful.

Yes. Here's what I would tell you. The team is hard at work. We have expanded the team on culinary to really address this challenge of really driving thoughtful menu innovation, not just [indiscernible] but new news to business. I want you to think about it as we're running down really center plate items. We also have teams working on beverage. We have teams working on sides. We have teams working on desserts, and I think there's meaningful work that's happening today. And we've stage gated, I'm sure you've seen either through social media over the last couple of months, we've stage gated some really big ideas that we're working on that we're pushing through our stage-gate process that have merit and that you could see on the calendar, maybe back half of '26, but certainly in 2027.

The next question comes from Brian Harbor with Morgan Stanley.

This is Kelly on for Brian. I know you've said in the past that younger and lower to middle income guest had been under more pressure. Just curious if you can give us an update on the trends you saw in the second quarter by age and income or if there's anything to call out in 3Q to date, just want to know if any groups are beginning to improve relative to the higher income cohort or if you're seeing any meaningful differences in frequency across the groups?

Yes. Thank you for the question. So what I would say is those 2 cohorts that were under the most pressure, right, the younger cohort, the lower income cohort, they really have improved the most compared to everyone else. If you're looking at our results from Q1, even into Q2, it's been pretty broad-based, but had -- we definitely had outsized impact with those 2 groups.

And it really centers around menu innovation. So think of the Chipotle Honey Chicken launch as well as Cilantro Lime Sauce. Also the promotions that we're running in our restaurants. Matchday BOGO, for example, was a huge day for us and really celebrate World Cup fans as well as our Rewards program, as we kind of really zero-in on each of these initiatives, really having an outsized impact on those. So I think we're doing a really good job of meeting those 2 cohorts and really giving them what they want to see out of Chipotle.

I would just add to that is we saw our highest year-over-year gains in wallet share last quarter since 2024, and we have taken share in each month of 2026, which tells us we're on the right path, and that's across all income cohorts and age groups.

The next question comes from Chris Carril with KeyBanc.

Thanks for the 3Q margin detail, Adam, but can you provide maybe an update on how you're thinking about the margin outlook beyond the current quarter? I think last quarter, you spoke to the gap between pricing and inflation narrowing near the end of the year. So any update around this would be helpful.

Yes, absolutely. So that gap between price and inflation, as you know, is at its widest point really in the first half of the year, that is definitely easing in the second half as we continue this measured approach to taking price increases with this rolling strategy that we have. And so in Q3, I would expect inflation to be closer to about 3%, while pricing, as we said in the prepared comments, will be closer to that mid-2% range. So that dislocation has narrowed meaningfully from the first half where pricing was more in that 1% range, while inflation was kind of in that low to mid 3%. And so on a go-forward basis, we're pretty much there in Q3, but from Q4 forward, we expect those 2 to match and that, therefore, that dislocation will not be there on a go-forward basis.

Next question comes from Drew North with Baird.

Great. I have one on more recent trends. I was wondering if you saw any regional or market divergences around the World Cup that would tell you there was a benefit for Chipotle in recent months? And then I have a follow-up.

Yes. So on the World Cup, very small impact on the quarter. We do have about 300 restaurants or so that we're within, call it, 10 miles of World Cup Stadium. So during the tournament, they saw a small benefit anywhere from maybe 50 to 100 basis points in comp specific in those locations. But if you look at the overall quarter, the impact was less than 5 basis points. So nice impact for those close restaurants. But on the overall quarter, it was a very small impact. And then you had a follow-up.

Yes. On pricing, I know you've been conservative this year rolling out price methodically over the course of the year. I was wondering what you learned from this process as the year progressed? And what gave you comfort to trend towards the higher end of that initial 1 to 2 guide?

Yes, absolutely. So what we've learned is the process is working very nicely. I mean we've talked about this in the past, the key benefits really of this strategy are -- it allows us to measure resistance more precisely and adjust, if necessary, and kind of just continue to roll out market by market region by region as we like to go.

And then it also gives us the ability to adjust if we need depending on the elation that we're seeing. And so we just feel like it's a much more dynamic situation. And as we've gotten these reads on resistance and as we've gotten consumer feedback on it, it's allowed us to continue to push forward. And so I think you'll see us continue to follow this strategy going forward, and you won't have that dislocation. That was really just a timing impact. We're really happy with how it's performing, and we're going to continue down the path.

The next question comes from Jim Salera with Stephens.

I was hoping you could give us some incremental color on the LTO contribution to the frequency uplift that you're seeing. I don't know if you have any historical benchmarks that you can use for kind of overall LTO contribution to the whole amount of traffic in the quarter, but would love any commentary on that given the stepped-up LTO cadence this year?

Yes. I mean, I'll start. We haven't given any specifics on specific LTOs and kind of what the lift has seen. But what we have seen, especially with Chipotle Honey Chicken this year and even Chicken Al Pastor earlier in the year. is that we're seeing an increase in transactions. And as we dig into those transactions just coming from our most frequent guests coming more often because they're excited about the menu innovation, but we're also driving in more new guests. And so we typically see hundreds of basis points of trans lift, of which, most of which sustains during the entire promotion. And even when these LTOs tend to leave, we measure then the stickiness of those customers that we've either attracted in or again, those more frequent guests coming in more often. And we really like what we see from that standpoint as well. So again, we see this as a multiyear lever of increasing our AUVs over time versus kind of a short spike in sales, if that makes sense.

Yes, absolutely. And if I could ask one follow-up and then. You highlighted some of the protein LTOs coming up in the back half of the year. Given that being a more and more frequent characteristic that consumers are looking for from food. Do you find the guests that gravitate towards the higher protein offerings are existing Chipotle, I guess? Or does that bring in kind of the new cohorts that didn't frequently interact with the brand in the past? And do you have any sense for converting the frequency there relative to kind of the core new items?

Here's what I would tell you is it brings in new customers who want to try the brand for the first time. And what we have recognized when a guest tries an LTO, their lifetime value goes up in a material way, which gives us confidence that the LTO strategy is on track and the right approach. But we also see our current customers come in more frequently because they have new options teed around on the menu, which they enjoy. And so you'll see a couple more center of the plate items in the back half of the year. We'll also see us bring in some sides innovation, and we're leaning into beverage innovation in a more meaningful way. I think there's significant opportunity in beverage and we are running down a path today to really capitalize on what's happening in beverage. We have a lot of work to do in this category, but I feel like we have the right team on it and the right approach and the right strategy.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Well, thank you for joining our call today. I'm really proud of the results we delivered in the second quarter as we continue to execute our Recipe for Growth strategy. We're seeing encouraging momentum across the business from improvements in throughput, restaurant execution to the expansion of catering a really strong pipeline of menu innovation, lower turnover, continued deployment of our high-efficiency equipment package, investments that are enhancing our digital capabilities and strengthen the experience for both really our guests and our team members, which I think is really important.

At the same time, we're continuing to invest in our people while thoughtfully expanding our global reach. While we're pleased with the progress we've made we're even more excited about what's ahead for this great brand. I think we have the right team. We have a strategy that is driving results and incredibly strong brand. As we continue to execute our strategy, we're working on a plan to gather many of the folks on the call here today and others in the new year where we can showcase what's new in our restaurants and provide an opportunity for you to hear directly from our new leadership team, existing leadership team and the new folks that have joined our team in a place. So keep an eye out for that. We're excited to have you see really firsthand the progress we're making across the business, experience our operations up close and spend time with the leadership team, as I said, including the new executives that we bought on the team.

So that said, thank you again for your time, your partnership and continued confidence in Chipotle. We appreciate your support and look forward to updating you on continued progress next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, everybody. Thank you so much for joining us. My name is Danilo Gargiulo. I'm the senior analyst at Bernstein covering restaurants and food distributors, and I'm delighted that we have again here on stage, Chipotle, with the CEO, Scott Boatwright, first-time CEO here at the SDC. So welcome aboard.

Thank you.

And also, obviously, like Adam Rymer, CFO of Chipotle. Before I start asking a few questions, I want to remind everybody that you can always send questions through the pigeonhole going to piegonhole.at with passcode 2026 SDC. And with that, let me get started. Scott, what are the top three takeaways that you think investors should be remembering at the end of this conference?

I would say probably first and foremost, is that we have redesigned our strategy, and we launched the new Recipe for Growth strategy with 5 core tent poles at late last year that are already starting to show green shoots of recovery for our brand, which I'm really excited about, and this continue to build. And the strategy -- components of the strategy -- components of the strategy will continue to scale and build throughout the year, and we'll ladder to multiple years of growth for us.

The second thing I would tell you is we are strengthening our leadership team and bringing in what I believe to be best-in-class leaders across digital and marketing as well as supply chain to really help us do a few things. Number one is really have a sustainable, resilient supply chain that will serve our brand well, as you all know. Our supply chain is very fragile in nature because of its -- how bespoke our supply chain is. And it's a supply chain that has grown with our brand through the years because we source ingredients differently than everyone else. And our animal [indiscernible] practices are very unique to Chipotle.

Secondly, I think it's time for us to evolve [indiscernible]. So I think it's a really important moment in time for Chipotle. In general, I think the [indiscernible] grill campaign that we have deployed over the past 8 years has served us quite well. But I think it's just run a bit dry for the consumer, and we need to evolve the brand voice to really communicate to the consumer, why not just how Chipotle is unique and different, but what that means for the consumer.

And then in Digital, I think we're just behind. I think we had a really, really strong platform for many, many years. I think it was best-in-class when it launched, launched, 8 years ago now. But I think our competition has gotten better. And so we're rebuilding our digital strategy, rebuilding our digital ecosystem through [indiscernible] who we hired just recently. Fernando Machado, is an award-winning builder of global iconic brands, joined us an official start date was June 1. He's actually in roll. I shared with folks earlier. He's actually cooking chicken in the back of a Chipotle restaurant last week and getting indoctrinated in this brand that he has loved for 20 years. And so, so strategy team, and then the last thing is we're investing. We're investing in this consumer environment, whether that's investing in our people, investing in technology that will help us run more efficient, scalable restaurants over time. And we're quite frankly, investing in the consumer and Adam can speak to what that looks like in just a moment.

Great. So it seems you become a CEO. What has changed inside Chipotle and what has not changed intentionally?

I'll start with what has not changed. Our core belief around how consumers should eat food, and this belief that food has the power to change the world has not changed full stop. And we are still delivering handcrafted culinary experiences across 4,100 restaurants globally that are delivering on this idea of food with integrity in the most meaningful way. And so that hasn't changed. Full stop.

What is changing is how we think about the world ahead. How we think about navigating consumer uncertainty, how we think about navigating a forever evolving macro environment [indiscernible] relying on a tried-and-true strategy that you can put in place for 2 to 3 years. I think you have to be very nimble as an organization today to meet the consumer where they are and to change as the rapid consumer environment changes as well.

And so in the past 18 months, we've seen the same-store sales decelerate a little bit for for Chipotle. What do you attribute the same-store sales deceleration from historical highs to...

Yes. So I started seeing the kind of the canary in the coal mine, probably in Q4 of 2024. We saw a really slow decline coming out of Q2 that year. It continued in Q3. I saw further weakness in Q4, albeit still positive. I knew we were going to be in for a fight in 2025 is related to growing transactions in this industry. You had all the big brands were competing on value as a price point. That is not a game we play, nor shall we, we think we charge a very fair price for our value offering. And we don't compete -- at the time, we weren't competing on innovation and the brands that we're winning and that did win in 2025, one on innovation in a meaningful way.

If you look across the industry, innovation stepped up, menu innovation stepped up I think 4x to 5x across the industry, we were still relying on a 2-LTO-strategy running repeat LTOs that we had been successful with in the past versus really leaning into innovation in a meaningful way, which we have transition to here in 2026.

And maybe, Adam, that's for you. Like given the macro headwinds that have played a major role in the past 18 months or so, if macro were to continue to weaken from here onward. What are the biggest risks to your model and which levers do you view as most effective in protecting profit without compromising the brand?

Yes. I mean I think the most effective thing that we can do really in any environment as well as one where the macro is deteriorated and is focusing on execution and ability to lead it into our value proposition. And when you add to that what we're doing from a marketing and menu innovation standpoint, how we're leaning in on our rewards program and all the things that are really centered around our Recipe for Growth strategy, I think it's the best approach to take again, in any environment as well as an environment where the macro is deteriorating.

When that's happening, consumers are very much looking for the best experience they can have. That's much more discerning with their dollars. So if they come to a Chipotle, we can wow them with hospitality, we can wow them with an amazing value proposition, entice them with menu innovation and some of the other things we're doing, that's always going to be the best defense in a situation like that.

I think it's important to expand, if you will, Adam, on how we're investing margin this year to really drive the consumer experience, whether it's our pricing strategy or how we're investing labor in our restaurants, et cetera.

Yes, it's a great point. So I'll start with pricing. So as we've kind of given pricing in Q1 was somewhere around 0.9%, and that's compared to the industry running closer to 4%. And we're taking small step-ups throughout the year as we look at this really slow and measured approach to pricing. But that's an investment that we're making in our value proposition, especially at a time where consumers are under pressure. And so that's a big one. That's created a margin dislocation, which I'm sure we'll talk about here shortly, but we believe it's the right thing to do. And with the power that we have operating in our own restaurants with our economic model, we have the ability to do that and really think long term about our value proposition around our guests.

And then the other component, like Scott mentioned, too, about how we're investing labor into our restaurants. It's coming in a few different ways. I mean, one is the rollout of the high-efficiency equipment package. That has created several hours of efficiency that we could take out of the restaurants, but we've decided to actually leave those in and make further investments around hospitality to ensure that our crew members are reinvesting that at the time that we needed the most. So that's really going to be around that peak lunch and peak dinner to really wow our guests again, create that environment.

And then we're looking into some other investments as well. I mean one of them is -- we've got about 25% or so of our restaurants that don't have an Assistant GM. We call it an apprentice. So it's that second salary manager. We're starting to test where if we add that additional restaurant manager into those restaurants, you get that full peak coverage, right? You've got 7 days a week, 2 shifts a day that can be covered by a salaried manager. And we're seeing some nice initial reaction to that, both from a just better KPIs across the board as well as a better guest experience. And so these are some of the areas that we're looking at in terms of not only just investing into the business but investing into the experience.

And naturally all these investments need to generate a return. So can you help us understand what returns are you seeing in the investments that you're making today? Whether it's a test that you're eventually going to be expanding across the system or something that you've already rolled out? What are the proof points, that this is the right decision for Chipotle?

Yes. So I'll use the high-efficiency equipment package as an example. So this really helps us in a bunch of different ways. And we're seeing that it's not only helping us from like a guest satisfaction scores as well as Taste of Food scores because it creates better chicken and better stake off of the dual-side of the plancha, better chip experience, and just wins across the board. It's also allowing us to get our prep test done more efficiently in the morning, which allows our crew members to take their meal breaks, their free Chipotle mea that they get every time that they work a shift and then be back on the line before the crowd gets there so that we can be fully deployed to execute exceptional throughput. All of these things are laddering up to a nice [indiscernible] comps with restaurants that have had the whole package in for about 2 or 3 months, we start to see an inflection point.

That in and of itself is giving us a nice return on investment on that cost of about $100,000 or so for a high-efficiency equipment package, retrofit in existing restaurant. And that gives us even more power to really think about investing that labor back into the restaurant, not needing to pull it out to justify the expenses. So those are some of the ideas of the proof points that we're looking at in order to really justify it. That's the right investment to make in the business.

And then the manager investment, it's quite frankly, it's simple, right? You look at the restaurants where we place a second assistant or Apprentice GM as we call them, turnover improves, OSAT improves, throughput improves, sales improve, I mean the investment is clear, right? The reason you can't do all 1,200 tomorrow morning is you don't have 1,200 ready capable apprentices to put in. So you have to build them over time, out of hourly managers I think we've said publicly, 90% of the promotions that happen at Chipotle happen internally. [indiscernible] probably unprecedented in the industry. We promoted 28,000 people last year alone. And so we have to groom that talent internally to solve for our challenging restaurant environment, which is very unique.

And what is the typical lag between the investment that you're making and the outcome in terms of sales outlets? Because you're talking about turnover coming down. Obviously, this doesn't happen overnight after you made the investment. And then from the turnover coming down to the CSAT going up, takes a little bit of a lag. And from the CSAT to comps, it's another lag. So in your experience how many months out are we talking about for that to be translating into comp uplift as well?

Yes, I think it's faster than you would think. I think it's probably 3 to 6 months where you start to see an inflection in the crew morale and crew engagement, which always ladders to a better consumer experience, which drives top line sales. And it's just a function of making the job -- and we're spending a lot of time this year really rightsizing the complexity in the operations today to ensure we deliver a better team member experience. The better team member experience is, the better the consumer expansion will be.

Scott, you were talking about the excitement that you have in new people, reestablishing the foundations, doing some investments into your executive team as well. You made like 3 major hires recently. So I would like to hear for each one of them, if you don't mind, what mandate are you getting? So if you can start maybe with Jason, the new kid, the new COO, if you can help us understand what mandates you're giving him, then moving to Fernando, the new CMO and eventually to [indiscernible] from a digital [indiscernible] at some point?

Yes, sure. So I'm going [indiscernible] my own for about 5 seconds and I'll quickly move to Jason. I ran the brand as Chief Operating Officer for the better part of 8 years and built, but I believe to be a world-class operating model building the best operators in the industry. And I said this before, I think it's worth repeating, running a Chipotle restaurant is very unique. Think you're running a mom-and-pop restaurant, you're using pots, pans knives, cutting boards with fresh bags of onions, fresh boxes of romaine, fresh boxes of peppers. What we do is so unique and special in this industry, which we need to communicate better, we'll get to that point in a moment. It's hard to replicate.

And when I stepped out of the job, it took me about 4 months to hire Jason and then it took him about 6 months to get to know the business, to understand, get through training, to meet his team to make his way around the United States, to meet the various operational leaders. And I think we had -- I think we slid backwards a bit in operations. It didn't manifest itself in the KPIs immediately, but I could see slow deterioration in how we're delivering the experience across the business. And so I'll tell you, since then, Jason has arrested the fall, I think he's heading in the right direction. It's his team now. It's his voice, it's his leadership team. He has the right strategies in place, and he's evolved the strategy that I put in place, gosh, 8 years ago on how we grow this brand and scale being how unique the brand is.

So Jason's mandate full stop is execution. And so it's delivering on our brand promise and delivering on great experiences, 7 days a week across lunch and dinner, and he's doing a great job. And so great hire, happy about the hire, making a lot of great progress. That was one of the hardest roles to fill because there's no one in the United States today that is operating more than 4,000 restaurants at a time. Everyone has a franchise system. They have franchisees that are managing. No one operates, owns 4,000 restaurants. So they're trying to find Jason, is like trying to find Unicorn. And so -- but I think we found the right person, he's the right leader it just took them a couple of minutes to get into the role and get comfortable.

With Fernando, I was looking for was a pivot on the brand voice. I needed I think we needed to evolve our brand messaging. I think the [indiscernible] campaign, I think I said it earlier, had served us quite well, but it become wallpaper. And so meaning the person that sees that ad sees very similar ad that they saw last year. Maybe it can tell them to spend dollars at Chipotle, maybe it didn't. And I knew we needed to be more competitive in this competitive environment we're operating in, be more nimble, be more innovative as it relates to menu acceleration, and then lean into the consumer in the most meaningful way, whether that's -- I think we've talked forever about being a lifestyle brand where we show up in entertainment, we show up in fashion, we show up in sports, which is all well and good. But we used to lead culture at Chipotle Mexican Grill. Now I feel like we follow culture ever since kind of the COVID era put us on our back foot. And what Fernando will do pretty clearly in short order is get us back to leading culture across the industry again.

What about [ Arley ]?

[ Arley ] brings such deep experience in digital commerce from SPG to Marriott to Hyatt. She's led the Hyatt digital ecosystem for the past 4 years. 65 million users on the platform, and she really knows how to broaden and strengthen and deepen engagement with the consumers across a big platform and create experiences that are unique for each user on the platform. I think that's where we fell behind. I think we ran out of ideas. I think our Loyalty Program was good, not great. We needed to improve or increase the top of the funnel. We get more customers into our loyalty program and then create reasons why they should stay in the program and engage with them and probably a more deep way to -- deepen the engagement with the consumer and a more meaningfully than we have historically.

Okay. Let's start on the basics. Can you compose your puts and takes on your long-term same-store sales algorithm? So how much do you expect Chipotle be comping over time in the long term between price, mix and traffic? And what do think is going to be the main driver of traffic in a slowing macro?

Yes. So I would say we've got the initiatives in place to get us back to a mid-single-digit comp over the next several quarters and kind of going into 2027. And when you think about a mid-single-digit comp for us, I would think of the breakout being roughly 2 points of price. It's what we've seen historically, and that's really just to offset the impact of inflation as it has on our margins, that could ebb and flow up or down depending on where inflation is coming in at and how we decide to handle that kind of in different circumstances. Like I mentioned earlier, right now, we're kind of underpricing inflation, but we're making a strategic decision there. And so that's about 2 points of price there.

And then from outside of that, it's a combination of transactions and mix. Mix is a tougher one to give a longer-term horizon on. It ebbs and flows with some of the actions that we're taking on our menu right around menu innovation with Sides and Sauces as well as our Protein LTOs depending on where they're priced and how that's comping on a year-over-year basis. But the combination of transactions and mix makes up the rest. So I would think a couple of points, if not more, from there. And so that's really kind of that ideal mid-single-digit comp breakdown.

It is expected not aspirational, right. So I think those three points of the transaction, you get a point out of execution and restaurants through great throughput and better culinary experience, you get a point out of digital, you get a point out of marketing. You layer in any pricing action that you may have, albeit modest. You're back at mid-single digits pretty quickly. And then you layer on growth platforms like the high-efficiency equipment package and/or catering and/or group occasions. And you see this acceleration in the business that is meaningful.

And one of the biggest controversies that we hear sometimes from investors is you've become almost like a victim of your own success with the limited time offers and the idea that Chipotle needs to introduce increasingly more attractive new menu to successfully be lapping very successful platforms that you had before. So what other options do you have at your disposal that will be mitigating maybe a less successful product launch in the future? And what gives you the confidence that next year you'll be able to lap the successes of Honey Chicken and Chicken Al Pastor.

Yes, I've worked in brands that were LTO-heavy and LTO driven. Most brands I've worked in will see some increase of new customers when they launch an LTO and those customers leave until the next LTO comes. With Chipotle, where we have a consumer that tries Chipotle Honey Chicken for the first time, their lifetime value to Chipotle increases over a person that didn't try the meaning the LTO Chipotle is stickier than you would find at a traditional QSR or other brand. And so the reason we went to 4 instead of 2 is simply because we were asking the LTOs to work too hard for too long. They start to decay in months 4 and 5 and your media isn't working as efficiently and you just make your restaurant operations more challenging without the upside.

Typically, on an LTO life cycle, 90 days is perfect. You have a 30-day awareness period. You have 30 days of really strong momentum. And you have 30 days of continued momentum, but on the decline. And that month 4 and 5, you just get inefficient. And so I think 4 center-of-the-plate innovation, innovative ideas throughout the year on a quarterly basis, tapering innovation on sides, dips and beverage and you get to a meaningful place for the consumer for that customer because I invariably, I meet a parent almost every day of the week where I say, I work at Chipotle and they say my kid eats there 4 times a week. My daughter eats there 3 times a week. Our athletes at school eat there 4 times a week. I want to give them compelling reasons and unique flavor differences and unique flavor profiles that are on brand and on trend to get them to come in more often.

And the average frequency is less than 4 times a week for Chipotle. So what will get the average consumer to be eating more frequently from, say, like once a quarter frequency to a little bit more, call it, like 2x to 3x and beyond?

I think at the end of the day -- at the end of the day, it's about execution, full stop. But if we can give them compelling reasons through LTO innovation, I think that's meaningful and enough, quite frankly. I think we need to be more engaging in our loyalty program. I think it's okay. It's not great. And so we did a problem detection study last year to understand what are the friction points within loyalty today and what does the consumer opt out of our loyalty program. And we know specifically what challenges we need to address there.

Some of those you'll see with the new relaunch, the Rewards on Repeat relaunch that's coming here, I think, this week, around Summer of Extras. So you're going to see some different experiences within the app today. I think it's a step in the right direction. I don't think it's a step change. And so the expectation for Arley is how do you create an app that's best-in-class that keeps people inside the funnel and keeps them engaged, identifies when they're at risk or lapsed and brings them back into the funnel in the most meaningful way while driving better in-restaurant loyalty percentages. Today, 20% of our in-restaurant customer is in our loyalty program. We think that number is obviously very weak, and we've got to improve it somehow to really get access to that consumer data, we think, is important and relevant.

And what was the strategic rationale not to be adding a tier system like some of the other peers who have recently relaunched the loyalty program have?

I think the work we did both with our third-party consultant on a definition, App design and App Dev specifically. So tiering only works to a point, but it's not the holy grail. And so the brands that are telling you it's a holy grail, I think differently. I'm not saying they're wrong. I just think about it differently. I think you've got to have engaging onboarding experiences. I think you're going to have customer journeys that are meaningful. I think our customers specifically was looking for flexibility on how they spend their rewards points. Trying to get to 1,200, 1,300, how many points is it to get an Entre now?

Yes, about that.

Which was just too much. So we offered a 50% off of a Barito or a [indiscernible]. I think that's the access our customers are looking for and wanting. And then they want early access to LTO innovation. They want free drops around Cilantro Lime Sauce and just access to the brand.

What was your earning on the launch of the Protein Cup recently. And if you extend that point on to how -- what are the other opportunities that you see or that you're contemplating at least to increase the demand during mid-morning or mid-afternoon going forward?

Yes. So our intent there was really to capitalize on this protein movement that's happening across the country today. And who better to be the leader in protein than the company with the best proteins in the world and the best tasting proteins in the world. And we didn't do anything different. So we've always had a side of protein available or extra protein as we call it. We just put it in a cup and put the price point on it, and it went up -- it went up -- went up 36%. And so it really helped us move the needle on transactions, which is exciting. It just shows the strength and the power of the brand and trying to meet the consumer need state at an approachable price point that gives that -- whether you're a GLP-1 user or just an [indiscernible] user looking to plus up through protein intake, I think it's meaningful.

What else could you be doing from a new occasion standpoint to potentially expand kind of the mid-afternoon, like the the shoulder period where the traffic will be a little bit softer right now? Like is this something that you're going to be leaning on going forward? What is the time line for that?

Yes. So the Chicken Taco across the country today is $3.50. So people don't use Taco at Chipotle. I don't know why. I think it's an incredible product offering, whether it's hard or soft tortillas, our taco offering is next level. The reason I mentioned that is we're going to try a happier hour down in Florida where we offer tacos at $2.50 from 2 to 5 to see if we can grow out the shoulder occasion in a meaningful way with some type of beverage innovation that's on trend, that's on brand. So we'll see. It may work, it may not work, but we will stage gate it, make sure it's right for the consumer, right financially and right right for operations.

Great. Another part where you're under indexing versus your peers is on the group occasions. And you have recently piloted catering in Chicago. You've expanded the program also to Boston. So what are you currently testing before deciding whether you want to expand the program nationwide by the end of the year?

It's a great question. I've been pushing this organization to go faster for a few months now. They keep holding me back. And I think they're probably right to make sure we execute at the right level and make sure it's a great experience for every customer that tries it. We've seen extraordinary success in Chicago by using a platform to help remote the Catering platform, but more importantly, load balance across restaurants, and we're not disruptive to the operator.

And so -- and our managers want catering, they've been asking for it for years because it does a couple of things for them. They are bonused on sales performance. So it gives them a nice uplift in total sales for the revenue for the business. But also as the most efficient labor utilization and probably the most margin accretive platform that we have in the business. And so -- our concern is and always has been, can we operate catering at scale. Our competitors are somewhere between 10% and 15% of total sales. Today, we're at 1.5%. I think our food travels better. I think people love the Chipotle experience when it's right from a catering perspective. And we need to make sure we can deliver on the expectations for the consumer, deliver on our brand promise and not fracture lunch and dinner in a Chipotle restaurant. Chicago gave us confidence to expand to Boston, Boston has gone quite well. We're expanding to Phoenix in June. We could see a full system launch sometime in 2027.

When we see like catering, not working in some other concepts, it was sometimes because of operational complexity and maybe sometimes it came at the expense of customer experience because the crew was much focused on the big volumes, leading some bags as you were entering, not acknowledging the customer coming in. And so sometimes the catering does require a slightly different real estate or a slightly different estate or a slightly different kitchen size for that to be fully successful. So given where you are with your current real estate, are you expecting to see some modification for low Catering for the entire Chipotle system? Or are you planning to launch it just a subset of your stores going forward?

Yes, it's a great challenge to solve. So we have obviously different footprints for different restaurants across different geographies. We have some really small restaurants that are probably around 1,600, 1,800 feet. We like 2,400 feet. 500 feet of that is a kitchen engine. The rest of it is consumer areas and capacity for pickup and/or seating. Restaurants that are smaller, we will not likely do Catering in those restaurants, and we'll load balance orders. Most of it's delivery anyway, so it's agnostic for the consumer. -- load balance orders across restaurants with larger footprints. It seems to be working really well.

The other element on the Group Occasion is you Build Your Own Chipotle, and you were testing a different sharper price point. So what is the early learning from that test? What is the elasticity of demand for consumers on the responsiveness for you to lower the prices across the board?

Yes. So we did -- I think we're generating about 1% lift on Build Your Own Chipotle, is that right?

Yes, just under 1%.

I think awareness is still low. I think we've been too clever and too pitchy with the name. People see it in the ad, as Build Your Own Chipotle so they go in and start building, trying to build a Barito. They really don't know what it is. I'd contested from day 1, it should be called Family Meals, but we had to get really clever about it. So we call it Build Your Own Chipotle. We just tested calling it family meals in 2 markets, [indiscernible]. And so I'm a genius, they were wrong. I think building awareness on what it actually is for groups of 4 to 6 people. Originally when we launched it, there was a $10 off your first order. And we saw a really good pickup at that $50 price point. It was originally priced, I think, at $58. $50 really moves the needle. It's still margin accretive. It's proven to be highly incremental. And so we feel comfortable getting a sharper price point, naming it correctly and really promoting it effectively through social channels and digitally that it will have a meaningful uplift on the business.

And then finally, maybe Adam the other unlock from a traffic standpoint, you mentioned like high efficiency equipment package eventually adding some traffic. How is the program set so far? What are the most important KPIs that you are -- that you're seeing today? And what kind of compute are you expecting from the full rollout [indiscernible]?

Yes. So there are several KPIs that are leading to a nice comp lift in that 400 basis point range. And some of them are as simple as guest satisfaction scores and taste of food scores, it's the food coming off of the dual side of plancha and some of the other items just that much better and our guests are realizing it. So that's lifting our sales plus the efficiencies that it's creating in morning, especially around the produce slice, the 3 pan rice cooker as well as the dual [indiscernible] frier, those are allowing our crews to more likely get all of their test done at a much more efficient pace so they can take their brakes and then be fully deployed at lunch, and that's allowing us to be stronger at throughput and increase not only our execution and throughput in terms of making sure that we have an excellent place in the line back in place, but also increasing our MAX 15 in those restaurants. And so all of that is laddering to better guest experience, a better crew experience, which is coming through in sales.

Like I said earlier, a couple of hundred basis points and really excited to see this continue to roll out throughout the country because we believe it's a huge unlock. And I don't want to -- have to emphasize again the crew experience with it as well. It takes about 30 days or so for them to get proficient with the new equipment. And another 30 or 60 days, like Scott mentioned earlier, to kind of start to see that inflection point. But what we're hearing from our leaders in these restaurants is that it's much easier to train someone and get them proficient at a most difficult position in our restaurants which is grill.

Having that dual sided plancha has been a huge unlock there. And so it's been really exciting to see and we're excited to roll out. I believe we're going to hit around 2,000 restaurants or so by the end of this year and hopefully get to the whole system in '27 or early '28.

Great. There's also a thesis out there that maybe Chipotle is trying really hard, maybe doing a little bit too much and results are not showing up in a sharp inflection in same-store sales. So how do you respond to investors who are worried about prioritization. Maybe can you share the time line on when these opportunities are going to be restored in the mid-single-digit growth in a comp standpoint?

Yes. I'll start and I'll flip the conversation with Adam. We've always done a lot. And so this is new. We are always trying and testing and trying to prove out new ideas, innovation on the digital platform, innovation and marketing, innovation and LTO and our strategy around LTOs. We're just being more transparent about it so people understand because of what's happened in the business over the last 12 months, I just want to make sure everyone understands that we're not sitting idly by and hoping the world makes a shift. We will control the narrative. We will win in any macro environment, and we're proving that this year.

And then you add a little bit of tailwind to consumer sentiment. And if you look at restaurant performance transactions, the consumer sentiment, the correlation is incredibly tight. And so right now, the world is suffering from -- the industry is suffering from a declining consumer backdrop who thinks food of home has just gotten too expensive. And their pocket books are being taxed. And so they're choosing different avenues on how they feed their families or feed themselves individually. And so I think things need to correct themselves. You're starting to see food at home starting to increase in inflation and starting to see restaurant inflation normalize. And I think that's a really important inflection point for the industry at large. We will -- again, we will win to get back to mid-single-digit growth, but you have a little bit of tailwind from the consumer, and it's game on.

Yes. And we really saw an inflection point as you saw, too, from Q4 to Q1. In Q1, we returned to positive transactions, and that was despite the huge winter storm that closed roughly half of our restaurants for several days, which caused about a 100 basis point impact in the quarter. So with that on there too transactions would have been even more positive.

And so as you look at this Recipe for Growth strategy, these initiatives and how we've layered them on, whether it's menu innovation, whether it's the rollout high-efficiency equipment package, catering, you can start to see how these layers build to return us to that mid-single-digit comp, in out-quarters. And so you'll see that continue to build throughout the year. .

It was weather and investing in our pricing strategy.

Absolutely.

And talking about operations, you recently launched a mystery shopping analysis to identify what items are slipping a little bit from an operational consistency standpoint. So what are the early learnings that you have so far -- and what are the initiatives that you are starting to put in place for that to be course-corrected?

Yes. So I will tell you in full transparency, we lost access to the consumer feedback for the in-restaurant experience. And so we used to have a survey program, I thought, it was pointless. We were spending millions of dollars on the program with a customer. We take the receipt receive, they call a survey. They give a rating on, if they had a bad experience, they'd tell you why they had a bad experience. We were getting all that information through our digital properties and our online customer, which we felt was a good proxy for it. And we felt like we've gotten to a point with OSAT, which was best in the industry, but really wasn't moving materially. And so I pulled the program.

What I failed to realize, and this is a bit of a [indiscernible] is how it held our restaurant teams accountable to ensuring that in-restaurant consumer was having a good experience. And so what the mystery shopper program will do will help us bring back that accountability for the GM to ensure they're giving consistently great experiences and are aware of what's going on in the dining room, the drink station and restrooms and the hospitality of the team. We've leaned into both of those things this year. We've made a lot of great progress. We put in what we call 3 and 3, every 15 minutes where someone is dedicated to dining room. Every 15 minutes, they're going out, touching the 3 areas, spending 3 minutes, cleaning those up and getting back to the line for throughput, having a meaningful impact.

When we put in Tractor Beverage, we inadvertently took out the waste container at the drink station because it now sits over the top of what once was a waste receptacle. So now if you're a Chipotle customer, I'm sure you have experienced this. I'm sure -- hopefully, you've been in a Chipotle restaurant, and you go get your straw and you pull the wrapper off and you hold in your hand, you go, what do I do with this? And guess what they do? They throw it right on the counter. And I don't blame the customer. I would do the same thing, right? Probably not.

But I get the point. And so we've got to put those receptacles back in place to make sure our drink stations are tidy through lunch. We got to make sure the 3 and 3 is working correctly. And we launched a hospitality campaign back in March at our All Manager Conference. We had 6,000 people in Las Vegas. We talked about hospitality. We brought in [indiscernible] -- if you'll know Will, he wrote a book called Unreasonable Hospitality, to speak to the team about how do we get back to this culture of great hospitality. We're giving assets back to the general manager so they can do recovery in restaurant real time, which we've stripped out under the last marketing initiative. And so -- or Surprise and Delight moments where the manager just has a pocket full of free chips and Baritos and chips [indiscernible] for a customer that's been in 3 times this week. Hey on your next visit, have some chips and [indiscernible] on me. And so there's little touch points. It seems small that ladder to the overall experience that are critically important for the guests, and we're getting back to that in short order.

Chipotle always been known for strong ownership culture among managers across the company, promoting from within. How is the turnover of tenured regional managers said and maybe other mid-level leaders -- and this is turnover, so it could be the leading indicator of comps eventually, but a leading indicator of turnover might be the satisfaction level. So if you're measuring the satisfaction from your own teams internally? How is that changing over time for Chipotle?

Yes, it's a great question. We saw a small tick up in crude turnover last year. That was largely due to the sales deceleration. Our labor algorithm is built on a fixed component to open the restaurant and a variable component based on sales. So think sales per man hour, if you will. And so when sales fall, hours available fall, availability for team members fall. So we had some attrition on the periphery that caused crew turnover to push up albeit still under performing, are better than industry. What I'm most proud of is this year, it's rightsized. It's back to historical lows and that GM turnover specifically is the lowest, I've seen in my 10 years with the brand.

Engagement scores, we ran our crew engagement survey just 6 months ago, 8 months ago, with high marks on engagement, company, I mean its through the roof. If you were in attendance at our All Manager Conference back in March, I said this to a couple of people earlier, the energy, the excitement, the enthusiasm, how people are engaged with this brand and cultural moments where I had a general manager on stage talking about how she moved here from Mexico, she bought her first home with our Chipotle stock. She's now sent her daughter through college and moved the entire room to tears, just tells me culturally, we're in the right place. We're in the right place. Our people are engaged. They're all in. They believe in this brand as much as they ever have. And for us to have such low turnover numbers is to be a high-growth brand, I think, is next level. I think there's no one else doing what we do.

You need to be reinvesting in the business with incremental labor investments in the next few years for you to maintain this level of customers engagement from your employees? Or do you think that the investment level you have today in the stores is enough. In other words, are the stores properly staffed right now to allow for this turnover to be low?

Yes. We think they are properly staffed right now, especially with the investment that we're making in hours through the high-efficiency equipment package. But there's still opportunities that come up like the apprentice one that we talked about earlier are adding that Assistant General Manager into roughly the 25%, 30% of restaurants that don't currently have one because they don't qualify from a sales perspective. And so we'll continue to look for those opportunities. And really if there is a good reason from a transaction building initiative from an ability to create better experiences for our guests, for our crew members, and it's a responsible way of going about it. We'll absolutely look for those investments and continue to make them along the way. So I'm proud to say that we've made several over the last couple of years, and we'll continue to look.

How do you expect the margin profile for Chipotle to be evolving from today's level to 2029, 2030, like how is the progression of margin going to be changing over time. Historically, you were talking, you were reaching 27% talking about potentially reaching 30% given where you are in your stage of maturity to still believe that this is the right algorithm that we should be thinking about? Or are you more in the [indiscernible] we should be considering more investments in the business, therefore, 25% to 26% is it's a good rule of thumb for this business?

Yes. So our current margin profile is under pressure because of the price that we're taking is very much under inflation that we're running right now. For example, in Q1, we took about 90 basis points of price, and our inflation was actually over about 3%. And so that creates a couple of hundred basis points of margin dislocation on a year-over-year basis. Similar numbers for Q2. Price is stepping up to about 1.5%, but inflation is also stepping up due to some things with avocados as well as dairy that we expect those to pick up a little bit as well as beef.

And so right now, there's that dislocation. But as we continue this slow and measured approach to pricing, we expect to be able to correct that dislocation over time. And then once we get to that point, you're back to that kind of mid-20% range, call it, 25% or so margins roughly at the that volume that we're at now, especially when you take out some of the other transitory things that we're seeing right now around freight and utilities and some other items. But from there, that's at a roughly $3.0 million, $3.1 million AUV as we continue to march AUVs north through the initiatives that we have in place over the next many years, we expect our margins to grow as well. And it kind of goes back to that algorithm of our mid-single-digit comp breakdown. If you're getting a couple of points of price to offset inflation you're not growing margin there. Where you're growing on those incremental transactions.

And you could get transactions of 2% or 3% each year. You're flowing through those additional transactions at about 40%. With that said, we're not [indiscernible] in the sense that if there are opportunities to invest in the business, invest in labor, like we just talked about, we'll absolutely take an approach and communicate that effectively and kind of really see where it is that we believe that is the right thing to do or where we're going to get the returns from that. But with all that said, you can start to play with the math and as you march north of $3 million in AUVs towards $4 million, those margins should go from that mid-20% range to approaching 30%. So I believe that margin algorithm is still very much intact.

You're currently growing the stores at about 8% to 10% per year. So what gives you the confidence that the unit growth is still sustainable even with more compressed same-store sales growth? And how should investors think about the theoretical maximum number of stores that you can be opening on an absolute basis on an annual basis, Scott?

Yes. So this -- last year, we built 334 new restaurants in North America. This year, we'll build 350. And we had line of sight on -- so the trajectory for a new restaurant is probably 21 months out today. And so when you're building that pipeline, as you can imagine, the pipeline is fully built for 2027. And so we were marching towards 375, 400 number. I stalled the organization, and I said, "I like 350, let's just stay at 350. I don't know why the world is in such a rush for me to get to 7,000 restaurants. I'm not that big a rush. And if we can show sustainable durable returns, 350 restaurants a year, which we are, I think it's the right spot for our organization.

Right now, we're still seeing 60% year 2 ROI on the investment. We're still seeing 80% of productivity for new restaurants, and we're still seeing about 1% cannibalization, which has been consistent for the last 10 years. And so if something fractures there that will cause us to pause or pull back. But even if I turned it off tomorrow, I'm still going to build 350 restaurants this year. I'm still going to build 350 restaurants in 2027. Those deals are already signed and in flight. And so I'm sure they're dead deal cost, we could probably absorb as an organization. I don't see a need to do that today.

What about the remodeling of your own stores? Do you think that the layout and the format of the stores is conducive to the customer experience that we are seeing today or the customer occasions that you're aiming to drive going forward? Or are you expecting the next 3 to 5 years to see a remodeling cycle to shift a little bit the interior design of your stores?

Yes. So we have not had a remodel program at Chipotle Mexican Grill in 33 years. So as you can imagine, we have some assets that are very old at this point, approaching 30 years or 30 plus. And so I've asked the team to go back and let's take a hard look at different levels of investment on a remodel to see what the returns will be. We have a test this summer with 20 restaurants across 3 different DMAs, where we're going to test varying levels of expense to see what the return will be and provide those tests go well, whichever one wins the day, we'll inform a remodel strategy going forward.

But I think there's probably 1,000 to 1,500 restaurants today, they're just dated. They're dated. If you remember, when I joined the brand in 2017 we were -- our brands -- our assets were in distress. I mean we had broken tile, busted white leather, torn booths, and you name the gamut of problems. Our buildings were really dark red on the interior, I don't know if you remember those days. And we used an [indiscernible] lamp that was really, really low light in the restaurant. And one of the first things I did is I cleaned all those problems. I remember asking the Board for $50 million to go fix and we only have 1,900 restaurants at that time. And $50 million, just to go fix some of the deferred maintenance out in the system, while I was doing that, I painted all the walls white, and I re-lamped every restaurant with a really bright bulb just to brighten up the asset and make it look approachable and a place you'd want to sit and have a meal.

I think that worked well for about 10 years. And I think we've gotten to a point now where some of our assets, no matter how much we reinvest in maintenance costs or maintenance capital, just need a facelift, right? There's a proliferation of competition. I think some really cool concepts out there that are are having a meaningful impact on consumer experiences. Our new habanero prototype. I don't know if you've seen that, I think you can see it online, someone said they saw it earlier. It's such a modern forward-looking design of Chipotle, it's such a stark contrast to the legacy restaurants that were the old tent trim with the [indiscernible] seats and the mushroom tops that I think there's an opportunity there. And I'm hopeful that the test will work because I'd like to pull together a remodel strategy to address those older assets.

And we are roughly speaking, the 3 levels of investment that you're looking to make? I know it's early days, but what is the rough quantum that we are talking about here?

Call it $200,000, $400,000, $600,000 from interior design, exterior design and kitchen -- it's been a long day, kitchen efficiency to make sure we're delivering the best experience.

Great. And then in the final 2 minutes that we have, there is also increasing questions that we are receiving from investors regarding the state of competition. And specifically, how have [indiscernible] standing fast casual competitors affected competition for talent and real estate?

We took a hard look at [indiscernible] specifically growing aggressively in New York and Florida, and we did a pretty comprehensive deep dive analysis to understand the competitive intrusion. And while we saw some marginal sales pressure within the first 6 months, it recovered very quickly. And what ended up happening is those Cabo restaurants are bringing more consumers to that trade area, and they're making a choice about [indiscernible] and Chipotle. And what we're seeing is they're choosing Chipotle.

I think there's two reasons. I think our food is better. I'll put our food up against anybody in the world, but I think we're much faster, and we deliver a quicker experience, which is probably one of the Achilles heels of that brand. I think they're doing fantastic work. Don't misunderstand my comments. I think it's a great brand. I think they're really doing some really cool things. But I just -- when I think about competition, I will build almost the same number of restaurants they have in total just this year. And so if you think about the size and scale and the growth trajectory of Chipotle, I really don't see competition standing in the way.

As it relates to talent, we've lost 2 people in the organization to really key C-level roles that were VPs that moved to C-level roles and which we applaud. I never said you had to start at Chipotle and grow here and stay here. I have always said, come to us, grow here, you can go anywhere. And so if we can help people achieve their career goals, we'll always support that in a meaningful way and make sure people are taking advantage of the best opportunities for them and their families. Full stop. We're an incubator for great talent. We're -- it's something we're, we hang our hat on at the end of the day, whether that's operational talent or talent in the support center. And I think that's important. I think it should be applauded not criticized.

Great. Adam what kind of comp progression are you expecting this year? What are some of the key milestones for you this year? And then as we look for 2027, you're probably going to have some tougher lapping from this year given the launch of the 4 LTO instead of 2 LTOs, the deeps and sauces the caring that is progressing as well as the launch of the relaunch of the loyalty program. So how are you thinking about the building blocks for 2027? How do we make sure that there is a successful "lapping" in 2027?

Yes. I mean I think it really is the build. I think the momentum builds with a lot of these initiatives. I mean, when you go to the LTO strategy, it's bringing new guests into the funnel, and they come back again and again once they're introduced to Chipotle. And so there's a building mechanism of your LTO strategy. And then you get into the rollout of the high-efficiency equipment package starting to really speed up the catering rollout. These are all initiatives that are meant to build that comp profile throughout this year, and that gives you a head start going into 2027, and you're still rolling out the high-efficiency equipment package.

You're coming up with new exciting enticing menu innovation. We've got Fernando coming in and starting to by that point, having a real grip and change in our brand messaging. So I just look at it as a continuous build to get us back to that mid-single-digit ultimate goal and keep us there moving forward, if not greater.

And mentioned, a meaningful growth in the digital commerce engine.

So Scott to wrap up. How will Chipotle be different 5 years from now? And what is the hardest choice that you think you'll be making in the next 5 years?

Great question. It has been my intent and my endeavor to keep the brand consistent. And I think the brand is beautifully simple in nature, very hard to execute. And I think that's what created this competitive moat that we have around the business that's hard to replicate. So I think it's important to us as leaders and stewards or shepherds of the brand to always keep front and center, what is pure and beautiful about this brand and keep it just that way. Whether that's supply chain, how we deliver the experience in restaurant, I think that's most critical.

So I don't think the brand changes I think it evolves from an asset perspective, I think it needs to evolve. I think new [indiscernible] design is probably the way of the future. And then I think we prove and which we're already on track to do that, it is a iconic global brand, not just a U.S. brand. And we're proving that in the Middle East. We're proving that now finally in Western Europe. We'll open Mexico this year. We'll open Seoul South Korea this year. Singapore will be a fast follow I've been to these markets. I've talked to the people in these markets. They are clamoring to get Chipotle Mexican Grill.

And so I think you'll start to see this brand really take root and we will solve for food challenges, around the globe in the most meaningful way in proving yet again that people should have access to wholesome nutritious food regardless of your income level or your lifestyle, right? And we're proving you can do just that at a great price point.

Scott, Adam, thank you so much for joining today, and thank you, everybody.

Good day, and welcome to the Chipotle Mexican Grill First Quarter 2026 Results Conference Call. [Operator Instructions] Please note this 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.

Hello, everyone, and welcome to our first quarter 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. Additionally, supplemental investor information is available on our site as a reference for today's call.

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 in 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, Chief Executive 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 assessment.

And with that, I will turn the call over to Scott.

Thank you, Cindy, and good afternoon, everyone. Before we share our first quarter results, I want to begin by recognizing the extraordinary people who bring our purpose to life every day in our restaurants. Last month, we held our all Managers' Conference, bringing together nearly 5,000 restaurant and support center leaders. The energy was incredible as we celebrated their achievements, reinforced our commitment to developing world-class people leaders and sharpened our focus on delivering exceptional food and hospitality.

I have seen that same energy in my recent visits with restaurants that are clean, well staffed and run by revenue crew members and executed at a high level with culinary that is outstanding. This is the standard our guests expect and it is exactly what we intend to deliver everyday across Chipotle. More importantly, it gives me confidence that the work we are doing is taking hold where it matters most, which is in our restaurants.

Now turning to our results. Our first quarter performance exceeded expectations, and we are encouraged by the early momentum we are seeing in our Recipe for Growth strategy that is gaining traction and positioning Chipotle to win in any environment. For the first quarter, we delivered revenue growth of 7.4% to $3.1 billion, including positive comparable sales and return to positive transaction growth.

In addition to improvements to in-restaurant execution, this performance was supported by the high protein line, the return of Chicken Al Pastor store and the launch of Cilantro-Lime Sauce, all of which helped drive incremental transactions. We also continue to invest in value for our gas pipe pricing low inflation because we believe reinforcing our value proposition is the right thing to do in this environment. Adam will take you through the financial details, but overall, we are encouraged by the momentum we are seeing, which has continued into April.

Our recipe for growth strategy is built around what differentiates Chipotle and where we see the clearest path to stronger restaurant performance and long-term growth. As a reminder, the five pillars of our strategy include: connecting and strengthening the core by driving operational and culinary excellence to deliver exceptional value for our guests, modernizing our business model with industry-leading technology, including leveraging AI and relaunching our rewards program to elevate the experience for our guests and our teams, evolving the brand messaging and accelerating menu innovation and new occasions that drive demand in our restaurants, cultivating the best talent in the industry, energized and focused on speed and agility and expanding our global reach by scaling with intention to improve company-owned and partner operating markets as well as strategic new regions.

Starting with protecting and strengthening the core. We continue to roll out our high-efficiency equipment package, including the [indiscernible], 3-pant [ rice cooker ] and high-capacity fryer. For crews who are often in as early as 6:00 a.m. to prepare fresh food every day, these tools are a game changer. They help teams complete prep on time and be fully deployed for peak, while also improving the consistency and quality of our culinary and creating more capacity to meet higher levels of demand. The equipment is now in over 600 restaurants, an increase of 250 versus the prior quarter, and we are on track to reach 2,000 by year-end.

For now, we are reinvesting the time savings in the equipment back into our restaurants to strengthen throughput and hospitality. And in markets where it has been rolled out we continue to see benefits translate into hundreds of basis points of improvement in comp sales. Hospitality was a central theme at this year's all-manager conference because we know today's guests are more discerning than ever, and we need to be just as focused on how we make people feel as we are [ on ] the food that we serve.

At Chipotle, this means extraordinary food, a clean restaurant, fast and accurate service and fairly teams that make every guest feel local. As part of this initiative, we are testing a new mystery shopper program to provide an independent view of our operations and validate our efforts. At our all Managers' Conference, we brought our focus on hospitality to life through on-stage competition that recreated the in-restaurant experience using real make lines, real food and guests moving down the line. Each region competed on throughput, accuracy and hospitality, and throughout the competition, we highlight in best practices our leaders could take back in their restaurants.

This powerful visual of what rate looks like supports GM Learning in the most meaningful way. I want to congratulate our Mid-Atlantic region, which won the challenge. More importantly, the energy in the arena of electric and reinforced that our teams came out of AMC energized, ready to execute and committed to providing great hospitality.

Turning to our second pillar. We are moving with speed to leverage technology and innovation to improve the experience for both teams and guests. Here are a few examples. First is our new digital makeline display we call Chipotle Kitchen. -- built by Chipotle for Chipotle, it is designed to enhance accuracy, speed and consistency.

Unlike our prior text-based display, it uses clear visual cues for ingredients and makes it easier to introduce and integrate new menu items. This improved interface simplifies execution for our teams and reduces the potential for error during peak demand. It is now live in over 100 restaurants, and we anticipate completing the rollout across all locations by the end of the year. While still early, we are already seeing meaningful improvements in on-time performance, digital order accuracy and customer satisfaction.

Second is leveraging AI and our restaurants to further support our teams. Avocado, our AI assistant continues to deliver real benefits by streamlining hiring and freeing up more time for our managers. Now we are expanding [ AVA's ] capabilities to assist our general managers with operational insights, scheduling treat planning and [indiscernible] guidance. We are also enhancing our facilities capabilities to triage equipment issues more quickly, reducing [ down ] on and improving restaurant performance. These enhanced capabilities received a standing ovation in our all managers conference and we anticipate having them in stage gate at the end of the year.

Finally, our zip line pilot for drone delivery is showing encouraging early results, and we plan to expand the pilot for several more restaurants in second quarter. Taken together, these efforts reflect the speed and breadth of innovation happening across the company, all in service of helping our teams perform at their best and give our guests more reasons to choose Chipotle.

Moving to our rewards refresh. We have an all-new look and feel, designed to widen the funnel, deepen our connection with guests and accelerate engagement. In 2025, loyalty ops meaningfully outpaced non-loyalty, reinforcing the power of the platform and the opportunity ahead. This next evolution builds on that momentum through expanded choice increased gamification and enhanced value.

One of the [ best ] opportunities to widen the funnel in our in-restaurant business, where only about 20% of transactions are currently linked to rewards compared to nearly 90% of app transactions. This month, we launched an in-restaurant campaign featuring menu panels and QR code signers to make enrollment more seamless and support our goal of driving further engagement. We also incentivized our team to promote the enhanced program to guests in restaurant.

So far, we are seeing strong results with nearly 25% increase in daily [ in ] release. And we are in the process of creating a single scan feature within our mobile app, allowing guests to both earn points and pay in one step further reducing friction.

Now shifting to marketing and menu innovation. Our value proposition remains industry-leading and differentiating. Delicious food made with high-quality ingredients, prepared fresh [ using ] classic culinary techniques and served with generous portions of a [ speed ] and price, you can't give anywhere else. This year, we've increased the cadence of menu innovation, beginning with the high-protein line campaign, which broadened awareness across the full menu and the value we offer. Add-on protein reached nearly 1/4 of all transactions and has remained unleaded, reinforcing Chipotle is the go-to destination for high-quality clean protein.

We also recently wrapped up the return of Chicken Al Pastor, the first limited time offerings we plan to launch this year. Our guests were excited to have it back and we saw strong momentum following the launch as it drove incremental transactions. Last month, we rolled out cilantro-lime sauce which is prepared fresh daily of our stops using chopped jalapenos that are roasted on the [ poncho ] and then blended with cilantro-lime [ sound ] treatment spices to create a creamy, bright soft with citrus and a little bit of a car. It was our first limited time sauce on the make line and the first launched with multiple size options, delivering higher incidents than both Red Chimichurri and a Adobo Ranch. Yesterday, we brought back Chipotle Honey Chicken, fan favorite that delivers a balance of smoky heat from Chipotle Peppers and a touch of sweetness from Pure Honey and is one of the best sellers with the highest order rate. As we look to the back half of the year, we will have two more LTOs and additional innovation planned around sides and beverages that we feel confident will keep Chipotle top of mind with our guests all year long. Shifting to group occasions.

Following encouraging results in our initial Chicago catering pilot, including the launch of a third-party delivery platform, we have expanded the program into Boston. Assuming we continue to see similar guest response and strong execution in the restaurants, we expect to begin a broad rollout toward the end of the year. Build your own Chipotle, our family or group occasion for four to six people continues to resonate with our guests. Because the occasion has proven highly incremental, we are now testing a sharper pricing architecture and leaning into key marketing moments to build awareness. Today, catering and build-ing-ll Chipotle together represent over 2% of combined sales, yet we continue to believe they could become double-digit percentage of sales over time and a meaningful growth layer for the brand

Now to our fourth pillar, our people. We remain focused on strengthening our position as a people-first company by developing world-class leaders and creating opportunities for growth. At the end of the day, our growth story is ultimately a people story. And we continue to see Chipotle change lives in meaningful ways. At our All Managers Conference, we celebrated a number of inspirational journeys, including one leader who joined Chipotle 17 years ago, looking for a steady job to support her family.

He started as a crew member and has developed into a certified training manager. Along the way, she raised her children, built financial stability, including purchasing a home with proceeds for employee stock grants and discover a passion for coaching others. When she talks about why she loves Chipotle, she points to the pride in serving real food she believes in and enjoy in seeing people she train, move into leadership roles.

Stories like hers are what makes Chipotle special. They show that our purpose to cultivate a better world comes to life in a powerful way through serving real food, creating real opportunity and helping grow the next generation of leaders. And because developing strong restaurant leaders is so critical to our success, we remain deeply focused on the general manager role and the pipeline behind it as we improve the role of our GMs and refine our apprentice program.

The good news is that general manager turnover remains at historically low levels and stability is at a multiyear high. Against that backdrop, one of our priorities is ensuring that lunch and dinner each have manager coverage so that our restaurants are positioned to execute at the highest level during the busiest parts of their day. At the same time, we are aligning the apprentice role around a designated focus on hospitality.

Our early read shows that this combination is improving execution while also strengthening the bench for the next phase of growth. I want to provide an update on how we are restructuring leadership to support our Recipe for Growth strategy. We are thrilled to welcome Fernando Machado as our new Chief Brand Officer. Fernando is an award-winning globally recognized brand leader. His experience includes 18 years at Unilever and more than 7 years leading marketing across Burger King, Popeyes and Tim Hortons at Restaurant Brands International, where he helped drive double-digit system sales growth and significant brand value expansion.

His proven track record of building iconic brands, driving category-defining innovation and leading customer-centric marketing strategies is exactly what we need as we continue to elevate our brand, deepen guest loyalty, highlight the value of our real food and accelerate our long-term growth.

We are also excited to welcome Arlie Sisson to Chipotle in the newly created role of Chief Digital Officer. Arlie has a strong track record of leading digital, data and loyalty at scale, most recently at Hyatt, where she led a global organization of more than 400 team members and advanced their digital and rewards ecosystem to drive stronger guest engagement and revenue growth. We believe she will play an important role in accelerating our digital platform and strengthening the connection between our guests and our restaurants. Together, this investment in talent will strengthen our leadership team and fuel our strategy.

Finally, to our fifth pillar, expanding global access. Starting with our partner-operated restaurants in the Middle East, the well-being of our partners and their teams remain our top priority, and we are grateful that everyone is safe. Given ongoing geopolitical conditions, we expect some delays related specifically to restaurant openings in the Middle East this year. This may result in fewer partner-operated openings than anticipated.

However, our long-term outlook for the region remains unchanged, and we continue to see the potential for hundreds of restaurants in the region over time. Outside of the Middle East, we continue to anticipate partner-operated openings in our new markets in Mexico and South Korea this year, while Singapore will likely open in 2027. In the U.S. and Canada, we opened 49 new restaurants in the first quarter and remain on track to open around 350 for the full year, with approximately 80% including a Chipotlane.

New restaurant economics remain consistent and strong, and we are confident in our ability to reach 7,000 restaurants over time. In Europe, we recently opened a new restaurant at Westfield Stratford, one of U.K.'s busiest shopping destinations, and it delivered our strongest opening day sales in the region's history. We now have 29 restaurants across Europe and anticipate at least one additional opening in Frankfurt this year. Momentum in our European business continued into the first quarter with positive comps across all countries.

This performance reflects our ongoing alignment with North American standards across culinary, training, systems and operations. We are further strengthening our foundation for future growth and continue to believe Europe represents a meaningful long-term opportunity for our company.

To close, I want to reinforce the leadership culture that defines Chipotle. Our teams are energized, aligned and ready to execute, and this is showing up in the positive momentum we are seeing in the business. We know what it takes to win, be brilliant at the basics, stay close to our restaurants and guests and deliver exceptional food and hospitality with consistency every day.

This is how we strengthen our value proposition and bring our strategy to life one guest, one team member and one restaurant at a time. I've never been more confident that we have the right team, the right strategy and a very long runway ahead as we continue building Chipotle into a global iconic brand.

I will now turn it over to Adam.

Thanks, Scott, and good afternoon, everyone. Our first quarter performance is an early indication that our Recipe for Growth strategy has started to translate into real results. We are seeing progress across the initiatives Scott outlined while continuing to manage the business with discipline. Our approach remains clear: reinforce guest value, support transaction-led growth and preserve the long-term strength and flexibility of our economic model.

Turning to the quarter. Sales grew 7.4% to reach $3.1 billion, driven by a comparable restaurant sales increase of 0.5%. Digital sales of $1.2 billion represented 38.6% of total sales. Restaurant-level margin adjusted 40 basis points for legal settlement was 23.7%, down 250 basis points year-over-year. Adjusted diluted earnings per share were $0.24, representing a 17% decline versus last year.

And we opened 49 new restaurants, including 42 Chipotlane. As Scott mentioned, our first quarter performance was ahead of our expectations. We saw strength following the high-protein menu launch, the return of Chicken Al Pastor and the launch cilantro-lime. For the whole year, our comp guidance remains about flat. Although we are trending higher than our guidance as our initiatives continue to gain traction, our guidance reflects a conservative outlook given the dynamic consumer environment.

As it relates to pricing, we ran just under 1% in Q1 and anticipate pricing will be about 1.5% Q2. For the full year, we continue to expect it to be in the range of 1% to 2%. Before I walk through the P&L, I want to highlight a few encouraging trends we are continuing to see in menu innovation and rewards. Starting with the menu innovation. Our protein limited time offers typically generate a few hundred basis points of transaction it over the life of the promotion.

The biggest benefit occurs during the first few weeks as we see increased frequency as well as more new guests. Also, we sustain part of this comp lift longer term as many of our new guys continue to dine at Chipotle after the limited time offer [ at ]. Sauces are showing a similar path. Beyond the mix benefit, they are effective in attracting new guests and increasing frequency.

Taken together, these results reinforce that menu innovation is not simply a short-term sales driver, but a meaningful contributor to building our agent volumes over time and a core pillar of our recipe for growth strategy. And for rewards, we continue to see clear evidence that deeper engagement builds loyalty and drives comps. Loyalty-driven comps have now outpaced non-loyalty comps for several consecutive quarters, and the gap is widening.

In the first quarter, loyalty as a percent of sales reached 32%, up 300 basis points versus the first quarter of 2025. That reflects both growth in active members and higher frequency among existing members, driven by programs like Summer of Extras and the expansion of Free. With the launch of our new rewards features, we are enhancing the benefits our guests already love while working to bring more in-restaurant guests into the program.

I will now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 29.6%, an increase of about 40 basis points from last year. The benefits of lower dairy and avocado prices and menu price increases were more than offset by inflation, primarily in beef and freight as well as higher produce usage. Relative to our guidance, avocados remained favorable due to better-than-expected crop in Mexico.

For Q2, we anticipate cost of sales to step up sequentially to about 30% of sales as the protein mix benefit and modest pricing leverage will be more than offset by higher costs across several items, most notably avocados, dairy and beef. Overall, we anticipate cost of sales inflation to be in the mid-single-digit range in the second quarter and will step down in the low to mid-single-digit range in the second half of the year as we lap elevated beef costs. This results in full year cost of sales inflation of around 4%. Adjusting for 40 basis points related to non-GAAP legal contingencies, labor costs for the quarter were 25.7%, an increase of about 70 basis points from last year.

The increase was driven by wage inflation, lower average restaurant sales volumes and higher benefits expense, including performance-based bonuses, partially offset by the benefit of menu price. For Q2, we expect our labor costs to be in the low 25% range with wage inflation in the low synergy range. Other operating costs for the quarter were 15.6%, an increase of about 120 basis points from last year, primarily driven by higher marketing, utility and delivery costs.

Marketing costs were 3.4% of sales in Q1, an increase of about 40 basis points from last year as we increased our marketing spend in the quarter to support menu innovation and to remain top of mind with our guests. We expect marketing costs to be below 3% sales in Q2 and for the full year. For Q2, we anticipate other operating costs to be in the high 14% range. G&A for the quarter was $204 million on a GAAP basis or $198 million on a non-GAAP basis. Excluding $3 million related to net restructuring costs associated with our Recipe for Growth strategy and certain legal contingencies and $3 million related to retention and equity awards granted to key executives in August of 2024.

G&A also includes $142 million in underlying G&A, $24 million related to noncash stock compensation, $5 million related to payroll taxes on equity vesting and exercises and $27 million related to our All Managers' Conference, which was held in March. We expect G&A in the second quarter to be around $181 million on a non-GAAP basis, which will include $151 million in underlying G&A as we invest in technology and people to support our ongoing growth.

And around $30 million in noncash stock compensation, although this amount could move up or down based on our actual performance. Depreciation for the quarter was $97 million or 3.1% of sales. For 2026, we expect it to remain around 3% of sales. Our effective tax rate for Q1 was 25.4% on a GAAP basis and 25.3% on a non-GAAP basis. For fiscal 2026, we continue to expect our underlying effective tax rate to be in the 24% to 26% range, though it may vary based on discrete items.

Our balance sheet remains strong as we ended the quarter with $1 billion in cash, restricted cash and investments and no debt. During the first quarter, we purchased $701 million of our stock at an average price of $36.14 and at the end of the quarter, we had $1 billion remaining under our share repurchase authorization.

To close, I want to reiterate what makes Chipotle a special brand. We are able to invest in the highest-quality ingredients, offer accessible price points and still deliver industry-leading economics, a combination that is very difficult to replicate. Our recipe for growth initiatives further strengthen these advantages by sharpening execution, deepening guest engagement and continuing to build long-term demand for the brand. With a strong balance sheet, clear priorities and the team energized to win, we believe Chipotle is well positioned to build on that momentum to continue creating long-term value for our guests, our teams and our shareholders.

And with that, I feel good up for questions.

[Operator Instructions] The first question today comes from Danilo Gargiulo with Bernstein.

I'd like to start with a quick clarification and then the question. It seems that you have suggested some encouraging trends also in April. So I was wondering if you can help us quantify what you're seeing quarter-to-date in the early weeks. And the real question, maybe, Scott, for you is very exciting that you're hiring Fernando Machado. And I'm wondering what specific elements of his past broad-based QSR experience you're expecting him to bring into Chipotle.

Yes, I'll start, and then I'll pass it over to Scott. So Danilo, so yes, it's specific to April, we saw a nice step-up in April. Part of it was the Easter shift. Easter was about 2 weeks earlier than it was the prior year, but a bigger part of it was the launch of Santer Lime sauce. It's really done an amazing job. It's actually outperforming red chimichurri, which was our most popular sauce up until that point and the incidence is about 2x. And then, of course, the rewards relaunch. So we believe all of those things contributed to a nice step-up in April.

Danilo, thanks for the question. As you can imagine, we went on a very comprehensive search for the exact right individual, and we found that in Fernando. And I'll tell you, beyond his deep global brand-building experience, his numerous awards and accolades, what he has accomplished in his career is really unprecedented.

And I'll tell you, what I admired most was in my conversations with Fernando, even the earlier conversations we met several times before we made the decision to partner is his thinking of Chipotle, his love for the brand, his affinity for the organization, his love of high-quality fresh food and great culinary.

And he's always been a fan, although be it from a distance of our great brand. And hearing him talk about what he has seen from our advertising historically and where he would take it to the next chapter, if you will, was groundbreaking for me. And so it was an easy decision. Again, he is an incredible marketer, and he will do well here at Chipotle Mexican Grill.

The next question comes from Lauren Silberman with Deutsche Bank.

I guess if I could just start with -- I know there was a lot of noise during the quarter, I'm going to follow up on the comp side. Any color that you can give in terms of stative trends as you move through the quarter? And really encouraging to hear about the momentum in April. Any color on what your guidance beds for comp in 2Q?

Yes. So I'll kind of walk through and then Scott, please add in. And so starting in January, I mean, we caught up on January in the last call. But just to reiterate, I mean, we saw strength in our protein menu and campaign. And it not only drove transactions, but we also saw a double-digit percentage increase in double protein and single tacos. And amazing part about this is it wasn't just during the campaign in January.

That increase in double protein and single Tacos has really sustained even through April. And then we saw the weather impact. The weather impact in January was at one point, about half of our restaurants were closed. So that was about 100 basis points to the quarter. But then as we roll around to February once the weather impact subsided, we really saw our trends improve even further, and that was really around the launch of Chicken Al Pastor. This is the third time that we've had in our restaurants, but the incidence level is actually the highest compared to the first two.

So that was really great to see. And then in March, there was a little bit of softening in our trends right around the time where the Iran conflict began, but then we saw the nice step-up in April that I talked about earlier on Danilo's question. And so when this kind of rolls into April and how we're looking at Q2, we're really anticipating comps probably somewhere in that plus 1% range.

And that's kind of what our expense line guidance is based on in my prepared comments. And this comp estimate, I would say, includes a modest increase from Chipotle Honey Chicken, which launched yesterday. But we are excited about the momentum that we're getting so far from our Recipe for Growth initiatives so far this year, but we really just want to remain cautious on our outlook given the dynamic consumer environment. Scott, anything to add?

I think what we should highlight here is what we demonstrated in Q1 was really our ability to engage with our customer base in new ways and drive incremental sales and activate against a broad range of consumer segmentations, whether that's income or age group.

Great. And just a follow-up on loyalty. You talked about loyalty comps outpacing non-loyalty, I believe, in 2025. What kind of growth have you been seeing in membership in recent quarters? And I guess is the revamp of the new loyalty program really focused on bringing in new customers, bringing less customers or trying to drive engagement with the existing membership base.

Yes, I'll jump in here. So the relaunch -- since the relaunch, we've seen about a 25% uplift in new members coming into the funnel. So not only did we widen our main goal was really to enrich our engagement and deepen our engagement with the existing loyalty members. But what we found is we were able to widen the funnel, bring more users into the funnel, reactivate lapsed consumers in a really meaningful way with some of the journeys that we've talked about historically. And we've made great progress of really redesigning a program, removing the friction points that our customers told us existed in 2025.

And the new benefits are obviously the chips & guac welcome offer, 3 monthly Chipotle drops. We heard loud and clear that's what our customers wanted. They want to be able to choose their own rewards. We call it rewards on repeat, and they could choose whatever reward and how they want to use their points. in the loyalty program as well as well as cleaning up some of the UX features that had friction points in them as well. We're able to simplify the in-app experience, so exchange, wallet, extra badges and history are just easier to find and easier to use.

The next question comes from [ David Balmer ] with Evercore ISI.

I'm just -- I'm wondering how you're thinking about how this year might play out. And one of the things you seem to be saying here is that by doing more frequent LTOs or your protein windows that not only do you get a boost, but that boost sticks around.

So the 2-year trend gets a lift each time. And that would certainly imply that with the comparisons we see ahead of you that comp trends would accelerate from here. Is that your base case? I know you want to be cautious about the underlying environment, but is your base case that seeing what you're seeing in terms of the performance of these LTOs that you will see comps climb through the year if the environment doesn't deteriorate? And I have a quick follow-up.

That's exactly right, David. And so what we learned through our demand map refresh last quarter, I guess, Q4 now is that consumers were looking for menu innovation, and they were screaming for greater innovation at a greater frequency. And we have doubled our cadence of LTO innovation and stage gate processing in our culinary center to solve that challenge, evidenced by what you will see here in 2026.

They're also looking for deeper digital engagement, which I think we saw for in the app refresh and relaunch. And then they were looking for culturally relevant marketing, which we've done some of that in Q1 with a lot of success and expect to do more of that with Fernando joining here in the next couple of weeks. So I think we're targeting the right ways to activate against the core consumer and bring new consumers into our brand.

The other thing I wonder about is how you think about bringing an LTO that was around before, obviously, Chicken Al Pastor and honey chicken, you're bringing them more frequently, but they're familiar. They were successful, but they were stuff that you've done before. I wonder -- to what degree do you feel like doing new, new is going to be more important going forward? Is that something on the horizon? And I'll pass it on.

It absolutely is, David. We have a couple of things that are in process or in test as we speak that are new LTO center-of-the-plate protein items. We have a few more we'll test in the back end of the year that will inform the 2027 strategy. But that's exactly it. We need to come back to tried and true favorites occasionally, not every time and then pepper in new menu items that will drive interest, drive occasion that are on brand and uniquely Chipotle. But that's exactly the strategy.

The next question comes from Brian Harbour with Morgan Stanley.

Adam, can you just talk about the traffic and mix components of same-store sales and kind of what your outlook, at least on the mix side might be?

Yes, sure. So with the comp of up 0.5%, transactions were up about 60 basis points and check was a slight decline, call it, about 10 basis points. Price was around 90 basis points and then mix was a drag of about 100 basis points to net to that check. And so when you're looking at mix, it's still driven by lower group size. This is kind of that continual normalization from that really high group size that we saw around COVID. And then there's also some other elements in there, for example, rewards when people come in and redeem a free entree, that's going to lower your group size as well as other more recent things that we've done around BYOC. For example, there's a little bit of cannibalization, not a lot, but that would be somebody coming in and getting 4 or 5 or 6 entrees previously is now only getting one item. So that's providing part of that drag as well as some of the other menu items like protein cups or single tacos.

It's a smaller extent, but we are seeing people come in during like snack occasions to get those items. So that's also putting some pressure on group size. But on the flip side, we are seeing some nice offsets. So the extra meat, for example, from the protein campaign is providing a nice mix lift as well as sides. I mean, first, it was red chimmychurri kind of earlier in the quarter and then cilantro-lime sauce later in the quarter.

And so when you kind of look at these going forward, I would expect mix to be closer to flat in Q2, and that's really thanks to the check benefit from cilantro-lime sauce. And then in the second half, it's really going to depend on a few factors. Really around LTOs, kind of the protein LTOs and the pricing around that as well as sauces. So we'll keep kind of you guys informed on a quarterly basis as we continue to really flush out our LTO strategy for the rest of the year.

Okay. Got it. Scott, I know you've sort of been talking about hospitality for a while and just renewed focus on that. What -- I guess, what is it that's specifically changing? Or like at your conference, what did you kind of zero in on? And is this just -- is deployment something that kind of addresses it best? Or like are there other things that we might see change in the stores? And how would that show up?

Yes. It's kind of a broad answer, so I'll try to be brief. I'll tell you, the customer -- we learned last year that the customer was much more discerning on how they spend their cash and hospitality was a component that they were looking for probably in a more meaningful way than they have since COVID. And so we leaned into it pretty aggressively.

[ Jason Kid ] and his team really rallied around this idea at AMC to deliver not only speed down the line and great culinary, which we do a pretty good job, I'd say a pretty darn good job. down the line, but also this idea to give the guest or treat the guests like a guest in your home. And so we really pushed on it at AMC.

The team really bought in, and we saw the benefits of that coming out of AMC manifest in things like better KPIs on staffing, best at model levels we've seen in years, GM turnover at historical lows, taste of food and GSAT scores that are moving up and to the right. Now it's not to say we don't still have opportunities in pockets around the country. But on balance, I am really proud of our teams and how they've executed in Q1 and how they're leaning into Q2 in a really meaningful way and really driving this idea of great hospitality at Chipotle.

The next question comes from Gregory Francfort with Guggenheim.

Scott, I think you guys have pretty good price points on your food. And I think the -- maybe you've had a little bit of a pricing perception issue over the last year or 2. I guess as Fernando has come on board, how much do you want to integrate value and price points into the marketing message? And how much are you testing with doing that? And just what could that look like? And how important is that to what he's tasked with?

Yes. It's a great question. Here's what I would tell you is we are open to testing many different ideas, and we won't handicap Fernando with historical thinking or entrenched thinking. But we won't do anything to detract from the overall brand health and brand growth. And I think I've said this many times, I believe we charge a very fair price point for what we offer the consumer, high-quality ingredients, the best ingredients in the world, prepared fresh with classic culinary techniques at a speed and abundance you can't get anywhere else and what I believe to be a great price point.

And so we continue to grow our pricing power by underpricing the industry now for the second consecutive year, which we believe is right for the consumer as we try to protect or drive demand for our organization. We think it's the right thing to do. We're still a 20% to 30% discount to our fast casual peers, and we continue to grow that gap year-over-year.

So that gives us pricing flexibility and pricing power that we could pull that lever at some point when the timing is right, whether that's a better entry-level price point like we did with the high-protein menu at $3.50 for a taco or test other innovative ideas. We're going to have a test here in a couple of weeks in one of our markets where we're testing a happier hour from $2 to $5 with tacos at $2.50.

And so we're going to test ideas like that to understand where do we have pricing power elasticity, where may we have a challenged market from a pricing perspective and what levers can we pull to get consumers in our restaurants and feel like they're not getting good value, they're getting extraordinary value.

The next question comes from Sara Senatore with Bank of America.

I guess, data question and then a real question. Have you -- I know in the past, you were talking about perhaps softening younger cohorts also maybe not just lower but also middle income cohorts. I guess your comment about engaging customers across income and age groups, are you seeing the gaps converge there in terms of the transaction growth with those cohorts that had previously been under pressure between those and the rest of your customer base?

Sara, thank you for the question. Here's what I would tell you is in Q1, I think through targeted messaging and really driving culturally relevant moments, we're able to get the younger consumer more engaged with our brand in Q1 than we have historically or over the last year, I should say. And we're seeing an uplift and an uptick across all ages and all income cohorts for Q1.

So I think we know at this point, what levers do we pull to ensure we're being thoughtful about engaging all of those individual cohorts the right way to keep moving the needle up into the right. And so I have a lot of confidence that is built into our Recipe for Growth strategy that does just that, and we'll continue to do that for many months and years to come.

And then I guess the real or non-data question is actually about Europe. You mentioned seeing some of the highest volumes in terms of opening -- recent opening in that region. Can you update us on where kind of unit economics stand there or whether it's the AUVs or the middle of the P&L, I think those have been kind of the middle -- those have been kind of sticking points or hurdles to clear before you accelerate unit growth. So any update on that and whether that means perhaps you're at an inflection point where you can start to pick up the pace?

We absolutely are, Sara. So we're now in the double-digit range on margin, and we're seeing 40% restaurant -- new restaurant growth year-over-year -- I'm sorry, 40% return on investment in year 2, forgive me, on the new restaurants we're opening, which gives us a lot of confidence. Not only are we on track, but we need to begin to look for real estate in a more meaningful way in Central London and in Germany. I think we are released to go as quickly as we can go.

The next question comes from John Ivankoe with JPMorgan.

The question is on competition, but I want to go a couple of ways with this, if I can. On the chain basis, which is, I guess, can be tracked. It does seem like a lot of the competition is coming in chicken, Mexican, and I'll just say very broadly but kind of bulls on a top 500 chain basis. But on a local basis, certainly, one could make the argument or at least have the observation that it's very much the same, the same type of concept growth.

So the question is, is there any opportunity to not just think about marketing on a national basis or kind of through the app, but even thinking about competition or marketing different locally to where different markets would have specifically different opportunities and different needs based on where competition is growing is the first part of the question.

And secondly, and I don't know if it's fully related, it did look like to us, at least on our calculation that new unit volumes may have been a touch light in the first quarter. So I was wondering if there is some timing or other types of factors that could have influenced that? Or how the unit volumes were relative to your own expectations as we would have calculated on an implied basis in the first quarter?

Yes, I'll jump in here, and I'll Adam follow up on the second part of your question. We did a deep dive analysis on competition, specifically in New York and Florida, where our main competitors, albeit they're small today, are growing the fastest. And while we see some level of cannibalization when one of those restaurants opens up near a Chipotle in the first 6 months or so, it recovers pretty quickly in month 6, 7 and 8 and then climbs back to industry trends or Chipotle standard trends from there.

So what we're seeing is when one of those competitors open up, they bring more consumers to the retail trade area, which is helping buoy our restaurant performance long term. And so obviously, we think about competition, we are concerned and keeping an eye on competition. But as it stands today, it's low levels of impact.

As it relates to marketing spend, we know that our marketing dollars on return on ad spend work the hardest on the national level and to bifurcate that spend to attack something locally would be costly, and I don't know if it's the most efficient use of our dollars.

Yes. And then to follow up on the store productivity, John. So we're seeing about 80%, which is where we've been in the last couple of years. So we're really proud of our Q1 openings and really where we've been trending over the last year. What you're probably looking at is you don't have the details on the cadence, so they may have been pushed a little bit later in the quarter versus kind of even spread throughout. But no, we're still kind of in that 80% of our comp restaurants in terms of where they're opening at.

The next question comes from Jon Tower with Citi.

Maybe starting, I'm just curious, following up to Greg's question around value perception in the marketplace, I would argue maybe your delivery channel is one area where you get perhaps lower value scores than the in-store experience. So I'm just curious what you're thinking about there with respect to the premium that is currently charged for delivery, if that's an area you're exploring for an opportunity to improve the value scores.

John, yes. So we did some testing on different premiums in delivery across DoorDash and Uber and people use those platforms in different ways. They primarily use Uber as a discount platform and DoorDash as a premium faster order time, faster delivery time platform. So you have to market on those platforms very differently. But I will tell you, our prices even at an elevated NPI on marketplace are still below our peers in the channel.

And so we did see another tick up in delivery this -- still in the teens, but another tick up in our delivery performance last quarter. What I'm most excited about is we surpassed 20% of order ahead in the quarter, which tells us our consumers being more discerning on how they spend those dollars and coming to the restaurant to pick up their orders versus having it delivered. And so that's encouraging for us as we think about the future of delivery long term.

We will have Arlie Sisson starting next week, we will take a hard look at our third-party aggregators to see where we are performing well, where might we have opportunity. and really take the learnings from the testing we did last year to inform our go-to-market strategy in the back half of this year.

Great. And then just maybe on the labor side of the equation, it sounds like you're rolling out quite a few tools at the store level to help obviously GMs in the store -- the hourly employees become more efficient. I think some of the pushback that I consistently hear from investors is stores need better staffing over time. And I'm just curious to get your take on, we think the labor levels at the stores need to settle out if you're kind of fully staffed today? Or is there more opportunity to invest there?

I think there's more opportunity to invest, if I'm being honest. And here's how we're doing that. The heat program throws off an incremental couple of hours of productivity, which we're reinvesting back in the business.

Other initiatives like the Chipotle Kitchen, things like the GM Assistant, avocado on the hiring side, all those hours are freeing up the manager and freeing up the team to be more efficient and deliver a better team member experience, which always ladders to a better guest experience. And we are reinvesting that time back into the business and not taking it out to further bolster the consumer experience, which will always lead to value creation.

And we're also taking a hard look at our management complement to ensure that we have the right managers covering peak dayparts all 14 peaks. So think lunch and dinner every day of the week. I think we're challenged there today. Jason and his team have put a plan in place that they're executing against today to ensure that we have the right manager covering lunch and dinner every single day and not give up on Saturday and Sunday to ensure we have the best management coverage, which will lead to a better team member, a better consumer experience.

So there are investments that we are making along the way to free up the manager to be more effective, train better, deploy better and leads to a better customer experience.

The next question comes from Drew North with Baird.

My question is on the margin trajectory, and I appreciate the color on Q2. But as we look further ahead, Wondering if you have any updated perspective on the shape of the margins as we get to the second half I know the expectation has been for pricing versus inflation and the gap there to narrow as the year progresses. So maybe just any thoughts on how you're thinking about the shape of the restaurant margin or what comp or traffic figure might be needed to see expansion as we exit the year?

Yes. Drew, so you're right in the sense that kind of the first half of the year is when margins are going to be under the most pressure on a year-over-year basis. I mean the price that we're running, for example, in Q1 of 0.9% compared to inflation is kind of in that mid-3% range. So that's providing the majority of that dislocation.

As we get to the second half of the year, inflation is going to drop down a bit, mostly because we'll start to lap kind of the elevated beef prices from the year before, and we'll continue to see pricing tick up with a slow and measured approach that we're going forward with. So I would expect towards the end of the year for that dislocation to be minimal based off the trajectory we're on right now.

And going forward, at that point and going forward, really the flow-through on being able to get margins higher is going to come through our usual strategy of just utilizing price to offset the impact of inflation and getting margins higher through incremental transactions.

That's helpful. And hoping you could elaborate a bit more on what you're seeing from the high-efficiency equipment package in early days. Scott, I know you mentioned the hundreds of basis points of comps outperformance again. But wondering if that gap has widened versus control for some of the early restaurants with the equipment? And maybe just how to think about the pace of rollout through the year to get to 2,000 at year-end?

Yes. So -- and what we're seeing right now is outperformance on throughput, taste of food, [ OSAT ] and then again, hundreds of basis points of comp lift in those restaurants, and that ranges from [ 200 ] to [ 400 ], depending on the restaurant, I will tell you. We are at 600 restaurants today. We'll be at 2,000 by year-end. This quarter, I think we're at 35 -- 30 installs per week.

We're going to move to 45 installs per week here in the next month or so. We are going as absolutely quickly as we possibly can, but doing it in a responsible way where we don't have to close restaurants to get the new equipment in. We're doing it overnight on these installs to ensure we don't affect the business and then make sure we do it the right way where [ the ] teams are trained correctly to use the equipment. Although the equipment is plug-and-play, it does require some level of training. And it takes the team about a month, if you will, to really get up to speed on how to use the equipment most efficiently. So we're being responsible. I think we can get the full portfolio done at some point late 27, early '28.

The next question comes from Chris O'Cull with Stifel.

Scott, just a follow-up to that last question regarding the heat package. How long does it take to see the same-store sales improvement that you're experiencing in these test stores once you deploy the package?

About 2 months, Chris. So it happens pretty quick. It takes about a month to really get proficient and then a month to kind of hit your stride. So after about 2 months, we're starting to see some pretty material uplift in the business.

Okay. And then the marketing spend grew I think 22% in the first quarter and following a very heavy push in the fourth quarter. While you're seeing positive inflection in comps, the marginal lift relative to that level of investment appears obviously a little modest. So how is the team measuring the incremental return on the spend and are you seeing a strong enough conversion trend to justify maintaining this level of marketing?

Yes. I mean I'll start and then Scott definitely add in. So yes, what you're seeing right now with the level that we're spending, especially around supporting four LTOs is we're getting some really good returns on that incremental spend as well as some of the additional things that we're doing around some of the more Chipotle's as we call them around the [ tattoo Bogo ] and some of the other things. And so we measure them individually and really ensure that we're getting the best return on each of them. I think what you're seeing, too, though, with that incremental spend, is there still some noise especially when it comes to consumers and kind of what we're up against. And so we're expecting this to continue to improve. But the team does a phenomenal job of really looking at each individual investment, assessing and determining where we go from there.

Yes, I think it's important to note that some of that has a tail, right? So as you think about marketing spend, your goal is sales overnight and brand over time. So there's a component of it that is really driving sales and transactions there's another component that is brand building, which will serve you well for many years to come. And so as long as we look at the return on ad spend as being responsible and margin accretive, which I think is the right way to view it, we'll continue to incrementally spend there.

The last question today comes from Andrew Charles with TD Cowen.

Great. Adam, I wanted to ask you the guidance for 2Q same-store sales up 1% relative to 1Q, 50 basis points increase is commensurate with the [ 5 ]0 basis point step-up in price quarter-over-quarter -- you also caught up you expect mix to be flat in 2Q versus down 1% in 1Q. So I'm curious like 2Q's embedding a 50 basis points traffic decline that versus what you saw with 1Q 60 basis points gain unless you categorize 2Q guidance is similarly conservative to the full year '26 guide?

Yes. So I mean I think what you're picking up there is right. Really, what it comes down to is we're being modest, like I said earlier, on the increase that we expect to get, not only from [ Chipotlane ] chicken with a yesterday, but some of the other initiatives that we have planned, just given the consumer environment, especially with the conflict in Iran and gas prices. And so we're going to remain cautious on that outlook, but we believe that there's upside from there.

That's helpful. Just kind of want to follow up the sustainability report published this week it indicated a large pickup in hourly turnover in 2025, following 3 years declines. What drove this? And can you talk a little bit more about the plans in place to improve throughput in 26 outside of heat, leading to a faster experience.

Yes. So the first part of the question, 2025, I believe, was just an anomaly as sales decelerated, which I hate to talk about, as you can imagine, there were fewer hours, which drove some attrition. And then this new focus on hospitality caused us to give a hard look at the employees we have in our restaurants and which ones were naturally friendly and have a natural inclination to smile and take care of our guests.

And so we had to make some hard decisions there. I'm happy to report Q1, we're back to our historical low levels of turnover. So I know we're on the right track, and we're back where we need to be as it relates to turnover. And what was the second part of your question?

No, you hit it. That was it. I was just wondering what drove and what you're doing to fix it. That's it.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Boatwright for any closing remarks.

Well, thank you, everyone. We're pleased with the results in the quarter, as you can imagine, showing progress in reinforcing that our Recipe for Growth strategy is working and driving traffic across all income cohorts. I want to leave you with the idea is that we're building on a strong team with the addition of a new Chief Brand Officer and Chief Digital Officer.

And we expect our initiatives to continue building throughout the year and have transactions improve as innovation on ideas like heat, group occasions, rewards and restaurant execution scale over time. And we'll continue to lean into what makes Chipotle great hospitality, generous portions, great culinary and great throughput. And with that, I just want to say thank you to our teams out in the field that really do the hard work for us and the heavy lifting in this brand for all that they do to make our brand great. and I wish everyone a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Chipotle Mexican Grill Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Cindy Olsen, Head of Investor Relations. Please go ahead.

Hello, everyone, and welcome to our fourth quarter and full fiscal year 2025 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. Additionally, supplemental investor information is available on our site as a reference for today's call.

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 in 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, Chief Executive 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.

Good afternoon, and thank you for joining us. Today, I will spend a few minutes upfront discussing the highlights of our financial results, and Adam will cover the details. My remarks will cover a broader view into my vision for Chipotle and my deep confidence in our growth strategy as well as opportunities we have to sharpen our competitiveness by harnessing the core values of our brand.

The results we issued this afternoon were in line with expectations and guidance for the full year. 2025 should be seen as a year of progress and resilience for our brand. For the year, revenue grew 5.4% year-over-year, which included a 1.7% decline in comparable sales. Adjusted diluted earnings per share grew 4.5% year-over-year to $1.17. We opened a record 334 new company-owned restaurants and 11 international partner-operated restaurants, we also made progress in the strategic areas that matter most for our long-term success, including investing in operational excellence, marketing and menu innovation, deploying new back-of-house technology and growing our footprint internationally.

It's important to emphasize all of this was achieved against a dynamic consumer backdrop with our guest placing heightened focus on value and quality and pulling back on overall restaurant spending. This makes our investments in progress even more significant and highlights Chipotle's commitment to succeed through consumer cycles. With that in mind, I want to commend the incredible efforts of our teams for their thoughtful response and dedication during the recent winter storm.

We have not seen a multistate story like this in many years and our operational excellence and prioritization of speed and agility were instrumental and reopening restaurants as quickly and safely as possible to serve our guests. Turning to our path forward. Serving as Chipotle CEO is an incredible honor. From our guests to our people, to our partners around the globe, there is a deep love for our brand and the food we serve.

Over the past year, I've had the privilege of visiting Chipotle restaurants around the world, including our restaurants in Europe, Canada as well as the opening of our Citywalk restaurant in Dubai. These experiences have reinforced my conviction in our momentum and our ability to continue delivering exceptional service and elevated experiences for our guests in our restaurants.

So what actions are we taking to build a stronger, more profitable Chipotle? Over the last several months, we conducted a comprehensive review of our business as well as the current market landscape and consumer trends, which are fundamentally different from what we experienced a year ago. Here are a few key learnings.

Chipotle brand and value proposition built on high-quality, delicious culinary and best-in-class operational throughput and remains strong and relevant across all age groups and income cohorts. We are seeing positive momentum in the business with room to accelerate our growth and sharpen our competitiveness without compromising on the core values that define our brand. Our path for further success lies in leaning into what differentiates our brands, accelerating innovation into new offerings and occasions that are of growing importance to our guests and optimizing the in-restaurant and digital experience.

And the strength of our business model and balance sheet allows us to execute against our long-term strategy and emerge from this consumer cycle in a position of greater strength. These insights have shaped the next evolution of our 5 key strategies, which we are calling our recipe for growth. These strategies include protect and strengthen the core by driving operational and culinary excellence to deliver exceptional value for our guests, evolve the brand messaging and accelerate menu innovation and new occasions that drives demand in our restaurants, modernize our business model with industry-leading technology, including leveraging AI and relaunching our rewards program to elevate the experience for our guests and our teams.

Expand our global reach by scaling with intention through proven company owned and partner-operated markets as well as strategic new regions and cultivate the best talent in the industry that is energized and focused on speed and agility. We are acting on these strategies now and are already seeing results. First, we entered 2026 with a strong foundation. We aim to solidify that through our relentless focus on operational and culinary excellence across all our channels. This will be critical as we continue to scale our brand and meet the need or demand for the future.

Driving this key strategy is the acceleration of our rollout of our high-efficiency equipment package, which will improve speed and consistency in our restaurants, delivering a better experience for our teams and our guests. As a reminder, this equipment improves prep by 2 to 3 hours, which helps eliminate prep time during peak periods and results in stronger and more consistent throughput execution. It also diminishes the learning curve for new team members in more challenging areas like the Grill and improve the consistency of culinary with juicier steak and chicken that is cooked to perfection every time to meet our guests' expectations. For now, we are reinvesting the 2 to 3 hours of efficiency back into our restaurants to deliver greater hospitality.

The results in the restaurants with the new equipment are compelling. In addition to higher taste of food and overall guest satisfaction scores, we are beginning to see better throughput and meaningful improvement in comp sales. As a reminder, 350 restaurants have the full equipment package today and we anticipate about 2,000 by year-end.

Second is our brand positioning and menu innovation. Beyond our food, Chipotle sells at brand marketing. We have strong insights into what our guests launch and powerful brand building and demand-generating programs that have helped to establish our company as an industry leader. As we move into 2026, the consumer landscape is shifting with a heightened focus on value as well as high-quality protein, fiber and clean ingredients, all of which are fundamental to Chipotle's North Star brand positioning.

There remains significant opportunity to expand our leadership in this fast-growing segment by sharpening our positioning increasing spend and refreshing our campaigns to strengthen our value perception and further engage our guests through new occasions and increased menu innovation. A perfect example of this is the recent rollout of our high-protein line, which highlights our extraordinary value across a range of price points, starting with a single taco with 15 grams of protein at just $3.50 to double protein bowl with over 80 grams of high-quality protein also includes a new high-protein cut for around $3.80 and is aspired by hacks that our guests rely on to boost their intake and offers a solution to those looking for smaller portions, which is a fast-growing trend with the adoption of GLP-1s.

Early results are strong, with [indiscernible] of extra protein increasing 35% and and our double protein promotion achieving a record digital sales day. When I said that we will harness what is great about Chipotle and reinforce our value proposition to propel us forward, this is it in action. We also know from our data that our core guest is more likely to choose a restaurant that has a new menu item.

To further drive demand, we will increase our menu innovation cadence to 4 limited time offers in 2026 and giving our guests more reasons to visit Chipotle. This will include the return of Chicken al Pastor next week, which is the most celebrated limited time offer in history with 2x the request on social media to bring it back compared to any other LTL.

Limited time offers are not just delicious. They yield traffic by bringing in new guests while increasing the frequency of the existing base. Additionally, the LTO acquired guests demonstrate higher long-term value, maintaining elevated spend and frequency levels throughout the year. In addition to limited time offers, we will roll out new sauces and build a strong pipeline of innovation and untapped sales layers like sides and beverages. As new menu items make their way through the stage gate process we can pace and sequence these growth layers to provide a long path for transaction growth for years to come.

We also see the group occasion as a big opportunity longer term. We are currently building awareness around build your own Chipotle for families or groups of 4 to 6 as well as testing the expansion of catering. Today, these 2 group occasions represent less than 3% of combined sales yet could be double-digit percentage of sales longer term.

Build your own Chipotle continues to perform. It is also highly incremental and driving strong repeat purchases, which is why we are extending our trial promotion into 2026. To build on our momentum, we will scale awareness across our marketing channels, leaning into moments that bring people together like sports, holidays and other shared occasions where we have seen our highest incidents.

Regarding our catering tests, our teams are getting up to speed with the new equipment and technology that will support a bigger catering business. And we are ramping up our marketing efforts, including the recent rollout of one of the large third-party delivery platforms. While it is still early in the testing phase, we are seeing the catering orders begin to build, and we remain optimistic that we have found the right solution to help scale our catering business moving forward.

Third, we are in process of relaunching our rewards program this bring to widen the funnel and leverage our data and AI to power more personalized and impactful user experiences. 2025, we grew our active members to over $21 million, thanks in part to our Summer of Extras campaign as well as more engagement through programs like [indiscernible] throughout the second half of the year.

Through that, we experienced an acceleration in loyalty comps in the back half of the year that outpaced total comps by several hundred basis points. Currently, about 30% of sales are realized through our rewards platform and the momentum gives us confidence that there remains significant runway for growth by bringing more guests into the funnel, deepening engagement in driving sales throughout the year. One of the biggest opportunities is in restaurant as only about 20% of transactions through our rewards program compared to nearly 90% of our app transactions.

Looking ahead, we have a strong campaign planned around the spring launch of a more engaging rewards program specifically designed to target the in-restaurant guest and remove friction from the checkout experience. Additionally, the campaign will include more programs like Summer of Extras and continuing to leverage gamification, which has resonated well with our guests. We look forward to sharing more details about rewards in the coming months.

Fourth, accelerating global expansion. In 2025, we opened a record 345 new restaurants and sold over 9% new restaurant growth. We opened 334 company-owned restaurants where we surpassed 4,000 in December. This included 21 openings in Canada, an increase of 38% year-over-year for that country. We remain confident in our ability to reach 7,000 restaurants in North America longer term. And we are accelerating growth globally. In Europe, we ended the year with positive comps and another except change in the economic model. In fact, Central London and Frankfurt have reached strong cash-on-cash returns, which is unlocked growth for these markets in 2026.

Now turning to the Middle East. With our regional partner, Alshaya Group. We opened 7 more partner operating restaurants in the fourth quarter and 11% for the year, with a total of 14 restaurants in the region. I recently had the opportunity to experience an opening in Dubai where the energy was electric and thousands of guests chanting Chipotle as we unveiled the new restaurant, powerfully demonstrating the brand's affinity and enthusiasm for our delicious food.

With Alshaya Group, we plan to nearly double our footprint and sales in 2026, including entering new markets like Saudi Arabia. Longer term, we believe we can have hundreds of restaurants in this region. Additionally, we remain on track to open our first restaurants in 3 new partner-operated markets this year, including Mexico, Singapore and South Korea. The global growth story is gaining momentum across all markets. And we know that when we deliver our fresh, delicious culinary experience with speed and exceptional hospitality, it resonates around the world.

Fifth is the team. None of these strategies would be executable or goals [indiscernible] without our people. We know that when we take care of our team members, they take care of our guests. It's that simple. I'm extremely proud of the way in which our teams work this year, both in restaurants and our support centers to deliver for our guests. [indiscernible] culture that sets us apart from the others is promoting top talent from within. In fact, in 2025, Chipotle had 23,000 internal promotions, including 100% of our regional Vice President roles, over 83% of our field leader positions and nearly 90% of our restaurant management.

We will always keep opening doors for our people, creating more pathways for career growth and advancement at every level in our company. We move forward, we are building a culture of speed and agility and adding exceptional talent to drive our strategy. As you may have seen last month, we announced that [ Roger Theodoredis ] and Chris [ Brandt ] transitioned out of their current roles. I want to thank Roger and Chris for their leadership and many contributions. Roger has been a trusted adviser, while Chris has been instrumental in helping Chipotle become a purse driven lifestyle brand as we grew our footprint to more than 4,000 restaurants.

We have promoted [ Ilene Eskenazi ] to be our Chief Legal and Human Resources Officer. He will bring her extensive experience overseeing a broad range of legal and compliance matters as well as talent management and compensation and benefits to help us execute our talent strategy. As I mentioned earlier, our marketing team and how we engage with our guests are at the heart of Chipotle's success.

We have grown our marketing capabilities by leaps and bounds over the past 8 years, which makes us the exact right moment to take it to the next level and build upon our strong foundation. We are conducting a national search for our next Chief Marketing Officer, and I look forward to sharing more on that front soon. Additionally, to accelerate our approach to technology and innovation, we are hiring a new Chief Digital Officer and a Vice President of Emerging Technologies. Each will play a critical role in helping us to become more efficient, enhance our operations and develop and deploy industry-leading technology.

Combination of our existing team, internal succession planning and external response to searches gives us a high degree of confidence that we will have exceptional talent executing the Recipe for Growth strategy. And our leadership teams are committed to staying close to our guests and the frontline experience because the fact is, the answers are in the restaurants.

To close, I want to highlight that we recently celebrated the 20th anniversary of Chipotle's IPO in 2006. Looking back over the last 20 years, what stands out to me is the consistency of our brand. Two decades later, we still have the same unwavering transparent commitments to sourcing the best ingredients. We continue to deliver exceptional value for our guests and we are investing in the development and growth of our world-class teams. We look forward to the next 20 years, I've never been more confident in the strength of this brand and our ability to win. Our recipe for growth in 2026 plan will position us for success in any environment. And we're confident it will drive transactions, allow us to move faster and create long-term sustainable growth for our people, our guests and our shareholders. I will now turn it over to Adam.

Thanks, Scott, and good afternoon, everyone. I'm pleased to report that we delivered sales results that were in line with our expectations with accelerating trends throughout the quarter and into January. To support this performance, we made the strategic decision to elevate our marketing activity to ensure Chipotle remain top of mind with our guests.

Now turning to our results. For the fourth quarter, sales grew 4.9% to reach $3 billion with a comp decline of 2.5%. Sales benefited from a $27 million true-up following an annual gift card breakage analysis. This true-up did not impact comparable restaurant sales. Digital sales were 37.2% of total sales. Restaurant-level margin was 23.4%, down 140 basis points year-over-year.

Restaurant-level margin also included a 70 basis point benefit from the gift card true-up. Adjusted diluted earnings per share was $0.25, consistent with last year, and we opened 132 new restaurants, including 97 Chipotlanes as well as 7 additional partner-operated restaurants. As we move into 2026, we anticipate our full year comparable restaurant sales to be about flat. We are confident in our recipe for growth strategy, and we are encouraged by the meaningful improvement in underlying trends we've seen in January following the launch of our new protein menu and marketing campaign. However, we believe it's prudent to keep our full year guidance grounded in a conservative baseline given the evolving consumer dynamic.

We will continue to take a disciplined and measured approach to pricing, but do not expect it will fully offset inflation in the near term as we remain committed to delivering exceptional value for our guests. We anticipate the impact of pricing in the first quarter will be about 70 basis points compared to our expected inflation approaching the mid-single-digit range. We expect the gap between our pricing and inflation to be at its widest point in the first quarter and then will narrow meaningfully throughout the year.

I will now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 30.2%, a decrease of about 20 basis points from last year. The benefit of menu price lower dairy prices and cost of sales efficiencies offset inflation, primarily in beef and chicken as well as the impact of tariffs.

Tariffs impacted the quarter by about 30 basis points. For Q1, we anticipate our cost of sales to be in the mid-30% range, primarily driven by higher costs across several items, most notably beef, avocados and cooking oils, partially offset by the benefit of [indiscernible] ramping down modest pricing leverage and lower tariffs. With the recent removal of tariffs on beef and other agricultural goods, we now anticipate our ongoing tariff impact to be around 15 basis points.

Overall, we anticipate cost of sales inflation to be higher in the first half of the year and will step down to the low to mid-single-digit range in the second half of the year as we lap elevated beef costs. This results in full year cost of sales inflation in the mid-single-digit range. Labor costs for the quarter were 25.5%, an increase of about 30 basis points from last year as higher pricing and lower performance-based bonuses were more than offset by lower volumes and wage inflation.

For Q1, we expect our labor cost to be in the high 25% range with wage inflation in the low single-digit range. Other operating costs for the quarter were 15.5%, an increase of about 100 basis points from last year, primarily driven by higher marketing, delivery and utility costs as well as lower sales volumes. Marketing costs were 3.5% of sales in Q4, an increase of about 50 basis points from last year.

As I mentioned earlier, we accelerated our marketing spend in the quarter, which helped us remain top of mind with our guests. We expect our marketing costs to remain in the mid-3% range for Q1 and in the low 3% range for the full year. For Q1, we anticipate other operating costs to be in the mid-15% range. G&A for the quarter was $160 million on a GAAP basis or $162 million on a non-GAAP basis. excluding a $4 million reduction in legal contingencies and around $2 million related to retention equity awards granted to key executives in August of 2024.

G&A also includes $145 million in underlying G&A, $21 million related to noncash stock compensation, which included a reduction in our performance share accrual related to our upcoming OR Manager Conference, which will be held in Q1 of this year, offset by $5 million in lower bonus accruals. We expect G&A in the first quarter to be around $203 million on a non-GAAP basis, which will include $142 million in underlying G&A around $26 million in noncash stock compensation, although this amount could move up or down based on our actual performance and is subject to the final 2026 grants, which are issued in Q1. Around $28 million related to our upcoming OR Manager Conference and around $7 million related to employer taxes associated with shares that vest during the quarter.

Depreciation for the quarter was $93 million or 3.1% of sales. For 2026, we expect it to remain around 3% of sales. Our effective tax rate for Q4 was 23.7% for GAAP and 23.4% for non-GAAP. Our effective tax rate benefited from an increase in U.S. federal income tax credits. For fiscal 2026, we estimate our underlying effective tax rate will be in the 24% to 26% range, though it may vary based on discrete items. Our balance sheet remains strong as we ended the quarter with $1.3 billion in cash, restricted cash and investments and no debt.

During the fourth quarter, we purchased $742 million of our stock at an average price of $34.4 and bringing our full year 2025 total to a record $2.4 billion at an average price of $42.54. During the quarter, the Board authorized an additional $1.8 billion to our share purchase authorization. And at the end of the quarter, we had $1.7 billion remaining.

To close, the momentum we are seeing today reinforces our confidence in our Recipe for Growth strategy, enabling us to build on what differentiates Chipotle and to compete and win with greater efficiency and impact. We remain committed to the financial discipline required to both protect and strengthen our strong economic model. And with our brand strength and customer loyalty as our foundation, we will continue executing our strategy and expanding our runway for extraordinary growth. We look forward to sharing our progress along the way, and we are ready to take your questions.

[Operator Instructions] Our first question comes from Brian Mullan with Piper Sandler.

Just a question on the guidance for about flat same-store sales. I guess, one, can you just help us understand the components, what's embedded in there for transactions and menu price and mix, that would be helpful. understand. And then just two, anything you can offer on the cadence you'd expect. And I'm asking because you mentioned being encouraged by January, it would seem like there's some easy compares ahead. So just anything you could offer there would be helpful.

Definitely. Thanks, Brian. So for the full year, like we said in our prepared comments, we're excited about the momentum that we've seen in our underlying trends in January after the launch of the protein menu and that whole campaign. And we're confident in our recipe for growth strategies and that they'll continue to drive transactions up throughout the year, including with Chicken al Pastor launching next week. But with that said, we think that it's still very early in the year, and consumer trends -- the trends have been really tough to predict. So we wanted to be conservative in our full year guide to account for this. And our full year guide only includes, I would say, really a modest impact from the initiatives that we have this year. And then when you're thinking about how this works out throughout the rest of the year, we expect comps to improve throughout the year as our initiatives drive transactions and as our -- sorry, as compares it a little bit easier throughout the year.

Okay. And then just on the high-efficiency package. In the prepared remarks, you referenced seeing some increased throughput, maybe a lift of comp sales at those 350 restaurants. Just wondering if those restaurants, any quantification you can provide on what you're seeing at stores? And if that's something you might -- I think you said 200 at the end of the year, but would you look to accelerate that over the next couple of years?

Brian, it's Scott. Thanks for the question. We're really excited and encouraged by the results we're seeing with the heat package. We're seeing better engagement, consumer engagement scores. We're seeing better scores around food quality and taste of food. And like we said in the prepared remarks, we're seeing hundreds of basis points of improvement in comp sales in those restaurants alone. That gives us confidence that we are approaching the strategy the right way, and it's having a meaningful impact for our team members and for our guests. We have already accelerated the program. We should be at 2,000 restaurants by the end of the year. And then you could see that there is a path to probably finish the rollout at some time in 2027, and we will go as absolutely fast as we possibly can.

Our next question comes from Sara Senatore with Bank of America.

I guess maybe 2 quick questions. One is if you could talk about the LTO. I know that's something you're going to do more frequently. You talked about Chicken al Pastor store being I guess twice requested as anything else. I think about the fourth quarter, I think [indiscernible] thought it was maybe -- it didn't exactly how you expected, although correct me if I'm wrong. So I guess, how are you thinking about the LTAs? Are you going to market it differently or maybe it's a more accessible price points just in terms of ensuring that you get the biggest lift from the LTO that what you would normally expect. So -- and then I have a follow-up, please.

Sara, it's Scott. Thank you for the question. So Carniasata did perform as it relates to incidents just as well as it did in 2023, and I'm confident it did move the needle on transactions. To what extent, I can't really parse out at present. Here's what I will tell you is what we know from what we learned in 2025, which is really a year of progress, as I said, and resilience is that the LTO consumer, the consumer that chooses an LTO at Chipotle as a higher lifetime value, visits the brand more often and spends more. And so we're going to lean into that moment with our core consumer. We've done exhaustive work around who the Chipotle customer is this past year, what they're looking for from our brand and menu innovation and new news was really at the top of the list. As it relates to how we'll market those components, we've increased the spend this year to account for fully supporting 4 stand-alone LTOs. And I think the marketing message you'll see will begin to evolve. Hopefully, you've already seen the high protein launch that just happened, the choices ad that just ran a couple of weeks ago. We're approaching the messaging differently, and we're going to celebrate what is unique and different about Chipotle and the more meaningful way in the upcoming year. And you'll see that evolve as we continue to -- as the year unfolds within the marketing strategy.

Okay. Very helpful clarification. And then just a follow-up was related. You mentioned doing a national search for a Chief Marketing Officer. Just curious, since you are, as you noted, spending more as a percentage of revenues and multiple

[Audio Gap] I think having a taco at $3.50 and a protein cup around $3.80 across the country is really an approachable price point that really gives the consumer a meaningful way into the brand, but also solves for those people that are looking for a different choice, whether they're GLP-1 users or looking for other dietary restrictions, more high protein or high fiber. We'll test and learn on a couple of new ideas that may be price pointed throughout the year and see if they make their way through stage gate and actually make a national calendar. But we feel really comfortably situated where we are today. given the pace of LTOs that will unfold starting with Chicken al Pastor on February 10. We have some new news. We have a couple of tried favorites -- true favorites that have performed well historically. I think the marketing calendar, I don't think the marketing calender this year is more robust and it will be better supported with targeted media than we've seen historically in the brand.

Our next question comes from David Tarantino with Baird.

A question on the margin outlook. And Adam, I was wondering if you could comment on where you think the full year restaurant margin would shake out on a comp that's about flat. I think you have some pricing coming in, you said you're going to narrow the gap versus inflation. But just any comment on where the full year might shake out given the guidance on the comp.

Yes, definitely, David. So margins in 2026 will be under pressure, and it's mostly due to our investment of taking less price compared to the inflation that we're experiencing. But again, I would emphasize that's temporary, and we'll balance it out towards the end of the year. And like I said in my prepared comments, that gap will be the widest in the first quarter. So to put some numbers into it, we expect pricing to be about 70 basis points of impact in the first quarter while inflation is closer to about 4%. So just in and there, that's about a 250 basis point margin headwind that will chip away at throughout the year. When you think about it on a full year basis, I would anticipate pricing to be in that 1% to 2% range, while inflation will be closer to that 3% to 4% range. So just that dislocation alone will be about 150 basis points. on a year-over-year decline. And then there's a little -- a couple of other adjustments in there like ad Provo is going to go up maybe 10 or 20 basis points. You had the gift card benefit in 2025, which is another 20 basis points or so. And then, of course, you've got to make the adjustment for transactions on a flat guide. There will be a slight degradation in the margin from there. But the good news is -- that dislocation is temporary. We'll get that back by the end of the year. And all the initiatives that we have in place to drive transactions will resonate with our guests this year, and we're confident that we can drive up above that full year guide with some upside potential from those. So that's a good way to think about it, though, thinking from '25 to '26.

David, I would add to that. We still have confidence in the long-term algorithm getting to $4 million AUVs and approaching 30% margins, although this year will be challenged for a couple of reasons. We have no reason to think that the long-term algorithm doesn't hold.

Great. I was just going to ask about that, Scott. But I guess what is the path then from this baseline to get to, I guess, margins approaching 30%. I guess is it as simple as getting the volumes up $1 million or so a unit? Or I guess is there something else or levers that you have to pull to strengthen productivity? Or I guess, what is your your framework for getting to that higher margin? .

Yes. I'll start and then Scott definitely jump in. And so in the short term, it's definitely that dislocation that I talked about earlier, but we'll solve that by the end of the year. From there, it's all about driving transactions north and getting the flow through on those additional transactions. That will allow us to get not only back to the historical margins that were at a year or 2 ago at the volumes slightly above where we're at now, but to continue to increase those margins into the '27, '28 range and beyond as we approach $4 million.

And I'll tell you, David, the pricing approach we're taking this year at 1% to 2% compared to where the industry is closer to 4%, we'll continue to strengthen our value proposition and give us pricing power in years to come. So that, combined with other initiatives that we have identified, whether it's in supply chain or in labor as we make this reinvestment in the business around heat, there could still be opportunity down the road to capture some margin savings there as well.

Our next question comes from David Palmer with Evercore ISI.

Just a couple of follow-ups on that topic of pricing power and efforts you could make to lean into boosting your value perception? First, there's been some pricing rolled out so far. Is there any learnings you have from that pricing? What does price elasticity look like as you've rolled those out selectively?

Yes. Yes. So as you know, we started this approach filling about what October and November, so last year. and it's going really well and it's pretty much as anticipated. And so we expect to continue down this path of this really disciplined and measured approach to raising prices throughout the year. As I mentioned earlier, I expect the full year impact to be about 1% to 2%, but the beauty of this approach is it allows us to adjust throughout the year depending on what we're seeing, get much better data points as well as get better reads throughout the year on inflation. But so far, so good with this approach.

And I wonder, you're going to be existing among these giant fast food players that are rolling out value menus and you've done some things along the way. You have an entry price point cup with the new protein menu. You said you have some price-pointed things. It looks like you have a new style of advertising where you've pointed out pretty clearly, there's a difference in the way Chipotle makes its food versus what you'd see at a traditional fast food place. I just wonder is there any do you feel like the offense might be working with these price-pointed things and the messaging? And I'm just wondering if there's anything you can do to really shorten this cycle, this reinvestment in cycle rather than just wait for your price to underprice inflation for a while.

I'll tell you, with the momentum we saw in early January, the first part of January gives us confidence that the strategy is exactly what our consumer is looking for. I talked earlier about doing this deep dive on the core Chipotle consumer to really parse out who that consumer is and what they want. What we've learned is the guest skews younger, a little more higher income is typically a digital native and that their grounded purpose aligns with our North Star as a brand around clean food, clean ingredients, high protein, and we are the way they want to eat. And we're going to lean into that in the most meaningful way. I'll tell you, after looking at the data last week, we learned that 60% of our core users are over $100,000 a year in income and average household income. That gives us confidence that we can lean into that group in a more meaningful way, whether it's the solo occasion and/or group occasions to really drive meaningful transaction performance in the year.

Our next question comes from John Ivankoe with JPMorgan.

I'm going to follow up on the income question, and then I'll have a question on development. First, on the income side, 60% of customers over $100,000. There's a lot of puts and takes with tax refunds and just overall changes in tax rate and student loans, what have you. Do you think the core consumer that Chipotle has will actually benefit in '26 from all the different puts and takes that are just kind of happening out of D.C. in terms of affecting the customers' wallet and spending ability.

Yes. I would tell you that we believe it's going to be a nice tailwind to spend and aligns nicely with our ramp-up in menu innovation as it is a larger percentage of our overall gas. And I think initially for the under $100,000, there will be a nice bump after tax season and spending in general. And I think we have an opportunity to really garner more than our fair share in that window as well.

Okay. Helpful. And the second question is on development, specifically North America company development. Have we -- I don't know if exactly the number, $3.30, $3.40, $3.50, something between '25 and '26, just correct me on that exact number. are we kind of hitting a natural level of, hey, we should be thinking about nominal growth rates of units in this core important market as opposed to expecting what has been historically some pretty decent leg ups in development. In other words, and I'll ask the question more succinctly are we at the kind of development level in company North America, that should just be the absolute level going forward? Or do you think you actually have an ability to ramp it? Maybe that's a better way to ask it.

We built 334 restaurants in 2025. We did it successfully. And we had the right teams ready, prepared at the right development level to take on new growth and not affect or impact negatively impact the core business. This year, we'll build 350. So I think 1 new Chipotle restaurant almost every day. And we think that's the right growth rate for our brand and gives us a lot of confidence that we'll continue to build them and have returns in the 60% range. And so we still can neck up to the 9%, 10% new unit growth if we add in partner-operated restaurants into the mix as well. But we feel really comfortable at that growth rate out to 7,000 restaurants in North America.

And the final one, just confidence outside of Central London and Frankfurt. Those are obviously very specific tight markets. Are you feeling good elsewhere in U.K., good, elsewhere in Germany, and I'll conclude there.

Yes, France is a tough one. I'll be honest with you because of wage inflation because of occupancy costs. It's not to say we don't like France as an opportunity. We're just not seeing -- we're seeing some recovery there, but not at the same pace. But -- so we just need a little more time in France, I believe. As it relates to London proper or U.K. proper, Central London is our biggest opportunity. We've made some strategic bets a couple of years back outside of Central London that didn't perform at the level we wanted them to perform at. So we think about the strategy for London more similar to New York or downtown Chicago, where there's so much opportunity to build within Central London and have a very successful return on investment, that's what we're going to lean into. But then we'll look to expand to other adjacent markets, whether that's Benelux, the Nordics, Poland or Spain.

Our next question comes from Danilo Gargiulo with Bernstein.

Great. Scott, in the past, you mentioned that you may have identified 100 to maybe 150 basis points of margin upside opportunities that over time, you should be able to unlock I was wondering if you can give more color on the timing of those opportunities and what levers you can pull today without impacting demand.

Yes. So we are in the throes -- great question. Thank you for that, Danilo. We're in the throes of going through a very comprehensive supply chain review. And there are strategic savings that are there that don't affect the ingredient quality that we bring to the back of our restaurants. So we have a lot of confidence we'll be able to pull margin there. but also the equipment high equipment -- high-efficiency equipment package has margin savings that we are reinvesting at present that over time could have a meaningful impact to margin as well.

Great. And I would like to follow up also on the snacking occasion, specifically handheld seem to be another area where you could be leaning more into I was wondering how does this fit into your marketing strategy? And more importantly, how are you going to be enhancing your value orientation while ensuring that you're not cannibalizing your own sales and using consumers to trade down.

That was -- the consumer trade down concern was one of the concerns we had around the high protein menu. And frankly, we just didn't see it. extra protein incidence is up 35% during the menu launch, which gives us confidence that the core consumer is not necessarily looking for a smaller, lower price pointed component to the menu. What they are looking for is excellent culinary, excellent in-restaurant and digital experiences and then product that is on brand and on trend. And so that gives us confidence in the strategy. We will test ideas like they're, I say, a happier hour to see what that looks like for our brand. I don't know if it will be a meaningful unlock for Chipotle, but we're going to test the idea and stage gate it and give it the appropriate resources necessary.

Our next question is Dennis Geiger with UBS.

Wondering if you guys could talk a little bit more about how you're sizing up those key sales drivers in '26, many of which I know you commented on, but I believe you mentioned only embedding a modest impact from the initiatives this year. So I was just curious if you could sort of unpack is that sort of consistent with your methodology on often not embedding LTOs in the comp guide? Or is it much more of a be conservative in thinking about a lot of these impactful initiatives, just given the environment that we're in. Just curious if you could unpack that for us, guys.

Yes. I'll let Adam jump in on historical reference as it relates to embedding in guide [indiscernible] other strategies. Here's what I'll tell you, we have sized up the opportunities, whether that's relaunching or reimagining rewards or group occasions or what the heat equipment package will do for our brand. Of course, we're still early days on many of those things. So we dare say what that will look like. We have a pretty broad range on each of those items, but I think they're more multiyear than a 2026 initiative.

Yes. And then in terms of -- looking at the guide, if you look at more of our short-term guidance, what I mentioned, example for Q1 of a minus 1% to minus 2%, that does not include any further initiatives within the quarter. So think of chicken out past or or that momentum that we're getting from the protein menu and campaign that can provide upside to it. But then when we're thinking about full year guidance, we usually include a modest impact from the initiatives throughout the year. And this year, we definitely took into account though, like I said earlier, just what's going on in the consumer environment. So we just want to be a little bit more conservative on that full year just because of that.

Our next question is Chris O'Cull with Stifel.

Sorry about that. Can you hear me now?

We have you, Chris. Go ahead.

Okay. Great. Scott, I had a follow-up question regarding the CMO search. I'm just wondering what specific next level expertise are you looking for in a leader to help drive Chipotle into this next phase of growth?

We're just looking to evolve our key messaging, really talk about our points of differentiation in a new way that's compelling. Continue to drive strong menu innovation for our brand that is on brand and that drives really consumer demand. And then support and help as it relates to digital to help support our new Chief Digital Officer as we think about digital commerce differently in the years to come, whether that's reimagining the loyalty program, which you talked about or better partnership with our third-party aggregators and really figure out meaningful ways to drive transactions through those channels because we know those channels to be different, whether you're talking about Uber or DoorDash. One is heavily focused on price differentials for in-restaurant versus delivery. The other 1 is more promotionally driven. And so figuring out the right approach to that. And then also really making our white label experience more approachable to really accelerate the transactions we're seeing in that channel as well. So holistically, I know I said a lot there, Chris, looking for, I guess, a unicorn. Good news is, I talked about this earlier. We have great internal talent. We have great external excitement for the job. So I think we'll have someone in the chair in the coming months that is world-class, and that will deliver on the expectation and deliver on our recipe growth strategy.

Okay. And then just my second one, how are you thinking about communicating to light or lapsed users who probably represent a big opportunity but are likely not going to see the first-party loyalty offers.

Yes. So we've talked about personalization in the past, Chris, and we're starting to really accelerate the personalization journey I'll give you an example. We're leveraging the AI model to really identify those lapsed users and create journeys that get them reengaged with our brand. More importantly is we're able to parse out deals or offers for consumers based on how often they frequent our brand in the past and what we anticipate their lifetime value to be, which is really a meaningful step change in how we really drive demand in the channel and targeting lapsed in at-risk consumers.

Our next question is with Andrew Charles from TD Cowen.

Scott, you reiterated the 2026 development guidance. And I'm curious what you would need to see development to intensify the focus on improving traffic. Is it overly simplistic to think if 2026 comps sort of be negative instead of flat, then this would make you reconsider development plans?

Yes. I think it's a couple of things. I think, number one, is that we started to see cannibalization that exceeds our historical levels, which we haven't seen any deterioration there to date or in the last couple of years and/or if we stop [indiscernible] the performance of new restaurants at 80% or better of the existing asset base or we see margins or return on investment start to be marginalized, that would cause us to slow down. Fortunately, we're not seeing any of that to date, which gives us confidence we're on the right track.

Very clear. Okay. And then my follow-up question was just for the 4 new LTOs this year. Should we think about them being roughly evenly spaced around 3 months each. Chicken al Pastor obviously has been a hero for you guys in '23 and '24. Might that 1 run a little bit longer than the implied 3 months each.

Yes. So think about them between 8 to 12 months in total. So there'll be different cadences. And we have the ability to extend or reduce that time line based on how we see the market trending, but I think you're thinking about it the right way.

Our next question is from Sharon Zackfia with William Blair.

There was a lot of talk over the summer about the younger consumers slowing down. And I'm curious as you've seen the comps accelerate it sounds like through the fourth quarter and into January. Have you seen that consumer as well kind of come back? Is there anything to call out from a demographic standpoint.

Yes. So I'll tell you, Sharon, that I'll give you an anecdote and then I'll tell you the story. So we started down the path in the fourth quarter of really finding out how to reengage that younger consumer or lower income consumer and get them reengaged with the brand. And I'll tell you, our digital team worked wonders as it relates to finding ways to gamify the experience and create rewards that were meaningful enough to drive that cohort back into our restaurants. One of those examples, I was in Florida just before the holidays, and we launched our free [indiscernible] campaign, [indiscernible]. And I was like father time standing in the line that was out the door. The average age of the customer in the line that they had to be 20, maybe 21 years old. And so I'll tell you that worked tremendously getting those consumers back in our restaurants and it will be used to inform the 2026 strategy as we engage that cohort more meaningfully.

Yes. And I would just add to that as well. I mean, a lot of the initiatives that we've done since last summer, especially with [indiscernible] the new protein menu [indiscernible] as well as just LTOs in general, really have outsized performance with that group. So you're going to see us continue to lean in on those as well for that reason.

And then as a follow-up, on the [indiscernible], was the successful on bringing in new customers to Chipotle? Or was it really kind of a frequency or upsell kind of dynamic?

It did both actually share. So new customers to our brand, who really didn't know about the high-quality proteins that we have. And I shared this with the marketing team and they share my enthusiasm around a topic. We have the best proteins in the world. Why wouldn't we celebrate those in the most meaningful way to really, again, drive our points of differentiation compared to our competitors who may also be promoting protein at the same time. And I think we had a meaningful impact on the trend change in the business, but more importantly, the adoption of the protein protein side being up 35% as evidence of the strategy works.

Our final question will come from Christine [indiscernible] with Goldman Sachs.

So just a quick follow-up on the performance of the high-protein cups. So are you seeing any specific consumer cohorts responding more favorably such as the younger consumers? And did you also see impact on the late afternoon traffic? And then also incremental color on your plans to address the new kind of side and beverage occasions throughout the year would be appreciated.

Yes. So I'll start on the protein side. So absolutely, I think this protein trend that we're seeing across the nation right now is having an outsized impact on the younger cohort. It really is across the board, but we're definitely seeing an outsized impact there. And again, it's mostly coming through additions. There's a little bit coming in and just getting the cup or just getting a single taco, but the vast majority are utilizing that and they check out on. And then you had a second question about drinks?

Yes. Your plans for the sides and drinks and occasions throughout the year?

Yes. So we will -- Christine, we will pepper in new sides and beverages. We'll do a beverage in the summer, and we will look at different sites that we're bringing, whether they're dips or other sides that we'll bring in that really tested really well through [indiscernible] that we're really excited about. I wish I could tell you. I think if I did, my marketing team would throw me out of the building. But we're super excited about what we have to offer and look forward to an incredible year.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Boatwright for any closing remarks.

Thanks, everyone. I just want to close by thanking our team members for their hard work and dedication across our 4,000 restaurants and around the globe. They truly are the backbone of this great brand. I also want to reiterate my deep confidence in our growth strategy. We are doubling down on what uniquely differentiates our brand to position Chipotle for what I talked about earlier, our next phase of growth. We will win by investing in operational excellence, accelerating innovation in the new offerings and occasions, relaunching our rewards program, deploying new back-of-house technology and equipment and growing our global footprint.

As I laid out, we're already seeing progress in validated our focus on these strategic priorities is already resonating with our consumer. Our Recipe for Growth plan will position us for success in any environment, and I'm confident will drive transactions allow us to move faster and create long-term sustainable growth for the brand. And with that, I just want to say thank you, and have a great day, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Chipotle Mexican Grill Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note, this 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.

Hello, everyone, and welcome to our third quarter fiscal 2025 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 in 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, Chief Executive 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 it over to Scott.

Thanks, Cindy, and good afternoon, everyone. Our third quarter performance fell short of our expectations due to persistent macroeconomic pressures. However, we are moving quickly with a clear actionable plan to accelerate transaction growth.

Let me first review our third quarter results. Sales grew 7.5% to reach $3 billion including a 0.3% increase in comp. Digital sales were 36.7% of total sales. Restaurant-level margin was 24.5% and a decline of 100 basis points year-over-year. Adjusted diluted EPS was $0.29, an increase of 7% over last year. and we opened 84 new restaurants, including 6 for Chipotle. Now I want to spend a minute addressing a few of the consumer headwinds we have experienced.

Earlier this year, as consumer sentiment declined sharply we saw a broad-based pullback in frequency across all income cohorts. Since then, the gap has widened with low to middle-income guests further reducing frequency. We believe that [indiscernible] would household income below $100,000, represents about 40% of our total sales. And based on our data is dining out less often due to concerns about the economy, and inflation. A particularly challenged cohort is the 25- to 35-year-old age group.

We believe that this trend is not unique to Chipotle and is occurring across all restaurants as well as many discretionary categories. This group is facing several headwinds, including unemployment, increased due loan repayment and slower real wage growth. We tend to skew younger and slightly over-indexed to this group relative to the broader restaurant industry.

Finally, the promotional environment has intensified with value as a price point and menu innovation escalating throughout the year. Despite these headwinds, Chipotle maintained stable wallet share in the third quarter, but we aim to get back to consistent share gains. While value as a price point is not and will not be a Chipotle strategy, we are using this challenging period to strengthen our consumer flywheel by improving execution, enhancing how we communicate value and accelerating menu and digital innovation.

I will give you more specifics on our initiatives to drive transactions in just a moment. But first, I will review our 5 key strategies that will help us win today and grow our future. And these include running successful restaurants with a people accountable culture that provides great food with integrity while delivering exceptional in-restaurant and digital experiences.

Sustaining world-class people leadership by developing and retaining top talent at every level, making the brand visible, relevant and love to acquire new guests and improve overall guest engagement, amplifying technology and innovation to drive growth and productivity at our restaurants, support centers and in our supply chain, and expanding access and convenience by accelerating new restaurant openings in North America and internationally.

I will start with a combination of operations and world-class people leadership. We recently held our team director conference with our leaders who each oversee a subregion or region of the country. What is incredible about being in a room with these 80 leaders is that 85% were promoted internally and the average tenure is nearly 15 years.

Additionally, [ 29 ] started as crew members and grew within the organization. So this group understands that during challenging times, experience in the restaurant is more important than ever and improving it will build loyalty and drive higher frequency in the future. During the meeting, we discussed that Chipotle has experienced slowing transaction trends several times since going public.

During each period, we doubled down on getting the fundamentals right in our restaurants, which reinforces and strengthens our value proposition through execution, not discounts. And this enabled Chipotle to exit each period stronger with accelerating transaction trends that follow.

As a reminder, our value proposition includes food, made fresh with the highest quality ingredients prepared using classic culinary techniques, served in generous portions with reliable accuracy and fast friendly service. Currently, all of this is delivered at a price point that is 20% to 30% below our peers. This gap has widened over the last few years as our pricing has consistently trailed the broader restaurant industry.

In fact, our pricing has tracked more closely with food at home and food away from home. Bottom line, our value proposition has never been stronger. Now it is important that we deliver this exceptional experience consistently across 4,000 restaurants every day for every guest. With this in mind, we renewed our problem detection survey. While we improved in key areas like [indiscernible] and portion sizes, we have room to be better. For example, in my visits to our restaurants, I still see inconsistencies in delivering Chipotle standard of excellence including digital order accuracy, ingredient availability and the [indiscernible] of our dining room and drink stations.

To address this, we are reemphasizing standards with system-wide retraining and our recent quarterly bonus incentives to better align with digital order accuracy and the guest experience. Additionally, we are upgrading our restaurants with a high-efficiency equipment package, or HEAT, as we call it, to improve the team experience and throughput while maintaining or improving upon our high-quality culinary.

As a reminder, these include the dual-sided place, the 3 pan rice cooker and the high capacity prior. While throughput reviews continue to show progress on Expo and the 4 pillars, we believe the rollout of HEAT will drive the next step function change in throughput as it simplifies [ prep ] enabling our teams to be properly deployed at peak periods more consistently. In restaurants where our high-efficiency equipment packages live, feedback from the field has been positive.

Our teams report more consistent higher-quality culinary execution, more efficient prep and an overall improved team experience. For example, the new [indiscernible] cooks chicken and steak to perfection in less than half the time. expanding morning capacity and helping us to keep up through peak. In these restaurants, we are seeing the taste of food and guest satisfaction scores improve in addition to a yield savings and greater labor efficiency. We remain on track with the rollout of heat across the country, which we anticipate will take around 3 years. Shifting to marketing and menu innovation. In the third quarter, we accelerated our marketing spend to communicate the brand's extraordinary value through menu innovation, our rewards platform and high engagement promotions like the college football [indiscernible] and Chipotle IQ.

Based on our data, these initiatives successfully drove transactions and deepened guest engagement, helping to offset some of the incremental consumer headwinds in August and September. This response reinforces our focus on transaction-led growth going forward. I will start with menu innovation. Through our research, we found that over 90% of Gen Z consumers said they would visit a restaurant just for a new sauce. Adobo Ranch proved this to be true and it was our first new dip in 5 years that help acquire new guests and drive incremental transactions. Earlier this month, we rolled out Red [indiscernible], which pairs exceptionally well with our limited time offer, [indiscernible] the sauce is prepared with only real ingredients, no artificial preservatives, colors or flavors and made fresh in our restaurants every day.

As we rolled it out, it drove a step-up in transactions and is around low double-digit incidents. It also drove an acceleration in trial of carne asada. Our culinary team is working hard to meaningfully accelerate our pace of innovation for 2026 to deliver new flavor experiences that are on trend, on brand, and operationally friendly to execute.

In addition to sides and dips, our innovation will include 3 to 4 limited time protein offers. Our past cadence of 2 offers a year has helped to drive a step change in transactions. In fact, we see in our data that new and existing guests who purchase LTOs increase frequency and spend over the following year compared to guests who do not purchase an LTO. Adding 1 or 2 more will keep Chipotle more visible, relevant and love throughout the year. Moving forward, we also plan to build awareness around new occasions that we believe could scale and be sizable pieces of our business over time.

A few weeks ago, we launched a 60 restaurant catering pilot in Chicago. The test includes the high-efficiency equipment package to expedite prep and increase capacity in addition to a new technology stack to better manage orders. We also plan to make a full marketing push to drive demand into catering, including third-party platforms. As a reminder, our goal is to scale the catering business within our restaurants without disrupting the core operations. With catering at 1% to 2% of sales versus our peers at 5% to 10%, it could represent a meaningful opportunity in the future.

And last month, we rolled out Build Your Own Chipotle, our version of a family or group occasion with the ability to build custom bowls and tacos for a party of 4 to 6. Early guest feedback has been positive and we are seeing little cannibalization as it is bringing new guests and driving higher frequency. We believe the family or group occasion is another big opportunity over time as groups of 4 or more only make up about 2% of transactions. Finally, we are elevating how we communicate Chipotle's value.

Despite our extraordinary value proposition, we are seeing examples where this is not reflected in consumer perception. We are planning to launch a new creative campaign that spotlights, blood sets Chipotle apart, including clean ingredients, freshly prepped in our restaurants each day using classic culinary techniques served an abundance speed and price point, you can't get anywhere else. You will see new adds that address these aspects of our value proposition in really creative ways rolling out over the coming quarter and into 2026.

Now turning to digital. We believe we have an opportunity to create more engaging experiences that drive consumers into the rewards funnel, increasing our active members and resulting in higher frequency and spend. We learned from summer of extras that gamification is a great way to drive frequency even with our most infrequent guests. Combination of summer of extras as well as incremental promotions like Chipotle IQ and Freepotle, resulted in loyalty comps accelerating versus non-loyalty comps over the last several months. Additionally, our College Rewards program, or Chipotle U, is off to a good start as enrollees are increasing their spend after joining the program. We will continue to build awareness around Chipotle U and believe the program will be a great way to increase engagement throughout the year with this important cohort. Going forward, we are planning to make some significant additions to the rewards program to drive an increase in active members and improve engagement. We'll have more to share in coming quarters.

Now moving to [indiscernible] access. Over the past several years, we have made tremendous progress scaling our new restaurant openings from 140 openings in 2019 to an expected 315 to 345 this year. all while delivering industry-leading economics and returns. On average, that is nearly 1 new restaurant opening every day. In North America, our new restaurant openings remained strong with consistent new restaurant productivity around 80% in year 2 cash-on-cash returns around 60%. We remain confident in our ability to reach 7,000 restaurants long term. In Europe, we have made great strides in culinary and operational execution, and we continue to grow comps.

Restaurant margins and cash-on-cash returns. Next year, we will begin to expand new restaurant openings in the region, and we continue to believe Europe is a big opportunity for Chipotle over time. In the Middle East, we opened 2 partner-operated restaurants with the [indiscernible] bringing our total to 7 restaurants, including our first in Qatar.

Additionally, this week, we opened our first Chipotlane outside of North America in Kuwait and we will open 2 additional partner operated restaurants in the Middle East next month. The familiarity, excitement and fandom for the brand delivered at U.S. standards has been strong, reflecting an opening volumes that rival the best we have seen in the U.S. and Canada. And in September, we announced our first joint venture partnership in Asia with SPC, with restaurants in South Korea and Singapore anticipated to open in 2026.

South Korea is a trend center for pop culture across Asia with growing influence in the United States in the response to our announcement has been exceptionally strong. With high brand familiarity in both markets, a passion for exceptional culinary experiences and a rapidly evolving dining out landscape, these are ideal entry points for Chipotle in the region. In 2026, we anticipate opening between 350 and 370 new restaurants. In addition to growth in North America. This will include 10 to 15 new partner-operated restaurants in the Middle East, South Korea, Singapore and Mexico in 1 to 2 new company-owned restaurants in Europe. To close, I want to reiterate that our brand and value proposition are in a great place, and we are leveraging this challenging time to refocus and provide clarity for our organization. Through our rigorous ground-up review of the business, we have identified ways to accelerate our flywheel of operations, marketing and digital that will further strengthen and grow this great brand. In operations, we are elevating hospitality and throughput.

In marketing, we are sharpening our message to highlight our extraordinary culinary and strong value proposition while expanding menu innovation and growing new occasions. And in digital, we are creating more engaging personal experiences that deepen our guest loyalty and grows our rewards platform. We are also working to define the next evolution of our long-term strategy, which we are calling recipe for growth. and we'll have more to share in the coming quarters.

As we execute this plan, we are confident that we will return to consistent positive transaction growth, putting us on a path to surpass $4 million in AUVs over time. expanded 7,000 restaurants in North America long term and accelerate international expansion as we make our way to becoming a global iconic brand. With that, I will turn it over to Adam.

Thanks, Scott, and good afternoon, everyone. Sales in the third quarter grew 7% year-over-year to reach $3 billion, including a comparable sales increase of 0.3%. The Restaurant-level margin of 24.5% declined about 100 basis points compared to last year. Earnings per share grew 4% year-over-year to $0.29 on a GAAP basis and grew 7% to $0.29 on a non-GAAP basis adjusted for unusual items.

During the quarter, we experienced another step down in our underlying trend. While we did see encouraging results as we accelerated our marketing spend and rolled out [indiscernible], our underlying trends remained challenged throughout the quarter and into October.

Taking this into consideration as well as the ongoing macro uncertainty, we now anticipate full year comps to decline in the low single-digit range. As a reminder, we will be rolling off 2 points of price in early December. Additionally, inflation is accelerating into the mid-single-digit range, primarily due to tariffs and rising beef costs, and we anticipate it will remain in this range in 2026.

We do not plan to fully offset this incremental inflation in the near term. And while this will pressure margins, we think it's the right thing to do to continue to provide extraordinary value to our guests during this challenging economic backdrop. I will now go through the key P&L line items, beginning with cost of sales.

Cost of sales in the quarter were 30%, a decrease of about 60 basis points from last year. The benefit of our menu price increase from last year and cost of sales efficiencies more than offset inflation, primarily in beef and chicken as well as the impact of tariffs. Tariffs impacted the quarter by about 30 basis points, and we continue to estimate that we will see about a 50 basis point ongoing impact from tariffs which does not include any impact from Mexican or Canadian imports that fall under the U.S. MCA exemption. For Q4, we anticipate cost of sales to be in the high 30% range as we have a full quarter of our premium [indiscernible] limited time offer as well as higher beef prices.

Labor costs for the quarter were 25.2%, an increase of about 30 basis points from last year. as higher pricing was more than offset by lower volumes and wage inflation. For Q4, we expect our labor cost to be in the high 25% range with wage inflation in the low single-digit range. Other operating costs for the quarter were 15%, an increase of about 120 basis points from last year, primarily driven by higher marketing costs and lower sales volumes. Marketing costs were 3% of sales in Q3, an increase of about 90 basis points from last year.

As Scott mentioned, we accelerated our marketing spend in the quarter, which helped to offset some of the slowing underlying trends we experienced in August and September. We expect our marketing costs to remain around 3% of sales for Q4 and for the full year. For Q4, we anticipate other operating costs to be about 15%. G&A for the quarter was $147 million on a GAAP basis or $139 million on a non-GAAP basis, excluding about $8 million related to retention equity awards granted to key executives in August of 2024.

G&A also includes $137 million in underlying G&A, $8 million related to noncash stock compensation, which included a reduction in our performance share accruals and related to payroll taxes on equity vesting, $1 million related to our upcoming. All Manager Conference, which will be held in Q1 of next year, offset by $8 million in lower bonus accruals. We expect G&A in the fourth quarter to be around $161 million on a non-GAAP basis, which will include $145 million in underlying G&A as we make investments in people and technology to support our ongoing growth. around $26 million in noncash stock compensation, although this amount could move up or down based on our actual performance, around $2 million related to our upcoming All Manager Conference offset by $12 million in lower bonus accruals. Depreciation for the quarter was $91 million or 3% of sales.

For 2025, we expect it to remain around 3% of sales. Our effective tax rate for Q3 was 23.1% for GAAP and 22.8% for non-GAAP. Our effective tax rate benefited from lower nondeductible expenses. For fiscal 2025, we estimate our underlying effective tax rate will be in the 25% to 27% range, though it may vary based on discrete items.

Our balance sheet remains strong as we ended the quarter with $1.8 billion in cash, restricted cash and investments is no debt. During the third quarter, we purchased $687 million of our stock at an average price of $42.39 and bringing our year-to-date total to a record $1.7 billion at an average price of $47.74. During the quarter, the Board authorized an additional $500 million to our share purchase authorization and at the end of the quarter, we had $652 million remaining.

To close, I want to thank all of our restaurant and restaurant support teams for their hard work and commitment to Chipotle. Times like these, our strong economic model gives us the flexibility to invest in our brand, our guest experience and our value proposition. And as we have seen in the past, this will further strength in Chipotle and allow us to emerge from this period of consumer uncertainty even stronger than when we entered it. We are confident in our path forward, and we are ready to take your questions.

[Operator Instructions] The first question today comes from Andrew Charles with TD Cowen.

This is [indiscernible] on for Andrew. So Adam, last quarter, you brought up the idea of changing the pricing strategy from 1 per year to more of a learning go approach. So one is that the strategy for 2026. And then two, is this a change in philosophy that you're prioritizing traffic growth over margin expansion? Or is it a high 20s restaurant margin at $4 million AUV still feasible and I guess, assuming normalized [indiscernible]

Yes. So as you know, we're currently running price of about 2% from the increase that we took in December of last year. And that's been enough to really offset the underlying inflation that we've seen so far this year. And that compares to the 4% that the industry is running as a whole. And so it's got really great how we've been able to offset underlying inflation while also increasing our value gap. And that's something that we've done historically, and we want to continue to do in the future. But as we look into next year, as we mentioned in our prepared comments, inflation is stepping up into that mid-single-digit range. So given the elevated inflation and the ongoing consumer uncertainty, we're going to take a slow and measured approach to pricing in 2026. And I think that's kind of what you're getting at is we're going to kind of take it over time rather than all at once. And at this point, we don't plan to fully offset inflation in 2026. And so this will pressure margins in the near term, but we believe it's the right thing to do for our guests in this environment, and it will further increase our value proposition. And we'll create a temporary dislocation, but we believe that we can get that back over time.

Zack, you also had a question -- a follow-up question about our long-term algorithm that we've talked about quite extensively. It will always be our endeavor regardless of what's going on with the economy to expand our margins responsibly based on the flow-through historically we have stated, which is around 40%.

Got it. And Scott, the last couple of calls, you've expressed [indiscernible] turning to mid-single-digit same-store sales. So is that still the case for 2026? Or I guess what would be a reasonable time to get back there?

Yes, I believe that it is. It will all depend on what's going on in the consumer backdrop. The economists we have spoken to over the last several quarters, say, Q4, Q1 likely to be the toughest for the consumer, specifically the cohort under $100,000 annually, which I talked about in prepared remarks, and then some easing in Q2. So I don't have a crystal ball, but here's what I will tell you, our aim is to continue to be a transaction-led growth company, full stop. And we're confident in our ability to get back there through the acceleration of the consumer flywheel I talk about often, operations, digital and marketing.

Next question comes from Lauren Silberman with Deutsche Bank.

If I could just start on the comp. I guess it's a fairly wide range of outcomes for Q4 with a down low single digit for the year. Can you just help level set where you exited the quarter and what you're seeing from a traffic perspective?

Yes. Sure, Lauren. I'll start off on this one. So towards the end of July and into August, we experienced a step down like we talked about in our prepared comments. And that was somewhere around the 200 to 300 basis point range. And then as Scott mentioned in his prepared comments, we increased spend on our media as well as our promotions that helped offset some of the softness that we were seeing specifically in August and September. And we also saw a strong reaction when we launched [indiscernible] and even read [indiscernible] in early October. However, during this whole time, the underlying transaction trend remained under pressure. And in recent weeks has softened even further. So when you account for this recent trend as well as the ongoing uncertainty in the economy, the way that we're kind of looking at Q4 is really with a much more conservative view. And right now, at this point, we expect comps in Q4 to decline somewhere in the low to mid-single-digit range.

Okay. When you look at what's going on with traffic, where are the losses really coming from? I understand some of the cohort commentary, but do you think you're also losing customers that are trading down or out of the space, losing frequency of transactions with your more loyal customers.

Lauren, I'll tell you based on the data that we have, we're seeing that significant pullback from that cohort under $100,000 annually. And also that age group 25 to 34, which we over-indexed to is about 25% of our total sales has pulled back meaningfully. Based on our data, both purchased and in-house data. It shows that we are gaining market share, but that cohort, meaning we're not losing them to the competition. We're losing them to grocery and food at home. And so that consumer is under pressure. It is one of our core consumer cohorts. And so they feel the pension, we feel that the pullback from them as well. We were able to reengage them through the summer of extra promotion that we ran both through our loyalty rewards campaign as well as some digital initiatives that we did around Chipotle IQ as well as free pole. So we know with the right activations, we can get that consumer back into our business. and we're going to leverage what we've learned from summer of extras to really inform the 2026 digital strategy.

next question comes from Sharon Zackfia with William Blair.

I wanted to delve into the kind of heap throughput that you're seeing at the pilot locations. Can you talk about how meaningful that has been, I think you referred to potentially yielding a step function and throughput. And I'm curious as to what the actual results are.

Yes. So we're still early innings, unfortunately. We're in 175 restaurants today, another 100 this quarter. And then we'll start with all new restaurant openings, as I said on the previous call here going forward. And so what gives us a lot of optimism around the project is we're already seeing labor efficiency gains. We're seeing better culinary, better food scores better guest experience scores. We're seeing better delivery of distribution of labor during peak hours, which is leading to improved throughput for those restaurants. I can't get into specifics at present, but all signs are pointing up and to the right.

And a follow-up on the price question. Is it fair to assume that you're going to exit the year with no price at this point?

And I'd say at this point, we're going to look maybe later in the quarter and starting to understand some of the impacts of price. So you might see us test in a small number of restaurants, but expect the 2 points of price that we're running right now to fall off in December. So that's kind of how we're looking at it towards but it's still kind of fluid of this.

The next question comes from Danilo Gargiulo with Bernstein.

It seems that the consumer environment is deteriorating and the many marketing efforts are not fully offsetting the traffic retraction. So while the LTO dips and marketing uplift may be helping traffic in '26, can you help us understand and maybe expand on the operational actions that you are taking in the near term to be in flat in the traffic regardless of the back action?

Yes. So thank you for the question, Bill. I'll tell you, we ran a problem detection study. We actually renewed our problem detection study over the last quarter. which highlighted some key operational concerns that we are addressing as we speak. Jason Kid, as you know, is probably just over 120 days in as Chief Operating Officer. And I'll tell you he has quickly gathered the team, rallied the teams. They truly respect his leadership and his approach. And the problems that we have identified, he and the teams are actively working against solutions for those problems as well as modifying our quarterly bonus program, incentives target specifically for our restaurant teams to tie to the outcomes that we want to see going forward. And so it's all grounded in this new strategy that I referenced very quickly at the end of the call around recipe for growth. And it's a 3-pronged strategy. Of course, it includes operations, digital and marketing. So from an operations perspective, we're digging in on what are the main friction points for the consumer today because they're different than they were just a year ago. It is my belief that the consumer that we -- that is in the market today is more discerning. They're looking for value and not necessarily value as a price point, but value as a benefit over price, and I talk about that a lot. And so we have to over deliver on those expectations in this consumer environment, and I promise you my operations team under Jason's leadership are heading in the right direction, focused on the right activities and continue to strengthen our experience in restaurants. One of the other challenges that we see and some of the learnings we pulled out of summer of extras is that there's more work to be done in really reimagining our loyalty program and how we show up in digital commerce. And so I won't get into the nuts and bolts of that, but just know that there is a lot of work behind the scenes that is going into how do we reimagine rewards for the Chipotle customer going forward. Most importantly, targeting those consumers that aren't already in the funnel to get more consumers into the funnel because we know once they're in our funnel, we can drive transactions and really drive demand. And then the last leg would be around this idea of better communicating our value proposition and our uniqueness as a brand. And so Chris and team are working on what that looks like today. So we talked briefly on the prepared remarks about new ad campaigns and new ads in general that will do just that. I'd also add one extra spin on that [indiscernible] that is we're rapidly increasing the pace of innovation as it relates to culinary innovation. And so you will see more in 2026. -- because we know new news is really resonating with core consumers today.

Excellent. And maybe I was wondering if you can update us on the ROIC of the incremental units being built. Specifically, today, you're seeing more cannibalization on your existing stores versus the past. And if the 8% to 10% net unit growth guidance that you shared for the long term, is still reasonable today? Or if there is any capacity constraint or return constraint that will make you think that the 8% to 10% may not be achievable going forward?

Yes. Thanks, Danilo. So no, in terms of impact that new restaurants are happening on our existing restaurants on a per restaurant basis or a per new restaurant basis, we're seeing very similar levels to what we have in the past. The overall impact as it impacts our overall comp is increasing as we increase that percentage growth over time. But that's natural as you kind of go up in that. And then plus those new restaurants drive a much higher comp. They count much better than our existing restaurants. So that helps offset that. So net-net, you're seeing about a 100 basis point or so impact to our overall comps from this NRO growth Scott, do you want to talk about in terms of kind of the pace that we're at. I think that was the second part of that.

Yes. And I'll tell you that 1% has been historical for the last 10 or 15 years is what we typically see in a given year regardless of the number of openings. But I'll tell you, no, it's a great question. We believe we've reached the right pace that enables us to consistently open the best locations, staffed with the most talented teams to maintain industry-leading unit economics and returns. And I don't know if anyone else in the space that's growing at that clip. If you frame it in this reference point is it's a restaurant every 24 hours, which is incredible growth. And we feel really comfortable in that as a sweet spot. And it doesn't mean we won't flex up to me a little, but we feel great in that range today.

The.

Next question comes from David Palmer with Evercore ISI.

Great. I'm trying to put this into a question in the near term, obviously, you're sacrificing incremental margins. Some of this is comps. You're pointing to low to mid-single-digit same-store sales declines in the quarter. And some of it some outsized inflation, but some of it's also that you're trying to not price to that inflation and perhaps give better or work towards a better value for the consumer. And hopefully, over time, maybe get recognized for that. And I'm wondering what that could mean for [ 20. ] You mentioned that incremental margins would be -- you're still thinking 40% long term, but it also feels like in the near term, that's not going to be the case that you're maybe you're going to earn the right to get back to that incremental margin by maybe rebasing those restaurant margins into 2026 as we find perhaps some stability in traffic and your core consumer can find their own footing in terms of their own economic well-being. So I'm just wondering how we should be thinking about that where we might sort of find a base in terms of restaurant margin? And just broadly speaking, how you're thinking about this because is this -- do you think that the solution really is going to be just giving better value to the consumer? You've tried to these other levers. Is this basically going to be about just giving better food value and then eventually, you're just going to start to really comp strongly again because this is a very good brand. I wonder how you're thinking about all that.

Yes, David, you're heading down the right path. I'll tell you the core value proposition that is Chipotle is still firmly intact. And the business fundamentals are still strong. And what we're faced with today, and we talk a lot about this is while we have opportunities, we believe that the the consumer slowdown is really affecting our business in a meaningful way. But we would never let a good crisis go to waste, David. I think you and I talked about this in the past. We are going to double down our efforts on the consumer flywheel and ensure we are delivering on value in the most meaningful way in this environment, and we will emerge stronger as an organization than we were when we went into this consumer slowdown. And so if we need to invest some component of margin to really drive top line transactions in the near term, David, there could be something there. Again, not being able to price against the inflation that we'll see next year is one leg of that. And so once we believe that the consumer is on better footing, we'll do what's right and appropriate for the business and for the consumer to get back to our long-term outgo.

Anything you would add to that, Adam?

No. I mean, just a reminder that, as you know, David, I mean, we take price to offset the impact of inflation and then we're going to drive that margin north with transaction growth. I mean, this has been our approach in the past. It will continue to be our approach in the future, and it has led to us lagging the industry when it comes to price on pretty much every comparison, 1 year, 5 year, even 10-plus years. So the fact that our pricing will lag 2026 inflation, I mean, just look at that as a temporary dislocation that we know we can get back over time. and then we can return back to that ideal 40% flow through over time as we get back to mid-single-digit comps and are driving transactions again.

One of the things I would tell you, David, I think is encouraging, unfortunate but encouraging is that the fast casual sector is just out of favor and has been deemed unaffordable. And we are loved into that. And so -- but I'll still tell you, we are still a 20% to 30% discount to our fast casual peers in the sector. And so we've got to do a better job as an organization, communicating that value in the most meaningful way to really differentiate what makes Chipotle unique and special.

The next question comes from [indiscernible] with Baird.

Great. I wanted to ask another one on 2026, maybe asking it in a different way, but Adam or Scott, guardrails on how you're thinking about 2026 from a comp perspective or maybe traffic and the time line getting back to positive traffic or maybe how you're thinking about the shape of the year when considering the comparisons, pricing dynamics and all the internal initiatives for next year? Just trying to help frame up the right expectations there as we look out to next year.

Yes, I'll start and kind of frame up the baseline, and then I'll let Scott kind of take it in terms of initiatives. So we're obviously not guiding to 2026 yet. We'll do that in February. But one thing that I would say that's important to note is as you know, we've had several underlying step-downs throughout the year. I mean, February in May and August and then this most recent 1 in October, and despite many initiatives helping to offset most of these step downs, obviously, as we've guided, 2025 will be in that negative low single-digit range. So we're ending the year at a lower sales level than we began. And so that's going to create a tougher compare until we fully lap each of those step downs. So you've got to take this into account. And if you do that, you'll come up with a baseline in 2026, that starts negative, but then we're confident that we can build upon that with the initiatives that we have in place for 2026 to get that north of there. And Scott, if you want to comment on some of those.

Yes. Here's what I'd tell you, in the Recipe for Growth strategy, just think about it as we're developing a road map of initiatives with clear ownership, expectations and deliverables that will serve as our top enterprise priorities for the year, the good news is it aligns with our 5 strategic priorities, and we'll use it to accelerate the consumer flywheel that you get me talk about often, which will strengthen our value proposition and really get us back to mid-single-digit comp growth. In the end, it's meant to inspire our teams to think boldly, act with urgency and more importantly, deliver on a growth mindset for 2026.

The next question comes from Sara Senatore with Bank of America.

I have, I guess, a 2-part question. The first is just about the value proposition. And Scott, you said the casual is being viewed as perhaps not -- it's unaffordable. But I guess trying to reconcile that with the idea that you're not really losing share of restaurant wallet, I guess, either QSRs or casual diners or your peers. So it actually sounds like maybe the value proposition is appreciated. And so I was just curious where you're kind of seeing that feedback about fast casual because it's not showing up in your share. And I guess on that same note. Do you see any difference in daypart like lunch versus dinner. We've heard now that weekday line is perhaps weaker just because of -- it's easier to give up. So anything there?

Sara, thanks for the question. Dayparts are holding up very consistently roughly 50-50 between lunch and dinner. So no meaningful shift there. I will tell you, candidly, through our problem detection study, there were a few remarks that said that the brand was unaffordable. And I think they were broad-based in general, but I am curious to know further, does that consumer believe us to be lumped in with other casual or fast casual concepts at the $15 price point, which just isn't true. And so while I'm not going to disparage the competition or have a price pointed ad, I do want to communicate that you can get extraordinary value for around $10 at Chipotle in a way that doesn't say what I just said and that's the challenge.

I see. So just to follow up on that. As you talk about things that you've trialed in terms of how do you communicate value, can you give me any sense, like as you're doing through social media or targeted marketing through your app, just the idea of communicating value without a price point, it seems a little bit tricky to me.

It is. We did test that add, I just mentioned to you, where we showed a lot of abundance. We showed classic culinary and we showed consumers eating Chipotle. And we said at the end of the ad, you can get all this around $10. And in the testing, the consumer missed that message point altogether, and said that's really not meaningful to me. What was meaningful to me, was looking at innovation, looking at culinary and looking what makes Chipotle special and unique. So I think there's more work to do, and Chris will tell you he's got several work streams underway to really ferret out what's the right approach. We are engaging other ad agencies to bring in ideas to ensure we have the best thinking in the room. But we will -- you'll see some new adds and a new strategy in 2026.

The next question comes from Dennis Geiger with UBS.

Scott, I wanted to come back to some of the comments around menu innovation looking to 2026 for what sounds like at least 1, maybe 2 incremental LTOs that I think you've mentioned. Any other learnings maybe from the 25 LTL launches to help you think about those launches next year in the current environment to maximize impact, whether it's something with marketing or timing or anything like that. Obviously, you guys have a long track record our leadership of successfully launching LTOs. So you've done it well historically. Just anything new given the environment that we're in, takeaways from this year as you think about ramping up those launches next year?

Yes, it's a great question. Here's what I'll tell you is the repeat LGO still performed well. Well the initial transaction lift seem to be muted because of the consumer backdrop. Each one did drive transaction and spend in incidents. And we also learned this year that a consumer that buys an LTOs, lifetime value goes up exponentially, meaning they're going to spend more throughout the year. than a consumer that doesn't purchase an LTO. What gives me a lot of confidence in the 2026 strategy what surprised me this year was the success around dips. And so Adobe Ranch was highly successful. Red [indiscernible] is proving to be just as, if not more successful. And it's even driving an incremental trial on carne asada. What's exciting about 2026 is there could be a blend of new innovation as well as historic innovation that has worked really, really well. But at the end of the day, what we know is working is new news and new product news and product innovation. And so we're going to lean into that more meaningfully in the coming year. So you'll see not only LTOs around proteins, but you'll also see us pepper in sauces, dips or sides that we think will have a step-change improvement in the consumer experience.

That's terrific. One more, if I may. Just on some of your comments just a few minutes ago about investing a component of margin potentially to help drive the top line drive transactions. Beyond the pricing piece, I'm not sure if I missed it, but any other aspects that you could share now and maybe what that might look like? Could there be anything else on portion size above and beyond what you've done? Anything that you're contemplating that you'd share kind of on that opportunity to invest to drive the top line?

Yes. Thank you, and I appreciate you mentioning portioning because we are seeing incredibly positive transaction in social media around abundant portions at Chipotle, which we invested in, obviously, this year and have had a meaningful impact on. So that's one component of it. The other is you will see incremental ad spend. I think we've said historically, we'll spend around 3% annually. That number will remain intact, but there could be strategic opportunities. And again, I said, we will always have a return-focused approach to marketing. There could be strategic opportunities that present themselves where we could incrementally spend as long as we're driving. I think I've said publicly a 4-plus ROAS, return on ad spend, where we know we can drive top line and margin.

Next question comes from Chris O'Cull with Stifel.

Scott, you mentioned the locations with the new equipment are seeing improved guest satisfaction scores. But have you observed any concerning trends in customer metrics for the rest of the chain, particularly regarding speed of service or food quality?

Nothing that stands out as divergent. Here's what I will tell you is we are struggling in digital with accuracy. And I'll tell you why, and I'll tell you why I think that is. I think we made a shift in our annual incentive plan to focus on on time versus accuracy because we were doing pretty well in accuracy at the time we decided to make that change. our accuracy has fallen off. And so we are redesigning the incentive plan to accurately target the right things that the -- if you think about the consumer need states in digital specifically, it's give me what I ordered accurately on time and high quality and in abundance. And it's very simple to deliver on those 3 need states, but you have to incentivize the right behavior for our 130,000 people in the field. And so we're shifting that back to accuracy. And as you can imagine, accuracy versus on time is far more important. If you're a 5 minutes late, but everything is in the bag it's not that big of a deal. If you show up 10 minutes early and my kids [indiscernible] is missing, now we have a real problem. And so I don't think we're actively incentivizing the right behaviors. And so we're going to get back to what we know to be true about those consumer need states.

The next question comes from Brian [indiscernible] with Oppenheimer.

I understand the reluctance to price right now and to even talk about pricing in this environment. But I think we're trying to better understand what the action plan for pricing is when that 2% rolls off December into '26. I mean can you talk to us about how to think about the right base case or even the possible scenarios that you're thinking about for 2026 pricing against that mid-single-digit cost inflation?

So I can jump in here. So as we talked about earlier, we want to take a slow and measured approach. And so what that ultimately means is typically, in the past, you would see us take price across the country and one fails maybe over a week or 2 we're going to look at this over time. It could be over 4 or 5 or 6 months. It could be over 12 months. It really depends on as we start to roll a certain amount of restaurants and get some good reads on what we understand the resistance to be, the reaction to be, will determine from there. So that's why we're being a little bit vague because the strategy is still very fluid. But we do know it's not going to be what we've done in the past, which is all at once. And then that's kind of the general strategy in terms of the rollout. And then in terms of this mid-single-digit inflation that we alluded to, which is driven mostly by cost of sales that number is much higher than what we have seen in the past. I mean, typically, we've seen a low single-digit inflation of around 2%. And so that's given us some caution with the consumer environment to not go that high to offset that, like we typically have in the past. So we'll be more patient with that over time. But we'll continue to talk about this each quarter and give you updates as to kind of what we're at, what we're seeing and what we're running.

Yes. I don't think we've talked about or are prepared to talk about risk mitigation strategies as it relates to that inflation as well. And so it is not our intent to sit idly and accept 5% inflation in the upcoming year, we will work to offset that with our partner suppliers as well.

And as it relates to the unit growth, you are accelerating openings in 2016 to a very impressive unprecedented level, clearly, strong growth -- is there -- and I know you've talked a lot about historically, the cannibalization factor and has remained very, very steady. But does this at all elevate your risk and your ability to drive same-store traffic growth moving forward? -- just given the multiple years of such high growth and the fact that, that's accelerating, what's just -- what gives you confidence that you can execute on a same-store basis while opening this many units?

Yes. So I can jump in here. So we definitely have the confidence we can still drive same-store sales, even if that starts to -- that growth starts to basically level off at some point here in the future as we approach 7,000 restaurants because you have to keep in mind, new restaurants do impact our overall comp by that up 100 basis points or so. So that's actually going to come down over time. And our existing restaurants do a fantastic job of comping. We even see our restaurants that are over 15 or 20 years, comping as well when we're driving overall transactions up. So I don't think it's going to have any impact. If anything, it will start to give us a very small tailwind as that starts to level off.

Yes. I'd add to that. One of the unique things about the Chipotle brand, having worked in other brands. The cannibalized restaurants at Chipotle recover inside of 12 to 13 months. And I think -- I don't think I've worked in any other brand that recovers as quickly. and those new restaurants are outcomping the current base restaurants. So we feel really good that we're in a sweet spot. We have the development machine prepared to develop enough ready talent leaders to run those business units, and we feel like we're in a really good spot today.

Next question comes from Jeffrey Bernstein with Barclays.

This is [indiscernible] on for Jeff Bernstein. I wanted to ask a question on comp trends. To what extent do you attribute recent softness to Chipotle specific factors versus broader macro trends? And what levers are you considering to reverse the comp trend?

Yes, it's a great question. And when we look at very analytically and we look at often, I'm sure there's some component of self-inflicted opportunity. As I talked about, the problem detection study and trying to understand how we better deliver on the consumer experience. I think there's a component of a more discerning consumer. And I think most of it, the majority of it is this massive pullback on who is a core audience of ours, 40% of our total sales, that household under $100,000 a year. is pulling back. We're not losing that customer. They're just coming less often. We have data that shows that empirically. So that's what I would tell you. And we remain confident we can get those consumers back in transacting more frequently through better marketing messages, better digital campaigns and better innovation.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Boatwright for any closing remarks.

Thank you. And thank you for all the questions, and thank you for your commitment to our great brand. I want to say thank you to the 135,000 people working in our field organization in what has been a very challenging year. This group continues to show up every day and works aggressively and very hard to deliver on great consumer experiences. I'll tell you, our brand is made up of people and were people that sell burritos. But at the end of the day, we have the best people in the industry. We believe we have the best product in the industry and the brand remains as strong today as it ever than it has ever been. And so that said, we look forward to a new strategy in 2026. So it will give us back to mid-single-digit comp growth, and we'll talk to you all in the next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.