Please standby, we are about to begin. Good afternoon. And welcome to the Chipotle Mexican Grill First Quarter 2013 Earnings Conference Call. All participants are now in listen-only mode. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded. Thank you. I would now like to introduce Chipotle's Director of Investor Relations, Alex Spong. You may begin your conference.

Thank you. Hello, everyone, and welcome to our call today. By now, you should have access to our earnings announcement released this afternoon for the first quarter 2013. 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 as defined in the securities laws. These forward-looking statements will include projections of restaurant openings, throughput, comp restaurant sales increases, trends in food costs, and other expense items, effective tax rates, and our unit economic and shareholder returns, as well as other statements of our expectations and plans. These statements are based on information available to us today and we are not assuming any obligation to update them. Forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We refer you to the Risk Factors in our annual report on Form 10-K, as updated in our subsequent Form 10-Qs for discussion of these risks. I'd like to remind everyone that we've adopted a self-imposed quiet period restricting communications with investors during that period. The quiet period begins on the first day of the last month of each fiscal quarter and continues until the next earnings conference call. For the second quarter, it will begin June 1st and continue through our second quarter release in July. On the call with us today are Steve Ells, our Chairman and Co-Chief Executive Officer; Monty Moran, Co-Chief Executive Officer; and Jack Hartung, Chief Financial Officer. With that, I'll now turn the call over to Steve.

Thanks Alex. We are pleased [technical difficulty] first quarter of 2013, which included revenues of $726.8 million, an increase of 13.4%, comp sales increased 1% in the quarter and diluted earnings per share was $2.45, an increase of 24.4% over the first quarter of last year. We continue to improve our restaurants by aspiring towards the very high standards that have made us successful from the ingredients that we use to our culture of top performers. Our long-term focus on these attributes of our business has made Chipotle a unique and special kind of restaurant company. During the first quarter, we launched our catering service and began testing a new vegetarian menu item called Sofritas in seven of our Bay -- San Francisco Bay area restaurants. We began offering catering to customers in Colorado on January 21, which essentially involves allowing customers to set up a portable version of the Chipotle service line for groups of 20 or greater. For customers who are interested in something smaller, we also offer catering option of chips and salsa with guacamole; and for customers who need smaller group meal options, we are continuing to offer our Burrito by the Box for groups of six or more. Overall, we are pleased with how our catering program is progressing in the Denver market. On April 15, we expanded it to 144 more restaurants, including the rest of our Rocky Mountain region as well as restaurants in Philadelphia, Nashville, Wisconsin, and Las Vegas. And we are now on track to launch catering to all of our restaurants nationwide by the end of August. Over time, we believe that catering can help us expand our business while also providing our customers with a fun and convenient way to enjoy Chipotle. Sofritas, which we began testing in seven…

Thanks Steve. Throughout the quarter we continued to make significant strides developing our people and establishing cultures of top performers in our restaurants. I am very happy to have our two new restaurants support officers Gretchen Selfridge and Mike Duffy helping to lead and develop our field and restaurant teams as well as helping to identify and promote the 45 new restaurants that we added during the quarter. I am also glad to be seeing a higher percentage of candidates being accepted into the program than ever before as our field teams get better and better at communicating Chipotle’s vision to our restaurants teams. One leader who has demonstrated a special ability to lead his teams to create restaurateur cultures is Doug Netzhammer who was recently promoted to the position of executive team director over our newly created Southwest region. Over the past five years, Doug and his team have developed 31 restaurateurs with an amazing selection rate of 94%. As with any of our most successful leaders, Doug knows his success comes from making the people around him better and by developing our field leaders who impact the restaurants everyday by coaching and inspiring others to be great. During the quarter, we also promoted forty three restauranteurs to mentor additional restaurants as well as five new apprentice team leaders, eight new team leaders, and two new team directors. To help ensure our restauranteurs are successful when they begin to mentor other nearby restaurants, our training team is developing an R-PLUS training course for them. We believe this new R-PLUS training, which is taking place in all of our regions will set new restauranteurs up for success by helping them become more effective leaders over multiple restaurants. The accelerated success that we are seeing in developing our people and advancing…

Thanks Monty. We’re very proud of the results we achieved in the first quarter despite an uncertain economic environment and with the difficult comparison. Our top performing crews and managers continue to delight our customers by providing great service while serving delicious food skilfully made with premium ingredients. Our sales increased 13.4% in the quarter to $726.8 million driven by new restaurant openings and a sales comp of 1% and the comp was driven mainly by increased traffic and was impacted by two pure trading days compared to last year as our restaurants were closed on Easter and due to lead day in 2012. So without the negative impact of Easter and [Lead Day] our underlying sales comp for the quarter was around 3%. Average sales in the quarter was up just 30 basis points as the remaining menu price increase of 70 basis points was offset by selling slightly fewer drinks as a few more customers purchased their meals a go than last year. We’ve now fully lapped the menu price increase taking in Pacific in March 2012. So we will lose 70 basis points in the comp going forward. In the second quarter, the loss of the menu price impact will be offset by taking up one extra day with Easter shifting to the first quarter this year. Taking all these factors into account and considering the still uncertain economy, we reaffirm our full year comp guidance of flat to low single digit before the impact of any future menu price increase. Restaurant level margins decreased 110 basis points to 26.3%. The lower margins were primarily driven by higher food costs along with higher occupancy costs. Operating margins increased by 50 basis points to 16.5%. Despite the lower restaurant level margins, SG&A costs were 160 basis points lower…

Thank you. (Operator Instructions) We’ll take our first question from Sara Senatore with Sanford Bernstein.

You there Sara?

Caller, your line is open. If you are on a speakerphone, please check your mute function. We’ll move on to Sharon Zackfia with William Blair.

Hi. Good morning. I’m just curious, I think, Monty, you’re talking some about throughput and maybe the lunch throughput not quite as robust as the overall comp throughout the day. Can you talk about staffing and whether or not there is some sort of, kind of a logjam with the new governmental requirements you are kind of having to go through or how we think about labor in the stores and whether there is a step up investment necessary to kind of push the volumes beyond the $2.1 million per box?

Yeah. Thanks Sharon. The answer is no, that nothing that the government is doing, none of their regulations are preventing us from getting plenty of applicants and plenty of new hires for our restaurants. The reality though is that all of our teams in the field have a vision of creating these restaurateur cultures, and the attributes of a restaurateur culture are to have a team of all top performers who are empowered to achieve very high standards, and the top performer piece of that means that they are getting better and better, being very, very selective in who they bring aboard on and their teams. So, while we are getting literally 100s and 100s of applications for every available crew position nationwide, especially in light of our new hiring software and Taleo system, still our teams in the field are being very, very selective in who they bring on Board, and sometimes that can lead to them running with teams that are a little bit more lean than they would like to have because they would rather wait to hire the -- to hire someone who has all of the characteristics of a terrific performer. So, when we look at the staffing levels of our restaurants, we are always working to have them more -- always working to elevate the staffing, always working to make sure that we have full teams. And when we do that, yeah, that tends to lead to us being much better implementing these four pillars of throughput, particularly in having the expediter position available and the linebacker position available in all of our restaurants. So, we are constantly looking at staffing. We are wanting to increase our staffing in our restaurants, but we don’t want to sacrifice having terrific people in the restaurants in order to do so. So, it is just a matter of all of our restaurants having a vision of staying ahead -- staying ahead of the game on staffing, particularly as we get in these sort of busier times of the year like the second quarter that we are in now, and so when we do that, we’re very optimistic that we’re going to continue to be able to move the throughout needle that we’ve moved so well over the last seven quarters or so, even though this quarter was, I think, a little disappointing in terms of our ability to move the lunch throughput.

Can I ask a follow-up? I mean what kind of ballpark figure percentage would you say is kind of ideally staffed in Chipotle system at this point?

Well, when you talk about percentage, I don’t really know how to put in percentage terms in the sense that we have -- our restaurants have all sorts of different volumes, and so we are talking about numbers of people per restaurant, and so I don’t really understand how I put it in percentage terms.

Sharon, there is not -- this is Jack. There is not -- we don’t need to move our labor as a percentage of sales up to get the throughput gains that Monty is talking about. Often times we’ve got enough people, but somebody will call out on a day, and so they don’t show up at the lunch shift or we have got new people and they are not ready to be an ace in their place on the frontline. But in terms of labor as a percentage of sales, we don’t -- there is no need for that percentage to go up in order for us to get the throughput gains that we know are possible.

Thank you. We’ll go next to Nicole Miller with Piper Jaffray.

Looking at the results, trying to understand the share repurchase and how that would work for modeling purposes for the rest of the year, can you talk to us about if in fact you are a serial share repurchaser, can we model it and what would be the magnitude because to your point Jack, you now you have accelerated development and really you’re still sitting with $700 million on the balance sheet?

Right, yeah, Nicole, we’ve always been opportunistic since we are still a growth company, and we still think that we’ve got significant opportunity over the long term to invest in some high returning assets. We plan to grow seeds which aren’t growth strategies today but we think will turn into growth strategies in the future. And so we know that the best way we can add shareholder value over time is to invest in these very high returning assets. The share purchase has been more of an opportunistic thing for us. While we got the cash on the balance sheet, we’ve taken advantage of inflection points in our stock when the stock has pulled back like it did last year, we got very, very aggressive. The stock has run up recently, and so, we’re less aggressive when the stock has run up. We don’t consider ourselves to be perfect at figuring exactly what our stock should be worth at a particular point in time. So, because it moves up and down throughout the year, we get very aggressive on the way down and we get less aggressive on the way up. I would not extrapolate our purchases over the last quarter or two where we’ve been very, very aggressive, maybe it’s been last three quarters now. I wouldn’t extrapolate that and say we will continue that unless there is an inflection point of the stock based on the fact that now we’ve recovered, I think, it’s about $100 million since the low point back in October. That should lead you to expect that we would be less aggressive in the buyback, but every dips that we see throughout the year, we’re going to be in there buying aggressively.

We’ll go next to Jeff Farmer with Wells Fargo.

Jack, I was just looking to see if you are willing to provide any additional color on the intra-quarter same-store sales trends, sort of how it played out as you moved through the quarter and then as you rolled into April, anything would be helpful?

Jeff, in terms of during the quarter, it was -- there’s not really a pattern, I can share with you that would add a lot of value. I have seen a lot of other companies say that it got tougher, then it got better. Frankly, January was a better month in the quarter than we expected and it looks like better than other companies as well. But when I look at kind of the underlying take out whether this year, whether last year, taking into account that you have got a holiday and we lost a day here and there, I think an underlying 3%, just the 1% back up to 3% is a pretty good guide of what the underlying comp was throughout the quarter. April has been a tough read as well because the first week where post Easter, we always do really well post Easter and when we close our restaurant for a day, the very next day is a very busy day for us and then a few days are busy as well. So, the first week of comp in April was a nice week for us. The second week though we are comparing against the week after Easter from last year, and so we are comparing against the tough week last year. But when I saw through that, I don’t see anything, Jeff, that tells us that there has been a change in trend either up or down from kind of the underlying 3% debt that we saw in the first quarter.

Okay. Helpful. Thank you.

Okay. Thanks, Jeff.

We will take our next question from John Glass with Morgan Stanley.

Thanks. First, Jack, could you just clarify your comments on the food cost outlook. So 33% is better than it was last quarter. Was this a good run rate to think about, and is it before contemplated price increases or did you get some one-time benefits because avocados were less expensive, and maybe it goes up from here?

Yeah. John, when we talked in the last quarter, food costs in the fourth quarter rose faster into a higher level than we expected. And so, at that point, we’re thinking okay, here we go, and we expected additional inflation on top of that. Although we did say in the quarter that food costs peaked during the middle of the fourth quarter and then were starting to retreat a little bit, it continued to retreat. And so, we are pleased to see that came -- instead of holding flat, which is about what we though it might do at 33.5, it came all the way down to 33. And now, our outlook right now looks reasonably stable, looks more stable at this 33 than it did early in the year. We do think that there is some pressure. It doesn’t seem that severe, but there is some pressure with our stake. We will see seasonally higher cost for avocados, but that’s where we see the pressure. So it seems like it’s fairly benign. And the increases don’t seem like there are going to be two terribly significant over the next quarter or two. And if that’s the case, we like to, kind of, stand path on any kind of menu price increase with that kind of inflation. It doesn’t mean that menu price increase is off the table but I think at one point we’re thinking it could be kind of linear price increase. And we don’t think we’ll do anything that quickly.

So it changes your timing view. Does it also your magnitude view of pricing then as well?

No. Because when we do increase prices, John, we will take a new count inflation. And if inflation -- the actual inflation and the expected inflation is high enough to suggest or lead to a menu price increase. I think we are still in kind of order of magnitude that we talked about, kind of, in that 3% to 5% kind of range. And if inflation is more benign, we’ll just hold off and wait. And the other key factor is that our prices are light compared to our competitors. And so we’ll want to make sure that one we have pricing power, which we like we do. And so we don’t want to be overly greedy. So I think the range of the price increase will probably be similar. So it’s more -- at this point, more of a timing.

Okay. If you just let me explain the G&A one more time, it sounds like if the core G&A actually is still growing at the rate that was prior. It sounds like this is the evaluation change where other options, not an underlying change in the number of options. It was one time as a voluntary or does this carry through to future option grant as well if you change the volatility assumption?

Okay. So I’m going to assume you are not talking about the one-time stuff of last year. You just talk about the fact about stock. Stock options are going to be $66 million instead of $72 million to $75 million. This is every year that we recalculate the accounting chart for the grant for that year. We did that this year. Relatively, we did move down and it looks like it was because we do a 3.5 year. It’s a fairly complicated calculation but the biggest part of it is based on a 3 year to 3.5 year volatility. And by cutting off, kind of, the oldest part of that 3.5 year and replacing it over the last year, volatility moved down. If our volatility stays at that kind of rate, we would expect similar kind of calculations n the future. We didn’t change materially the number of options that we granted. That number was about the same. And so it’s really just watching the volatility. And so we’ll do this every single year. And if volatility stays in check, I would expect some similar kind of results in the next year or two as well.

Thank you.

Thanks John.

Thank you. We’ll take our next question from Jason West with Deutsche Bank.

Yeah. Thanks. Just a quick follow-up on that last question. So there wasn’t sort of catch up in the calculation that helped you materially in the first quarter, sort of, a lower level throughout the year than you originally thought it would be?

Yeah. Again, we’re just talking about stock comp for this year, $66 million.

Right.

There is no catch up. That as we took the number of options that we granted just like we did last year. We value them just like we did last year. This will happen at evaluation for each ops that we granted was lower than we expected and was all just because of the formula, in the formula using a lower volatility rate, just resulted in a lower value. This is all non-economic to the journal entry, it has no impact on our cash flow whatsoever.

And can you remind you how guys target the core G&A growth excluding options? I mean that’s still expected to be some percentage of sales growth or how do you guys think about that now?

Well, our target is always to have our underlying G&A growth, not only stock options probably at slower rate than sales and we’ve been successful in doing that pretty much every single year as long as you take out the stock options. And that would be our Goal going forward. We don't want to grow our G&A or headcount either at the sales growth rate or at a faster rate than sales growth. We always want to grow our G&A at something less than our sales growth.

And then last thing on the marketing spend, I think you're lapping a crew level of spend in the second quarter, so I am assuming that line is going to be under some pressure this quarter as we lap that and then just overall you guys talked in the last call a lot about more traffic driven initiatives and more outdoor thing. Can you say how that’s still running? Is it moving the needle, is it something that is tough to measure, can you just talk a bit about the success rate on that incremental marketing and some changes you made there?

This is Jack and I will start on the marketing spend, and you’re absolutely right. In the Q2 of last year we spent 0.7% on sales and marketing. This year we will spend quite a bit more, the fact that we think that we will overall for the year spend about 1.7% and we think we will spend more than that in the second and third quarter. So I would think in terms of something in the 2% perhaps even more than that in the second and third quarter. So you are right, there is at least 130 basis point or more incremental marketing that we will spend in the second quarter this year. And then I will let Steve talk about your other question about marketing.

Sure, Jason, in regards to more traffic driving marketing, let me back up a little bit and say that we sort of lumped our marketing into three different categories, the top of mind kind of advertising, which would be more traditional transaction driving stuff, outdoor, radio, print, direct mail, that kind of thing, our local marketing and our brand marketing. And in terms of our top of mind advertising, on outdoor, radio and print and so forth we have a new campaign that we are calling skilfully made and it’s really building on our last campaign that talked about the quality of the raw ingredients, it talked about where our ingredients come from and the importance of sustainability and things like that. The skilfully made campaign that just started recently and it will carry us through summer into fall, into early fall in some markets, really speaks to how we prepare our food in the restaurant which we think is really unique and the differentiators. We have really great pictures and great taglines to accompany these pictures that show how we prepare food in our restaurant. And they are not a typical kind of food pictures that you would see. They are sort of close-up shots of prep where you see cutting-boards, knives, and pots and cans and peoples making salsas, people adding herbs to salsas, people grilling chicken in saw-chain to heat the vegetables, it really is sort of mouth watering and very appealing. And it has a very sort of reality kind of look to it in that it’s not staged, we just took a camera into one of our restaurants and short pictures. So that’s all very, very much traffic driving kind of advertising. But what we are doing with our brand marketing is we are adding…

Great. Thank you.

Thank you. We’ll take our next question from Michael Kelter with Goldman Sachs.

Hi, guys.

Hi, Michael.

I want to. How are you? I want to ask, you said that underlying run rate of same-store sales was running in the 3% range and you take that all the kind of the moving parts and that’s below the rate of growth that you previously said you need to hold profitability levels? And so, I guess, my question is, in the absence of price increase, if things are running at 3%, should we expect deleverage on margins for the balance of the year?

3%, food costs, currently, what food costs is going to do. 3% is a little lower, Michael than normal. I’ve always talked about we need kind of, more of a mid single-digit and so we did add a little bit of leverage at that 3% in labor, but that could have gone other way, we picked up 10 basis points that could gone the other way. Normally, occupancy costs at 3% or so, we should be able to hold on to that line. I know, you talked about the other line items. So 3% is right around where we are either slightly delever or maybe just hold on to our margin. It would be handy especially if its all transaction, if we are getting 3% and none of its priced, that is right around where its touching on whether we can hold on to our margin or whether we might delever slightly.

And then on the different topic, could you just talk more about experience with catering so far? Obviously it’s doing well, if you roll out across the system, maybe you can give us some metrics around it at the store level?

Well, I don’t think, we are ready to give specific numbers but what I can say is that, customers are really enjoying, we are getting tons of positive feedback. I’ll also say which I think it’s very important that our crews are having a really, they are successfully rolling -- helping to roll this thing out. It is, I don’t want to say, easy, but its relatively easy to serve our customers through catering rather than have them come in through the line, through the regular service line. It’s much more efficient. But in terms of breaking down sort of detailed numbers at this point. I think, again, its too early to do that, but I can say that we are happy with the success so far and we’ll continue to roll that out. And as we are in more and more markets, I think we will be in a better position to talk about how that’s effecting the economics.

And then one last one, as I understand that you are experimenting more with breakfast hours? And I guess, I’m curious, two questions on that. One, is it just extended hours or are you considering some breakfast specific items at this point? And then, secondly, where you have extended the breakfast hours, what is that done the other hours -- productive hours for you before 11 o’clock?

Well, so, let me talk about breakfast specifically. We only have two restaurants that we open up at sort of traditional breakfast time. They are both in airports. One in Dallas Airport and there we are serving our regular menu and then at the Baltimore Airport, where we serve a breakfast menu which includes a new item that we have, which is actually really, really delicious, it’s called frittata, we have two varieties of frittata, a chorizo frittata and vegetarian -- vegetable based frittata, and that very, very popular and gaining more popularity as we continue to serve it. Those are the only two places really that I would consider as having breakfast. Now we do open our restaurants earlier in areas where there is demand. And so I don’t know if that’s what you are referring to when you say more breakfast hours. But our restaurant managers watch carefully the traffic and the activity in their particular neighborhoods and we have opened up as early as 10 o’clock, I am not sure if we open up much earlier than that. But there is demand in those areas, they certainly do take advantage of that and open up. And that’s in a number of restaurants in all of our markets.

We will take our next question from John Ivankoe with JP Morgan.

Thanks guys. This is Amod filling in. The first question was on new unit volumes and kind of the trend over the next few years. 2012, you obviously had some difficult laps I think from the 2011 portfolio. But can you talk a little bit about some of the puts and takes? I think Monty, in the prepared comments, you remarked about considering more mall units, also considering more A models and new construction versus remodeled construction. What are some of the kind of puts and takes behind the new unit volume trend?

As we have said we opened 48 restaurants during the first quarter and we are confident in the real estate pipeline that’s coming for the rest of the year. In terms of your question about the mall locations we have only opened in few of the mall locations so far, what we are really pleased about it is that investment costs of those locations tends to be substantially below what a traditional outlet costs to open and the volumes are those restaurants tend to be at or above what a traditional location brings in so that unit economics of those mall locations is really really good. And so that has given us the confidence to look more aggressively towards mall locations where we can open them in a way that is really good for our trade address and really good for our brand and where we can have the confidence with the relatively low investment we can get really nice return. So you will be seeing us do a substantial number of those during 2013 which will increase our portfolio of mall locations quite a lot during this year over the handful that we have done historically. Other than that, our real estate portfolio is sort of very similar in terms of the types of locations we are going into with mostly encaped locations with a decent mix of freestanders as well and then [slow] locations and a few in-line locations. So that balance should stay relatively similar. We have also seen the amount of restaurants we are putting into new centers increase as more money becomes available for developers to build those sites and that was depends on the swing back towards the way it was several years ago when the vast majority of our restaurants something like 70%…

Okay. That’s very helpful. And just from a different tack, could you talk a little bit about the learnings from formed team and whether or not some sort of revamp or increased emphasis on loyalty should be expected at some point this year?

So, I think that we are going to maintain our position that doing a sort of a traditional loyalty program as one would expect, it looks like sort of a buy nine get one free or however they were. It’s probably not the way we think about building loyalty. If I think about the best way to build loyalty it’s not through, perhaps the specific program but by doing what we do really, really well. I mean, we have -- really, we score very, very high when we do research and interview our customers relative to our competition because of the kind of experience that we provide. And it’s really based on the sourcing of great food, preparing it from the customers and served by an empowered team of top performers. So, when I think about loyalty that’s probably the most important thing that we can do. So formed team was a way to engage our customers and bring them in and teach them more about how we source our food. It sort of got this loyalty program, somehow got attach to that and I will take responsibility for it. It was not meant to be a traditional loyalty program though. But again, again what we do really, really well in our restaurants builds great loyalty. And I think we are going to continue over the years to build on that by providing people with very best sustainedly raised foods and served by a team of top performers that they won’t be able to find anywhere else in any other kind of fast food environment.

Thanks, guys.

We’ll go next to Nick Setyan with Wedbush Securities.

Yeah. Hi. Thanks for taking my question.

Yeah. Hey, Nick.

Just kind of look outside the U.S. your international business and just kind of look at ShopHouse, it does seem like you guys are accelerating the pace of development there. I mean, how can we think about the contribution in terms of the unit growth going forward, when should we think about becoming a more meaningful contributor? Maybe you can talk about sort of the kind of economics you are seeing in the different geographies, international as well.

Yeah. Nick, we don’t really have a projection or a forecast to tell you that, okay, next year or the year after, so it’s going to contribute meaningfully to our unit growth or to our growth overall. Right now, our focus is on building the team, building customer awareness, allowing people discover what’s special about Chipotle, making sure the brand, the Chipotle brand really comes through in a special way, the way it does in the U.S. So far that is going well. But we need to be very patient before we turn the dial. And when you say, looks like we are accelerating, we don’t think about that we are accelerating at all. We think about it in terms of we are still think planting seeds. So ShopHouse is one restaurant, we are planting few more seed. Now sure, we are going from one restaurant to four and that might seem like that’s going really, really fast. But to us it’s still planting seed. It’s another seed in a different trade here in D.C. It’s planting a couple seeds and introducing the ShopHouse brand to new customers in the L.A. area. And so that’s again just building customer awareness, allowing people to discover ShopHouse. Customers that have been to ShopHouse in D.C. so far will love it. The people that have come to our Cultivate events where we’ve had some sampling at ShopHouse food, they like it as well. And so we are really pleased with the response so far, but we are still in this very early stage another growth strategy. When it’s time, where we think that it's time to ramp it up meaning we feel like the teams are ready, the customer acceptance is ready, the awareness is ready we will then provide that kind of a forecast with you. But that’s not a near-term horizon right now and I would say the same thing for the international development as well. There is a lot of seed planting and there is a lot of introducing the brand and building the teams, but not growth mode for the foreseeable future.

Thank you.

Thanks, Nick.

We will go next to Matthew Difrisco with Lazard Capital Markets.

Thank you very much. One of the things that I noticed with the catering was in a couple of markets that we’ve tried it out, you've done some things sort of a bounce back helping and incentivising people to bring back the sternos and bring back some of the materials, like giving a free burrito, is there a sort of let’s weld them first and worry about cost later approach or the margin is pretty strong already on the catering business as far as looking into that and say executable, not just leveraging the costs of the store but looking at the amount of labor that you put into it and the equipment costs, I know some other peers, maybe the casual dining guys had problems before they take out with the packaging being a little bit unwieldy and expensive. So I am just curious on what your learnings have been early on so far on the cost side of it?

Sure, there is no question that there is a cost associated with the setup for catering. How that’s offset by the more efficient -- the catering labor wise is much more efficient. We would rather sort of 30 people through catering rather than bringing them through the line. That is very, very easy, it’s very, very fast and it does not take the same amount of labor by a long shot. The desire to have people bring back some of the catering equipment sets us up, by offering them burrito really wasn’t driven by economics so much as we don’t want to waste, we don’t want to throw these things into landfill, it’s just a part of being a more green company I suppose. Additionally anything that we can do to bring customers back into our restaurants I think helps and we think that perhaps there is an opportunity again to just bring people back to who might not be a regular Chipotle customer but who might have tried catering to bring them in for an instore experience.

I also thought the reusable bags obviously were pretty strong. I thought that was appealing that you're not using a lot of waste. I appreciate it as well. Looking at it as far as structurally, is there anything that would inhibit you from or preclude you from looking longer-term maybe to do delivery, or are you thinking right now you like the guy coming -- you like the person coming into the store and having that connection with them rather than delivery?

Well I don’t know there is so much of a connection but I think about it perhaps this way. When we offer catering and I will make this up, let’s say that there are sort of 8 out of 10 people will sign up for your catering and maybe there is only two people who would not use it because we don’t deliver. However if we started out by delivering maybe eight people will take the delivery option and then you add up all that expense. So I think as we are introducing this it’s a much economic model to have people come in, and then at a later time it could be years down the road when we want to build catering business even more then there is this delivery option. But the extent of delivery I think is not something that makes sense at this point. There are plenty of people who will stop and to pick up their catering order.

Jack, you said in the past about pricing roughly. I don't think you don't like sort of taking baby steps. You sort of like to get it done with and then move on. So I guess the number sort of thrown out there in the past was a little north of 3% would be something if you were to take price. Given the current environment where COGS have come down a little bit now, a little bit more favorable maybe than the last time you guys have spoken, is your strategy still to take that meaningful sort of price increase but maybe take it later in the year now, or have that option to take it rather than take something but take less of a price increase?

Yeah I think you said it well, and you said if it’s an option, right now taking price increases has always been an option and leading is an option meaning don’t pull the trigger and that’s why in my prepared comments I said if we do anything it won’t be before late summer early fall. The fact that inflation has stabilized a bit, the fact that our food costs actually improved in the quarter, and the fact that the economy is sending mixed signals again. It seems like economy is off to a great start and then every time about this time every year for the last few years in the spring, we have mixed signals on consumer confidence and job creation and things like that. I think the idea of being patient and let some time pass and let’s see what happens with inflation over the next few months. Let’s see what happens with our transaction trends. Let’s see what happens with consumer confidence in the economy. And then when we do an increase, I still think we’d like to do kind of one increase and not multiple per year. We don’t want to keep nickel on dinning table. And I think in terms of the order of magnitude, this is a decision that we’ve made. I think some where in that 3% to 5% that I mentioned earlier is probably the order or magnitude considering inflation and considering it will be a fair increase considering what our competitors are charging. So nothing -- nothing this summer but we’ll keep an eye on it. And the earliest we would do something would be late summer, early fall.

Excellent. Thank you.

Okay. Thanks.

We’ll go next to David Tarantino with Robert W. Baird.

Hi. Good afternoon. Just a couple of quick ones. I guess, first on the quarter and the comps in the quarter. Jack, I think you talked about an underlying trend of 3%. But you didn’t really talk much about the weather impact in the quarter. So I was wondering if you took a stab at maybe quantifying what the year-over-year impact of the weather might have been during Q1?

Yeah. David, I can’t tell, to be honest. It’s look like we probably got a weather benefit in January. January was a great month but it wasn’t -- a super bad winter. And I think the winter before may have been a little bit more extreme. And I think that went against us in February. The February last year was really, really mild. And so I don’t see that weather stands out as a significant negative even though it was a tough comparison. And I guess, if what -- when we look at what our trends are in the second quarter, I might have a better idea depending on what the second quarter ends up being. But right now, it’s feel like, David, that weather bounce around a lot during the quarter. But I don’t know t that it had a net impact that I could -- that we could point to stay for sure. Here is what the impact was.

Okay. Thanks. And then maybe one more quick one on the pricing and the cost relationship there. I think, I guess I’m just wondering right here overall philosophy is on managing the cost line. And if I look at the 33% that you’re running on the food cost line. That is the high -- that would be the highest level you’ve seen in 10 years. And I’m just wondering if that’s a level that you find acceptable or is that something you’d like to see manage lower over time. I guess, I’m just trying to figure out how you’re thinking about that longer term.

Yeah. David, 33% is little on a high side. We’ve had. I think we had quarters at higher numbers than that. Maybe you’re talking about for the whole year. We have had it asked or in the ballpark of the 34% or so. We think our model was better when it’s more like in the 32% range. Of course, it’s even better still at 31% or lower. So this is more on high side. So it’s not that we’re thinking else, 33% is perfect and so we’re just going to never increase prices as long as we are 33%. But it’s more of -- it’s stabilized. And let’s see what the next chapter of inflation is. Our margins are still extraordinarily high. Returns are still extraordinarily high. We do think we’ve got pricing power. We think that we are priced at or below our competitors. And we think we have the ability or we should be able to charge higher prices because of our food integrity, the higher cost of our ingredient. And so I like to be lower than 33%. We’re just not going to get hurry to push it lower right now.

Great. That’s helpful. Thank you.

Okay. Thanks David.

Due to time restraints, this concludes our question-and-answer session. I’d like to turn the conference over to Mr. Alex Spong for any additional or closing remark.

Great. Thanks everyone for joining us. And we look forward to speaking with you next quarter.

Thanks everyone.

And this does conclude today’s conference. Thank you for your participation.