Good day, ladies and gentlemen, and welcome to the Chipotle Mexican Grill second quarter 2008 earnings conference call. (Operator Instructions) It's now my pleasure to turn the call over to your host, Chris Arnold, of Investor Relations for Chipotle Mexican Grill. Please go ahead, sir.

Hello, everyone, and welcome to our call today. By now you should have access to our earnings announcement, released this afternoon, for the second quarter of 2008 ended June 30, 2008. It may also be found on our website at Chipotle.com in the Investor Relations section. Before we begin our presentation I will remind everyone that parts of our discussion today will include forward-looking statements within the meaning of the securities laws. These forward-looking statements will include projections of our restaurant comp sales, the number of restaurants we intend to open, earnings per share, certain expense items, and other statements of our expectations and plans. These forward-looking statements are based on information available to us today, and we are not assuming any obligation to update them. Forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We refer you to the risk factors in our annual report on Form 10K for 2007 as updated in our subsequent 10Q for a discussion of the risks that could impact our future operating results and financial condition. I want to remind everyone that we have adopted a self-imposed quiet period restricting communications with investors during sensitive periods. This quiet period begins on the first day of the last month of each fiscal quarter and continues until the next earnings conference call. For the second quarter it will begin September 1 and continue until our third quarter release in October. On the call with us today are Steve Ells, our Founder, Chairman and Chief Executive Officer, Monty Moran, our President and Chief Operating Officer, and Jack Hartung, our Chief Financial Officer. After their comments, we will open the call for questions. With that out of the way, I would like to turn the call over to Steve.

Thank you, Chris. I'm proud of our financial results and strategic accomplishments during the second quarter of 2008, particularly in an environment that remains very challenging for restaurant companies. Specifically, Chipotle was able to deliver a 7.1% comp in the quarter, which contributed to revenues of $340.8 million and diluted earnings per share of $0.74. Our continued strong performance was the result of a sharp focus on doing just a few things, but always looking for ways to do them better. We have always believed that this is the right way to run our business. Given the pressure our customers are currently facing it would be easy to look for a quick and easy way to boost business or to cut costs in order to improve short-term results. But Chipotle has never done these simply to improve results in any given quarter. We have always run the company based on our long-term vision - to change the way the world thinks about and eats fast food. To realize this vision we make decisions based on what we think is right, not solely on what might be convenient at the time. We continue to work on improving the customer experience so that we can continue to provide value and drive excellent results over the long term. During the quarter we continued to make progress in our effort to serve our customers food made with the very best ingredients we can find, ingredients that have traditionally been available only in high-end restaurants and specialty food markets. In May we reached an important milestone in our effort to serve 100% naturally raised meat. We introduced naturally raised chicken in all of our Pacific region restaurants, and with that move 100% of the chicken we serve is now naturally raised. Today we are also…

Thank you, Steve. Steve talked about our continued commitment to improve the quality of the food we serve and how we believe that staying focused on that is the right thing to do even as our operating environment gets more difficult. And we're equally committed to creating a performance-based culture that leads to the best restaurant experience possible for our customers, and the foundation of that culture starts with hiring and developing the very best teams in our restaurants, a function performed by our general managers and our restaurateurs. Since our last earnings call we have continued to visit with and promote additional managers to the restaurateur position. As you know, we still interview each and every one of these candidates individually, and we speak with their entire crew before accepting them into this elite position. In fact, we recently completed interviews with potential restaurateurs in Northern California, Portland, Seattle, Houston, Dallas, San Antonio, Washington, D.C., and New York, and we're very encouraged by the quality of the candidates that we're meeting as we travel around the country. We now have a total of 93 restaurateurs, including 37 who are acting as a mentor for a neighboring Chipotle restaurant, what we call R2s. We remain confident that our continued focus on improving the quality of our managers is the best way to ensure strong performance and growth for Chipotle over the long term. Another step we're taking in terms of our culture is hosting our first ever all-managers conference. This is a significant undertaking but we think it's an important time to make sure that all of our managers are aligned on how to build the very best teams. The conference will bring together all of our restaurant managers from the whole country, our operations leadership, and people from many…

Thanks, Monty. The second quarter 2008 was another challenging quarter for the entire restaurant sector, and our continued ability to drive comparable sales transactions and net income growth is a credit to the strength of our brand and the significant effort of our restaurant managers and crews. But during the second quarter we began to see the effect of the economic pressure our customers are feeling as we saw our sales comps decelerate more than we expected. We've always thought in terms of earning each and every customer visit by serving the very best food, made from the finest ingredients we can find, served by top-performing managers and crew. In this environment, when our customers are forced to prioritize where they will spend their hard-earned food dollars, it's more important than ever for us to be on top of our game and provide an exceptional dining experience to every customer who visits our restaurants. And while we've held up well so far in this difficult environment, we take nothing for granted. Our restaurant economic model continues to be one of the strongest in the industry and continues to be an important differentiator for Chipotle. It has allowed us to continually increase the quality of our ingredients even in this difficult commodity environment, most recently by reaching 100% naturally raised chicken while passing on only a modest price increase to our customers and retaining among the highest margins in the industry. And while we gave back some of our restaurant-level margin gains from the second quarter of last year, we continue to believe we hold significant menu pricing power even in this tough environment. Our ability to prepare and serve great-tasting food made from high-quality premium ingredients while remaining accessible for affordable to our customers and delivering industry leading margins is…

(Operator Instructions) Your first question comes from Nicole Miller - Piper Jaffray.

Just a couple housekeeping things. Thanks for the update; it just went so fast. In the comp, what was the price in the quarter?

Up 4%, Nicole.

And then you just mentioned the development for the third and the fourth quarters. Could you give me that again?

Yes, we still expect to open 130 to 140 for the full year, but it's not going to be perfectly evenly spread, so it's going to be about one-third of the remaining openings will be in the third quarter and about two-thirds will be in the fourth quarter/

And then you said G&A would be favorable on a year-over-year basis. Is that on a percentage?

Yes. Nicole, last year we finished the year I think at 6.9%, and so we expect to see either flat or slight G&A leverage, and that is better than what we had predicted previously where we thought we would see deleveraging and we'd be in the low 7% range. So overall for the year we expect to be either flat or a slight benefit toward G&A as a percent of revenue.

What I really wanted to address was kind of a couple of things this morning in terms - or this afternoon, sorry, it's been a long day - in terms of development for '09, I guess some of your peers are pulling back in development given the macro. I mean, do you think that you would do some of the same for '09 or do you look at that as an opportunity for you guys to take those sites and accelerate your store openings into '09?

Yes, you know, Nicole, we're still building our pipeline for 2009, so it's too early for us to tell exactly what our plans are for 2009 in terms of numbers. But we have no intention of pulling back. You know, our strategy has been to open up in markets where we're performing the best, and we want to open as many great sites in those markets where we're performing great from a financial standpoint and where we have great teams, where we know we can grow the brand in those markets. And about two-thirds of our openings are in those top-performing markets. The other third of our openings are in newer markets, where we're very thoughtfully and very carefully building the brand, and those are markets that we've entered within the last few years. And we plan to continue that strategy. Our openings continue to open up at the same range I talked about last quarter, in that $1.350 million to $1.4 million range. And so opening up in that kind of a level and with the comps that we expect, that we've seen in the past and continue to expect with our new stores in the first few years, we still expect cash-on-cash returns in a 40% kind of range by about that year three. And so we don't have any plans to pull back at all. Now it's possible - one thing we are seeing is that it does seem like some developments are a little slower to get out of the ground, so it's possible that as we continue to build our inventory that, you know, forces out of our control may cause us to slow down a little bit, but it wouldn't be because we're going to slow down. We believe that we can continue to generate significant returns by continuing to grow the brand.

And also, Monty, you know, appreciating the comments you made around the food safety, I know you can't quantify what that impact could have been and I'm not asking for any guidance, but isn't it safe to assume, then, that comps have rebounded as these issues have sort of expired from a consumer confidence?

Well, you know, I wouldn't say that, Nicole, and the reason I wouldn't is because, I mean, even just Monday of this week, you know, there was a new issue on the jalapenos, there was a warning that people should steer away from raw jalapenos. And while we are now grilling all of our jalapenos and therefore not serving any raw jalapenos, you know, before you really know that you probably have to come into a Chipotle and see that we're doing that or seeing our little poster in the store which informs our customers of our practice in that regard. So, you know, we are concerned that there is a chilling effect that's taking place as this salmonella investigation continues to go on and on and on without any real focus. And, you know, they've mentioned jalapenos, they've mentioned tomatoes, they've mentioned cilantro, and they've mentioned avocados over the last six weeks, and never have they ever concluded that there's an all clear on these ingredients. So even though we're very confident that our food is entirely safe and even though we're doing everything we can to stay abreast of the situation, you know, we think there is still a chilling effect on it, so we wouldn't expect to see any sort of - that this is clearing up yet.

Just my last question on the hand-held, can you just please give us an update? And then I just wanted to better understand on those credit card transactions, do they carry a higher average ticket? I'm wondering if that could actually benefit mix shift?

Well, first of all with regard to the hand-held, you know, the hand-held POS has been a real challenge for us. We've seen real potential in a few of our highest volume stores that have committed to make this hand-held POS work, but we've been unable to effectively use the POS on a consistent basis in more than some of our top-volume restaurants so far. We continue to use it in around 50 of our highest polling restaurants, but the learning curve for these is much steeper than we had anticipated. In essence we're trying to take our highest volume restaurants during their highest volume hour and inject a completely new technique into a place that has throughput down to a science, and to be successful in that you need to take one of your top-performing employees out of the service line to work the hand-held. And all of this is tough to do. But when we have our most persistent managers, who have really stuck with this, they have literally been able to set new sales and volume records and new throughput records that they tell us that would not have been feasible without the hand-held. So that keeps us very interested in continuing to work with this POS, and so we're going to keep working to deploy them. But the impact is not as broad or immediate as we had hoped so far.

Your next question comes from John Glass - Morgan Stanley.

I guess I have to ask the question about comps. Jack, you talked about a deceleration through the quarter and into July. Can you put a parameter around that? How much sequentially did they decelerate, maybe at least just during this quarter?

Well, you know, I'd rather not put a number on it, John. I mean, we're still seeing kind of the pattern unfold, and it's been choppy, you know, because there's been a lot going on in the quarter. But, you know, I think knowing that our underlying, taking a day out, we're running six overall for the quarter, knowing that we were decelerating during that quarter and knowing that we expect to be in the mid single digits for the year, I think you can get close. I hesitate to put a number down, John, just because the sales pattern has been choppy, and I don't want to throw out a number as we're continuing to kind of follow the pattern to figure out exactly where our sales are going to lead us ourselves.

And then can you just go back to the G&A, the onetimes that were affecting this quarter? You said the bonus accrual was a $1.8 million benefit for the quarter. Is that correct?

That's right.

And then you had a $1 million less stock comp for the quarter?

Well, it's more that it's going to grow. We've been talking about our stock comp, you know, throughout the year, and so what's going to happen is it's going to increase by about $1 million from the second quarter to the third quarter. Okay? And then we've got our manager, our all-manager conference, which we're going to take about 1,000 people from around the country and slide them all into one city, and we're going to meet and, you know, talk about the business for a few days, and so that's going to be a significant expense as well.

Do you have a frame for how much that costs?

Well, that'll be a couple million bucks. And overall for the quarter we think that our G&A for the quarter, as I mentioned, will be kind of in the low 7% range.

And then finally I didn't hear you provide any sort of annual view on the occupancy and other operating lines, or do they continue to delever? Do the same things that caused them to delever this quarter continue into the back half?

Well, I think the, you know, on the other occupancy line, we should get some of that back, John, because, you know, we basically have frontloaded our marketing so far this year. So we've spent about 2.4% so far for the year, and we still expect and, you know, unless a marketing opportunity is placed in front of us as we retool our marketing effort that we want to invest more money. We still expect our advertising expenditures to be around 1.8% for the year. So we spent about 2.4 in the first half of the year. In the second half of the year we'll spend a lot less to average out somewhere in kind of that 1.8% range. And so we should get some of the other operating back. I don't expect to get anything back on the occupancy line because we are continuing to invest in those higher-cost areas that we talked about. Those areas are performing very well for us, and unfortunately the occupancy costs are higher in those areas, but we're confident in investing in those areas because the returns are, you know, are very, very attractive. And then you've got this non-cash rent thing as well that continues to add expense on the occupancy line even though we don't have to spend any of that money until much, much later in the future, five to 15 years out into the future. So I don't expect to get that leverage back.

Your next question comes from David Tarantino - Robert W. Baird & Co., Inc. David Tarantino - Robert W. Baird & Co., Inc.: Jack, just another question on the restaurant level margin on the other operating and occupancy lines and even the labor line, would you say that the large number of openings during the quarter might have influenced those numbers in a negative way, and is there any way to quantify how that played out in the quarter and how that might look as you look at the second half of this year?

Well, it did, David. It did hit us some. It's not as much as you might think. It did hit us some in labor, so it does cause some inefficiencies. We do allow more labor when a new restaurant opens up and we don't really squeeze that very tightly at all. We want to make sure we're providing the very best experience and we allow labor to fill when we have new restaurant openings. But that'll likely be offset by the fact that we expect lower comps going forward, too. So I still don't think we'll get leverage on the labor line at all. I think on the occupancy, it had some effect but really not much at all. Not enough, because if we took it back to a normal amount, and recalculated it you don’t lose the deleveraging at all because that’s driven really primarily by the more expensive areas. Like I’d said, half the deleverage was non-cash rent expense. It’s just a calculation we have to go through. What was the other line item that you mentioned? David Tarantino - Robert W. Baird & Co., Inc.: The other operating line, which I think you addressed previously with the marketing. Would that have also been affected by the inefficiencies in the new stores?

No. That’s really not. I would say the things that worked against us there was the marketing and that’s timing; I talked to you about that. It’s utilities and that’s just a function of rising energy costs, and then credit cards. Credit cards, just more people are using credit cards and those fees are not cheap. And I think Nicole had asked a question that we didn’t answer about the average check. Average check on the credit card transaction are higher. Just over 50% of our transactions now are credit card and so it’s a business that you have to be in. By the way, credit card transactions are a lot faster than cash transactions so there’s a benefit there. So there’s benefit to accepting more and more credit cards in a lot of ways, but the offset is our fees do continue to rise as a result. David Tarantino - Robert W. Baird & Co., Inc.: A question on your willingness to invoke your pricing power that you mentioned earlier. What is the criteria that you’ll be using when you would make that decision as you look at Q4 costs and costs heading into 2009?

It’s a great question, David. We’re going to watch the customer very closely because this is the first quarter we’ve seen any kind of pullback at all, and a lot happened in this quarter. Economic conditions are certainly there, the things that Monty talked about are certainly there and so we’re going to watch very closely, market by market, how our customer responds. We’re going to balance that with our unit economics. We want to make sure, because the vast majority of the value that we can add over the long term is by opening up restaurants with expectations of premium returns. 40% cash on cash return, we need to make sure that we have a pricing strategy that allows that kind of a margin that allows that kind of a premium return. I’d be happy frankly, David, if we could finish this year with a restaurant level margin somewhere in that 22% range or so. We could do a 22% range, we still have expectations of a 40% to 45% cash on cash return within three years. Now that would mean we’d lose some margin from last year, but that would be the unit economics scenario balanced with the customer’s ability to afford Chipotle. The last thing we want to do and we would be willing to suffer some short-term pain in order to not drive people away from Chipotle. They’ve been very loyal to Chipotle and we want to really cherish that loyalty and we want to build that loyalty. We’re going to be very thoughtful and patient before we do it. But those are the two things, David, that we’ll consider when we balance.

Your next question comes from Jeffrey Bernstein with Lehman Brothers.

First on the commodity contracts you talked about, fourth quarter when the fixed contracts come off, I am just wondering if you can give us a little more color in terms of how much is locked in through that fourth quarter? Is there any visibility as you look out towards ‘09 with other suppliers allowing you to lock in for extended periods or at fixed rates, or do you just see ‘09 as an extension of ‘08 in terms of pressure?

The three items that we have fixed pricing expire at the end of the third quarter is rice, corn and soy. We are starting to look very closely at what those markets are doing. We are not ready to lock yet, but we’re certainly assembling all the facts so we can decide when to lock in and at what rate. Just to give you an idea, based on if we were to lock today those three items alone could increase our food costs if we don’t increase menu prices, in the neighborhood of maybe 80 to 100 basis points; most of that is coming from rice. As you all know, rice has been in the ballpark of doubling since we locked in about a year ago. So that gives you an order of magnitude. 2009, we’re certainly looking into 2009. I think it’s too early to tell you exactly what we’re seeing, but we’re seeing pressure everywhere because the problem is produce is pressured, corn is pressured. That means other produce items are pressured as well. That also affects our meat prices as well. When we look at what the trends are suggesting, it suggests that 2009 could be a continuation of 2008 but we’re going to focus more on what’s before us in terms of those three commodities and we’re going to focus most of our attention on what we can control and that is hiring the best people, developing great managers and running great restaurants. We’ll deal with the commodities as the locks come off. We’ll deal with whether we should lock, how much we should lock, and at what price when we’re faced with that decision.

Obviously your comps are more resilient than peers, but in terms of the deceleration you’re seeing through July, is there anything you can comment on in terms of is it market specific? Are you seeing a change in menu mix? What are you able to see? Are there any efforts to potentially offset such a deceleration, especially as you slow marketing?

Jeff, I would say it’s not really market-specific. It’s different than what other restaurant companies and retailers have suggested. It’s really just an across the board thing. I think if you were going to isolate it at all, you might describe it as more Middle America. It is definitely not in some of the areas that others have talked about. We remain strong in markets like California and Florida. I would say if you’re going to isolate it might be more in the Middle America. I forgot the other part of your question.

Just in terms of whether you’re seeing menu mix changes or how you can potentially offset something like that?

Not significant. The only thing that we’ve started to see over the last month or two is that people are buying less tacos and they’re moving more towards bowls. Now we’ve seen a gradual move towards bowls really ever since we introduced them back in about 2004, but it seems like people are buying less tacos now. I don’t know if that’s because they feel like they are getting more food for the money, because we charge the same for tacos as we do for a bowl. But that’s the only thing that I would say we’re seeing just within the last month or two that seems to be some change in shift, but just a slight change.

I don’t know if I missed your comment, but I know you reiterated the 25% long term. The comment that you made about 2008 specifically, was that purely that you’re facing significant challenges or you thought it might be tough based on the current comp, units and margins you’re forecasting to actually hit that 25% this year?

Well, it’s tough. I mean, we didn’t hit 25% this quarter and I’m talking about comps decelerating and continued pressure on margins and we are going to lose that $1.8 million benefit. This year is going to be tough. That doesn’t change our outlook for the long term. There are things that are facing us right now that suggest that, yes, it’s going to be tough to rebound and hit that 25% for this year.

Your next question comes from Jeff Farmer - Jefferies.

Following up on John and Jeff’s comp questions, are you willing to say if you saw any months with slightly negative traffic in 2Q, heading into July?

Can you repeat that question, Jeff?

Yes. I’m just curious, following up on the comp questions, if you’re willing to say if you saw any months with negative traffic in the second quarter or early July?

The connection is not great. Was the question are we seeing certain markets with negative traffic?

Let me try this again. So I’m just curious, again, following up on the comp questions from John and Jeff, have you seen any months with negative traffic -- not in markets, but the entire system --put up negative traffic in any of the months in the 2Q or heading into July?

No.

Following up on that, what amount of same-store sales growth at this point do you need to hold on to your restaurant level margins?

That depends on food costs, Jeff. That’s the question that we deal with all the time. If food costs did not continue to increase -- which is a big “if” because they’re going to continue to increase -- we’ve always talked about needing a mid single-digit comp. That mid single-digit comp I used to think was about five. It might be a little bit higher than that with this occupancy deleveraging that I talked about. So we still need a mid single-digit comp. With the comp guidance and with the comp trends that we just talked about, we’re right on the tipping point.

I know you guys have numerous protein suppliers across chicken, beef and pork. Is there any way to drive economies of scale with that many suppliers, because you guys are getting pretty big pretty fast. Is there any way to take advantage of your scale with so many suppliers?

There really isn’t because we’ve already reached those economies of scale some time ago. With 778 restaurants as of the close of the third quarter, we are a really, really, really big buyer from most of these suppliers and are getting basically the best pricing we can in terms of at least economies of scale.

Your next question comes from Jeff Omohundro - Wachovia.

I was just wondering if you could talk to the marketing strategy a bit more. First why you’re planning to slow marketing spending in the second half with sales decelerating?

We typically spend a little heavier in the second quarter as we enter in the spring and summer months, which seasonally are our best-performing months. For example, last year we spent about 2.1% of sales in the second quarter compared to about 1.8% overall for the year and this year in the second quarter we spent a little heavier than normal at about 2.5% of sales as we wanted to add additional support to those markets on the West Coast which introduced naturally raised chicken. As Jack said, if we come to a strategy and have the right tactics in place that we think would be useful and would really help us in the second half of the year, we remain open to doing something additional with marketing during that time. But as we’re in this retooling period and as we’re working on really defining better the strategy, making sure that what we do is consistent and properly represents our brand, we don’t plan on spending more without that clear direction.

How comprehensive a marketing review are you contemplating? Would it incorporate broadcast media, other venues beyond what we normally see with Chipotle, for example?

Yes. All that’s up in the air and all that is wide open, and we’re going to consider all of that. But right now what we’re doing again is just taking a step back, analyzing and creating our strategy and really trying to develop a clear path for what we think is best going to represent our brand going forward. So in light of that, we don’t want to increase spending without a clear path.

Your next question comes from Steven Rees - JPMorgan.

I just wanted to ask about the new unit volumes. It sounds like they continue to open up at about 1.35 to 1.4. Has there been any change in the way those units ramp up over time to the system average? Is it still taking about three years is what you said in the past?

Yes, that hasn’t changed at all, Steven. We’re still seeing them open in the $1.35 million to $1.4 million range. We’re still seeing our new restaurants comp in the first couple years at much higher than company average. We still are opening about two or three in what we call the proven market and we expect that to continue for the rest of this year as we’re building the pipeline for next year. So we don’t see anything that suggests that there is a change in that trend line whatsoever.

So you said it was about one-third of the development this year in newer or newish markets. Will that be the exact same next year?

Yes. And that’s the exact same mix that we talked about at the last quarter.

Has there been any change between your lunch and dinner mix? Any softness or has it been pretty much spread throughout the day?

It still remains right about where it is. It’s slightly skewed towards dinner, at about 50:50.

Just in terms of the new store development in 2009, is there any change to the prototype in terms of the size or the cost?

Well, we’re always open to smaller restaurants. Most of our restaurants go into somebody else’s building and so we don’t always have control. In fact, most often don’t have control over what the size is. We’ll do smaller restaurants when they become available. There’s not a strategy to drive that down. This year we talked about our development cost being about in that $900,000 range again. It is too early, we haven’t communicated and we really haven’t done a calculation that I would rely on what our average development cost would be for next year. But there’s nothing, Steven, strategic in terms of what we’re driving one way or another in terms of size or what our prototype might look like.

Your next question comes from Mitch Speiser - Buckingham.

First I just want to get a better sense of the food safety issues that have been in the news. When they hit the headlines did you see a slowdown or are you just speculating generally that it’s had just a negative halo on the business?

I think it’s more of the latter, it’s sort of a negative halo. I mean it wasn’t that we saw a sudden abrupt change, but just sort of anecdotally we’ve noticed that there are some customers that have concerns, there’s some that have questions. Our crews and managers have been dynamite about answering those questions and satisfying our customers about the fact that our food is very, very safe. But for every number of questions and concerns we receive in our restaurants we’re left to wonder how many people just didn’t come into the restaurant and thought maybe I’ll wait until this crisis passes or maybe I’ll wait until the FDA comes to a clear understanding and makes a clear announcement as to what’s causing all this. So it really is more anecdotal and it’s more of a halo effect that we’re looking at as opposed to something very quantifiable that we could say is completely measurable.

Separately, I’m just wondering in the New York stores where the calorie counts are on the menu, any views? Are the sales trends any different than the other markets?

No, it seems that has had almost no effect and we’ve had a couple of customer comments to our website and even those aren’t particularly negative but it’s sort of like, I noticed you put up calories and maybe there’s a follow-up question or two that they have about some of our food or some of the nutritional qualities of our food. But that’s really been pretty much a non-event since we put those calories on our menu board in New York.

What is the average check running? If you could break it out by lunch and dinner that would be great.

Our average check is right around $10 right now. In terms of dinner and lunch?

We know it’s a little higher, so it’s in the $11 range for dinner and something below $10 for lunch. I don’t have the exact number.

It’s pretty close, but it is not dramatically different.

Your next question comes from Rachel Rothman - Merrill Lynch.

Hi, just a follow-up on the new store openings, the revenue growth was a little bit lower than what we were looking for and the unit growth was fine, and the same-store sales slightly better than expected. You talked about the unit openings in more established markets being at parity. Can you talk about how the new stores in new markets are opening?

Rachel, it’s very similar to my comments on the last quarter where we talked about the newer markets are opening still in that $1 million to $1.1 million range. And so that’s been the trend; that hasn’t changed, it hasn’t fallen off. The $1.35 million to $1.4 million, that hasn’t fallen off either. I did notice that there is a sales difference between what we’re delivering and what consensus is even though the comps are close. I can only imagine that it’s some kind of a mechanical thing with the model, maybe the assumption in terms of when you think they open, for example, but there’s no deterioration in the trend whatsoever.

Could you talk about the uses for the $200 million in cash? Obviously you have more than enough cash to continue building out your pipeline as it’s currently established. Would you be thinking about an acceleration in the growth pipeline or maybe a buyback or a dividend at this point?

Well, the acceleration won’t come because we happen to have the cash. The number of openings will be based on the things that I’ve talked about earlier. That is, we want to go into markets and open where we’re performing well financially, where we have great teams so we know we can grow with those teams and we want to find great real estate. Then in the newer markets, we want to continue to build the brand until those markets become proven. That is what’s going to drive our real growth strategy, not how much capital we have. We can’t do anything in terms of a buyback under the contract that we signed with McDonald’s when we split from them until the two-year anniversary of the split-off. That anniversary is in October of this year. At that time when that expires, we’ll certainly take a look at it and when we look out into the future, look at our capital needs and if we have excess cash at that time and if the conditions warrant -- and you know what I mean by that. Looking at our stock price and looking at what the interest rates are, if it makes sense for us to do a buyback, we’ll certainly look at it at that time.

Do you have a sense for how much cash you would need to keep on hand just for working capital purposes? How much of the $200 million would be necessary to run the business just day to day?

We’re self-funding. Rachel we would want maybe $40 million to $50 million on hand, I mean a relatively small amount because we’re self-funding. Now we’re about to go into Canada. We don’t know where that’s going to lead to and so we’d like not to cut ourselves too short. We’ve talked about we’ll eventually get into Europe someday. So when we look at what we’re going to do with this cash, we will look beyond just a year or two and look at what might happen in the future. So we don’t want to be handcuffed by the equity markets or the debt markets. Today would be a bad time to be out there trying to borrow money. So we don’t need a lot based on what we’re doing today but we’ll look out into the future and make sure we don’t cut ourselves too short if in fact we do take a look at alternate uses of our cash.

Your next question comes from Paul Westra - Cowen.

I just want to make clear on this other operating cost line item. You had 30 basis points year-to-date deleverage it looks like, at least in the second quarter here, and that was solely a function of the 40 basis points that you just articulated on the marketing spend. So on the second half of the year you guided to 60 basis points less year-over-year marketing spend, is that about right?

Yes, Paul, I think on quarter to quarter is the best way to think about it. We’re 2.4% year-to-date in marketing to average out to 1.8%. You need to be in the 1.4% range and so you need to be a lot lower, about 100 points or so lower. I wouldn’t encourage you to take it all the way down 100 basis points because there’s other things happening, credit cards and utilities and things like that. But it’s a pretty meaningful change in our marketing quarter to quarter. Now we’ve had these changes in the past. We’ve always loaded up different quarters. We’ve never spent 1.8% evenly throughout the year. But this year we happened to spend more in the first and second quarter than we typically have and so the second half of the year will be a pretty significant swing in our marketing. Does that help?

Yes. That does help. A question longer term on unit development, you said obviously [inaudible] gets back to little bit normal, the 25% EPS is still your long-term expectation. Does that imply 20% plus unit growth for at least the next two to three years, is that a safe assumption?

Well, we wouldn’t necessarily say it that way because that’s not how we decide how many we’re going to open, but it feels like there is an opportunity for us certainly to do that. It feels like there’s opportunity for us to maintain a reasonable comp and we hope that the commodity market will stabilize such that we don’t have to try to make up the losses on the food line through some other line or by raising menu . Those are the pieces that fit together. The other disadvantage we’ve got going this year, Paul, is we’re losing a few points just on interest rates and so just interest rates alone mean that we have to generate growth somewhere in the high 20s or approaching 30%, something in that ballpark just to offset the fact that we’re earning less on interest. But the pieces you described are in the ballpark of what we would need to deliver over a period of time in order to deliver the 25% or greater.

A question on the manager conference; it’s about a $0.04 expense. It sounds like $2 million. Is that expected at this point to be an annualized event?

Well, we haven’t determined that it’s going to be annual yet. It’s something we will consider. We’re going to look carefully at the impact and how much benefit this is to our managers and how much guidance it gives them and we’ll make a decision in the future about that. At this point we certainly haven’t signed it up to be an annual event, no.

We’ll go next to Tom Forte - TAG.

A couple of questions regarding the comp performance. Did you see anything different from the competition as far as level of promotion during the quarter?

I’m sorry, if we saw anything different from the competition with regard to what?

Promotional activity?

Not really, I mean I’m sure there out there doing something but I’m not sure who in particular. You’re probably better aware of it then we are. I’m not aware of anybody that we might consider a competitor that is doing something out of the ordinary.

Regarding when the shift in the salmonella seemed to go from tomatoes to essentially ingredients in salsa, do you think there was greater anecdotal change in customer sentiment that may have got markedly a little worse?

When it went from tomatoes to jalapenos?

Yes. Tomatoes to essentially jalapenos, cilantro, other ingredients in salsa?

I don’t think so. I think the tomatoes was probably the biggest thing in terms of gathering customer attention to what was going on just because everyone was aware of it. It was something that was visible in grocery stores and the restaurants nationwide. We got rid of our tomato salsa altogether so our line looked different for frankly the first time in a long time. That was something very noticeable to our customers and it drew a lot of comment. When the newspapers and when the FDA started warning about jalapenos that was just sort of additional stuff that made more people aware of an ongoing “something” with regard to salmonella. And when they speculated with regard to cilantro or other ingredients, again it just sort of continued this story. So it’s been an ongoing saga, but I think the tomatoes were certainly the thing that was most noticeable.

Generally speaking, when we think of your “Food with Integrity” program, should we think that it inherently makes your cost of goods higher or it enables you to buy deeper with certain suppliers so in that regard the additional expense of higher cost ingredients will be offset by scale?

Well the cost is definitely more expensive. Our scale helps for sure, but the premium on our naturally raised meats generally range anywhere from 20%, to could be as high as 50% depending on what’s going on in the commodity markets, so it’s very significant. Now when you’re in a restaurant you’ll notice that our menu prices are generally similar to other restaurant companies in our category -- or the category that some people put us in -- and so when you go to other restaurants that are in the fast casual category, our prices are about the same but our model where we focus on just a few things and we have a very limited menu and we can start with all fresh ingredients, high quality ingredients and we can make all our food in our restaurants, that focus allows us to not only prepare this great-tasting food but we can buy these premium ingredients and find efficiencies in other areas on the P&L in our labor line. For example, even though we make everything from scratch, our labor at about 26% is much lower than others. So we figure out a way through efficiencies in the rest of the P&L to afford to pay for these premium ingredients. It’s critical to our vision. It changed the way the world thinks about any fast food. Not everybody can afford to go to Whole Foods and buy these premium ingredients, but we are taking these premium ingredients, finding efficiencies elsewhere in the P&L so it is affordable.

Your next question comes from Bryan Elliott - Raymond James.

Jack, what was stock-based comp in the quarter?

Stock-based comp in the quarter was around $4 million.

You said sequentially up $1 million and now $13 million for the year is what you think it will be?

Yes, up $1 million into the third quarter and $13 million for the year.

That’s down $3 million from previous estimates?

That’s right. We were giving estimates before, it was at a higher stock price and so it is $3 million less than what we talked about at the last quarter conference call.

And that’s all stock price, we haven’t reduced planned grants, correct?

That’s exactly right.

Help me understand the basis for what the bonus is based on, Is it basically an EPS growth rate and that’s why the reversal had to occur?

Well, it’s based on a number of performance factors. The financial factors are operating income, it’s comp sales, it’s our new store performance and frankly we over-performed in the first quarter and we under-performed based on internal targets in the second quarter. What we picked up in the first quarter as additional bonus accrual that was in our first quarter results, we basically took those back out in the second quarter.

So it was sort of normal for the first half?

Overall, pretty close to normal I would say.

But looking at the slowdown and the situation with the environment, should we assume maybe a less than normal accrual second half?

I wouldn’t, Bryan. What would happen is if we over-perform or under-perform, part of the over-performance or part of that underperformance is just going to be partially but just in a small way funded by either a higher bonus or a lower bonus. I think it’s worth pointing out this time because we had a pretty significant bonus accrual in the first quarter that we reversed, and so it stands out, but generally I would not expect that. If results get significant better or significantly worse, then I’m going to be talking about a bonus accrual. In fact, you’ve never heard us talk about it before.

Yes, agreed.

Your next question comes from Rob Wilson - Tiburon Research.

You mentioned that you’re not going to hit the 25% earnings per share growth target this year. After listening to you, I’m hearing about higher food costs, no labor leverage, and less interest revenue. What gives you confidence you can hit it next year?

Well first of all, I didn’t say we weren’t going to hit 25%. I said it was difficult and I gave reasons why it’s going to be difficult. Secondly, there are things that are tough comparisons this year and there are things like commodity increases that we don’t know where they are going to lead us in the future. We believe that relative to other restaurant companies and the potential that we’ve got before us to grow from under 800 restaurants to thousands of restaurants with a unit economics model where we can expect cash and cash returns of 40%; where we’ve got significant pricing power because of the unit economic model and the way that we fund these premium ingredients that I talked about before, we have a high degree of confidence that we can hit 25% over the long term. If our goal was to hit 25% each quarter in each year, we’d raise prices and we would hit a 25% each quarter and each year; we’re in it for the long term. We’ve got a vision. We think it’s a worthy vision, and we’re going to stick to it. We’re not going to do something in the short term that might throw us off that vision.

I believe on the last conference call you suggested that your Canadian stores were not a significant part of your growth strategy. Why would that not be the case?

Because it’s one store.

So you’re just referring to the one store; you say Canada may be a significant part of your growth strategy?

We said it’s not part of our near-term growth strategy because we’re going to open up one store. One store is intended to introduce the brand. One store is intended to start the building of the team up there and then we’re going to take the exact same strategy we take here in the US and that is when we see the customer acceptance, that people understand and appreciate and are becoming loyal to Chipotle, and when we feel comfortable that the team is being built there we will then turn it into the appropriate growth strategy at that time. If we were only into this for the growth to open as many restaurants as we could, we’d be franchising up there. We wouldn’t care who was running the stores. We care who is running the stores and so we’re going to take it as a very thoughtful approach. So it’s going to be one store to start.

That sounds appropriate. One final housekeeping question, your stock-based compensation last year, what was that? About $2.5 million in Q2?

It was $8 million all together.

But in Q2 this year, it’s $4 million versus –

Yes, it was about $2.5 million last year.

So $4 million versus $2.5 million?

Yes, and actually for this quarter close to maybe $3.5 million, $3.2 million, $3.5 million. I said $4 million before and that was a guess. So it’s more in the low threes for the second quarter of this year compared to about $2.5 million last year and then it’s going to step up to around $4 million in the third quarter for this year.

Ladies and gentlemen, this will end our question-and-answer session. I’ll now turn the call back over to our presenters for any additional or closing remarks.

No. That’s all. Thank you very much.