Good day, everyone, and welcome to the Chipotle Mexican Grill Third Quarter 2015 Earnings Conference Call. All participants are now in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded. Thank you. I would now like to introduce Investor Relations Manager for Chipotle Mexican Grill, Mr. Mark Alexee. 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 third quarter 2015, 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 statements about potential business improvements, and shareholder returns, projections of the number of restaurants we intend to open and trends and development costs and new restaurant returns, estimates of future comparable restaurant sales increases or comps, and supply chain and other trends affecting future comps, projections regarding food, labor, marketing, occupancy and G&A costs, and our expected effective tax rate, statements about stock repurchases 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 on our subsequent Form 10-Qs for a discussion of these risks. I'd like to remind everyone that we have 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 fourth quarter, it will begin December 1 and continue through our fourth quarter and year-end earnings release planned for late January 2016. On the call with us today are Steve Ells, our Chairman and Co-Chief Executive Officer; Monty Moran,…

Thank you, Monty. During the quarter we continued our efforts to educate consumers about issues in food and our unique food culture through innovative marketing programs. In our promotion we called Friend or Faux, we challenged consumers to identify real friendly ingredients that align with our Food With Integrity vision and foe ingredients, artificial flavors, preservatives and additives by comparing our food to a representative set of food meals, such as burgers, sub sandwiches, and pizzas that are often manufactured with highly processed ingredients. People who played the game could win a buy one get one offer at Chipotle simply by comparing what's in our food against what's in traditional fast food. The idea for this promotion was to show the simplicity of Chipotle's food, all of which is classically prepared from just 68 ingredients across our entire menu compared to typical fast food where a single menu item can have upwards of 100 ingredients, many of which are chemical additives. The program launched in July and consumer participation exceeded our expectations with more than 750,000 people playing the game within the first 24 hours. In total, the program generated an average of 180,000 page views a day, totaling 7.5 million views over the duration of the program. The campaign message was clear with a large majority of respondents in a follow-up survey saying that they understood the intent a Friend or Faux, and that already positive views of Chipotle were strengthened by the program with three-quarters of respondents saying that it made them more interested in eating at Chipotle. And although sales did increase with these promotions in July, our long-term goal remains to engage our customers and educate them about the quality and simplicity of our food. We also introduced a retro style video game called Taste Invaders…

Thanks, Mark. Overall, we're pleased with the continued strength of our business during the third quarter despite lapping historically high same-store sales comparisons in 2014. We continue to grow our comps this quarter by 2.6%, which is on top of last year's comp of 19.8%, our highest as a public company. We're able to continue to grow even as our restaurants are now achieving volumes of more than $2.5 million on average, all of which can only be accomplished by having top-performing crews and management teams in place that are driven to create an exceptional dining experience for our customers. Overall sales for the quarter were up 12% to $1.2 billion driven by new restaurant openings and a 2.6% comp. Year-to-date sales were $3.5 billion, an increase of 15% over 2014. Our comp increase during the quarter was driven by a 1.9% increase in customer visits, which accelerated from the second quarter. Increasingly, more customers are connecting with our vision and they appreciate the real food made from wholesome, delicious ingredients using classic cooking techniques, and they appreciate that all of that just tastes better. Our sales comps were highest in July when our Friend or Faux campaign was in full force, but were lower in August and September. We were happy with the customer response and engagement with Friend or Faux during July as our customers who played the game learned about our simple wholesome ingredients and were treated to a BOGO for playing. During the third quarter, we also began implementing a targeted menu price increase on steak and barbacoa due to the sustained beef inflation and we will continue to roll this increase out across the remaining markets during the fourth quarter. This price increase is expected to contribute about 130 basis points when fully rolled out,…

Thank you. We'll take our first question from Sharon Zackfia with William Blair. Sharon M. Zackfia - William Blair & Co. LLC: Hey. Good afternoon. So, just two questions, Jack. I guess on the carnitas, have you been seeing a bump then when carnitas returns to the restaurants? I know originally you thought it was about a 200 basis point penalty. And then separately on labor, I guess on the wage inflation at 5%, can you kind of dimensionalize what you think your underlying wage inflation is? I think you did some sort of step-up or adjustment in your wage schedule. So I'm not sure kind of how much of that was proactive versus reactive and what might be the ongoing run rate for 2016 for your wage inflation.

Yeah, Sharon, on carnitas, it's hard to tell because we just returned to 90%, and we finished September like just under 60% and we just hit 90% in the second half of September. It did look like in the markets that did get carnitas back that we did see some improvement during like the second week of October. But October's been still choppy so far that it's hard to tell. We did expect that based on when we suspended the sale of carnitas, we did see what we thought could be as much as a 200 basis points negative impact on the comps. So we're hoping we'll see that return. But it'll take a little bit more time for us to fully see that happen. In terms of wage inflation, a lot of that was proactive. We did have some isolated areas, we had San Francisco, we had parts of D.C., where there were minimum wage increases. And in most markets, we're above minimum wage, so that doesn't have an immediate impact. But just because of general competition for employees, just the expectation that we want to hire top performers and we want to be the employer of choice, we've been very proactive in making sure that not only our starting wages are competitive, but we also took a look at a number of our hourly managers during the summer to make sure that we're paying fair rates to them as well. So that was proactive. In terms of what to expect going forward, Sharon, I think it just depends on what the labor market looks like. I wouldn't expect it would stay at fully 5% year-after-year. So I don't know it would come down all the way to 5%, but I don't know that it's going to drop all the way down to 2%, which is what it had been running for the last, I'd say, two years or three years or four years. Sharon M. Zackfia - William Blair & Co. LLC: Okay. Thank you.

Okay.

We'll go next to David Tarantino with Baird. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Hi. Good afternoon. Jack, just a question on how you're viewing the recent trends in your business? And I know you mentioned that August and September were a little slower than July. Do you think you're seeing a change in the underlying momentum of the business? Or was that just more so related to the benefit you saw from the buy one, get one free promotion?

Well, definitely, David, the reason I wanted to go through the monthly comps is, July, we benefited. There was a lot of awareness, a lot of people playing the games, a lot of people earning and then redeeming the buy one, get one. And that always results in a short-term bump in sales. So, I would say that the July moving to September – or moving to August was more kind of a hangover effect from Friend or Faux. So we're kind of holding at that lower level, that low single digit level. Some of that also is due to very, very tough comparisons to last year. So I would say we're kind of just holding our own right now. I wouldn't say after the July bump that we got Friend or Faux, I would say we're just kind of holding our own. I don't think we're accelerating, but we're not – we're not decelerating, but I don't see us accelerating either. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Great. That's helpful. And then maybe a second question. You hired a new Chief Technology Officer recently. And I'm just wondering kind of big picture what we should expect to see from that hire. And does that include perhaps a strengthening of the mobile ordering platform or any of the other elements related to that?

Yes. David, he hasn't even started yet. So, it would be premature to say exactly what we're going to do. But one way we think about the business is, about two-thirds of our business is eaten outside of a restaurant, but only 7% of our business is ordered outside of a restaurant. And so, there's a big gap between our customers who choose to or end up eating somewhere else other than a restaurant. So kind of makes sense for us to provide the convenience to order outside of a restaurant. And we do have – we have iPhone, we do have Android, but we can make that whole process more efficient. We can make it more reliable. And our customers, they love to go through the line because they have complete control, but I think there are ways for us to, between both a focus on operations on that second make line that Monty talked about, as well as looking at what technology opportunities are there, I think we can enhance their overall experience so that 7% can continue to grow over time. David E. Tarantino - Robert W. Baird & Co., Inc. (Broker): Great. Thank you very much.

Thanks, David.

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

Thank you. You guys did touch on it, but what was the duration of the Friend or Faux promotion and the approximate number of BOGO transactions you guys saw in the quarter?

The promotion ran – was it about five weeks, Mark?

About six weeks. The total number of BOGOs I think was right around 2 million.

Was it that much? Okay.

I believe. Just under, perhaps.

Yeah.

And then just following up on that, so the ultimate impact on both Q3 transaction and mix, what was that for the quarter as well?

Well, the overall quarter, we did a 2.6% comp, 1.9% with transaction and 0.7%, 70 basis points, was from menu price increase. And that was the targeted – the vast majority was targeted menu price increases related to our steak and barbacoa.

Okay. Thank you very much.

Okay. Thanks, Jeff.

We'll go next to David Palmer with RBC.

Hi, David?

Good evening. Your throughput, you mentioned that the lunch hour declined a little bit. I realize it's peak daypart and during peak season, but how important do you think that was? And are you contemplating any significant adjustments to drive throughput? Montgomery F. Moran - Co-Chief Executive Officer, Secretary & Director: Yeah, I always think it is very important that we continue to focus on throughput. And I think that obviously coming off – we're sort of coming off our highest seasonality in terms of the crowds coming through our restaurants, and then simultaneously with a sort of lower transaction comp than we've been experiencing, I think what happens is sometimes our teams get focused on a number of other things: staffing, being a model, training new managers, on-boarding new crews. And then I think sometimes when things aren't moving – when the growth isn't quite as rapid, people get a little less excited about pushing throughput and really watching their four pillars execution. So I think that it's kind of a long way of saying it's – I think we took our eye off the ball a little bit. I think it happens sometimes, especially after a year of sort of the blistering comps at 19.8% a year ago during this time. During those times, it's very easy to keep throughput top of mind and have our crews be focused intensely on it. We had contests running. We had people excited about breaking throughput records, and just a lot of focus on it. And I think that the focus has waned a little bit. And that's not saying we want to see it continue, because throughput, even during slower growth times, and we have lines, and we have lines that cause some people to want to walk away. And so we are going to work to replenish and reinvigorate our teams to focus on throughput and on execution of the four pillars of throughput because it is still an enormously huge competitive advantage for us and a huge part of customer service. So even though it's only a falloff of one transaction, we do look to gain transactions. And as you've seen from the previous several years, even at our core lunch hour, we had gained transactions almost every quarter. So we don't like to see it fall off on, but we're glad to have retained the really significant gains we made during 2013 and 2014, but we'd like to improve on that still more.

Just a quick follow-up on David's question about mobile order and the fact that you have mobile order already, a lot of people are focusing on that for Starbucks and they're – that's making great strides for them. You improved your mobile order earlier this year. It feels like a lot of people don't know about it. Is it just – to some degree, is it just about marketing what you have? Or do you think this is going to be more about improving the mobile order technology (37:51)? Steve Ells - Chairman & Co-Chief Executive Officer: Well, we've deliberately under-marketed our mobile ordering, and the reason for that is fairly simple. We just have not quite optimized the experience in the restaurants to the point where we feel comfortable driving a large number of people in there. I mean, we're working on all of those improvements. So we don't want somebody to go in, make a mobile order and go in and have a degraded experience. And so, all of the growth that we've seen on mobile has essentially been without any marketing at all. So there is a tremendous amount of potential, but as we talked about in our prepared comments, we really want to optimize the experience before we really drive people in the – the mobile experience, so. Additionally, we think that we have the ability to drive a lot of traffic through mobile ordering and that will go to our second make line in the back of the house. We think that potentially, we could overwhelm that second make line, so we have started to retool that second make line to have at least the same capacity as our mainline. By the way, it doesn't take extra space in the kitchen, which is good news, but it does take some retooling. So, it needs to be a combination of both the marketing of that technology, with increasing the capacity of the second make line.

Thank you.

We'll go next to Andrew Charles with Cowen & Company. Andrew Charles - Cowen & Co. LLC: Great. Thank you. On the same-store sales guidance, it seems low single-digits for 2016 reflects significant deceleration on a two-year and three-year basis. Of course, there is some price that's likely to fall off, but what are the other factors driving deceleration or would you say that low single-digits is a function more of conservatism?

Well, the way I would think about it, Andrew, is that we just finished a three-year trend, and I've talked about this on some earlier calls. If you go back and look to 2013, we started a new trend where we started in low single-digit comps, and we kind of built our comps for the next several quarters. We had a price increase in 2014. But if you combine the last three years – and this is kind of the end of that trend – our three-year comps are up in the high 27%-28% range. We now need to start a new trend because we started that momentum. And if you look quarter by quarter to quarter, you can see that the momentum builds for several quarters, it levels off. It peaked last year at 19.8%, and then as you are comparing through multiple years, up double digit comps. And none of this is based on gimmicks, on promotions, on discounting or anything like that. It's really just inviting more customers in; they have a great experience, they want to come back. So it's an education that Mark and the team have done with things like Scarecrow and things that raise the awareness of where food comes from, why our food is different and our customers have been able during this three-year trend to connect the dots between why the food they love so much, why it tastes so good because it comes from these great ingredients, because the food is prepared using classic cooking techniques – there's real cooking going on in our restaurants. And so right now, we're in this challenge where we've got three years of growing our sales by 27%-28%, and comparing to that is difficult. And so what we're hoping will happen is, we'll be…

We'll go next to Karen Short from Deutsche Bank.

Hi. Thanks for taking my question. Just, first question just on the fourth quarter comp guidance. I guess the guidance seems a little light or conservative, I guess, in light of the price increases, and I know you gave some color on October, but any more color in terms of what the composition of the comp has been so far in October? And then, I just had a follow-up.

October would be similar, but there maybe a little bit more menu pricing in October, but not much more. So I would say the makeup of the comp is similar in terms of we're running about a 70 basis point price increase, maybe that's 80 basis points or 90 basis points, something like that. We will gradually get that up to 130 basis points. We hope it does prove to be conservative, and maybe it is conservative, but October is still choppy right now. It really isn't giving us any indication of what the current underlying pattern is. And so, I hope that when we report in January, we'll come back and you all will say, yeah, you guys were too conservative. But right now, with what we saw, finishing the quarter and what we saw in October being very, very choppy, it's very difficult to read.

Got it. Okay. And then just actually in response to the last question, I mean, I know you commented that you have seen waves of comps, I guess, and I think what you said is that the waves have generally revolved around awareness. But I guess maybe a little color. Is history on what has driven your comps really relevant, I guess, in terms of what might drive the next wave? I guess the way I see it, I mean, the competitive environment has and is changing rapidly, as is technology. So maybe just your thoughts there. Montgomery F. Moran - Co-Chief Executive Officer, Secretary & Director: Well, of course our comps going forward are likely to be different than historical, but we still find that there's lots of people that either aren't aware of Chipotle or they're aware of Chipotle, but they don't know about where our food comes from. They don't know that we're doing real cooking. I mean, this happens to me all time. We just got an email from a former colleague of ours who's in Florida, moved down to Florida, and he says out of 10 people, as many as seven or eight or nine of them have never been to Chipotle before. And so there is still this opportunity to educate people, one, that we exist, which that is changing over time because as we are in more markets, more and more people know about Chipotle but they don't necessarily know that we are using classic (46:14) cooking techniques. They don't necessarily know that we do things like source naturally raised meats and we have a local program during the right seasons, and things like that. And so that's something that we all bump into people all the time that don't fully understand that. So there's still awareness around why Chipotle is different. There are lots of competitors out there – and this makes I think the messaging more difficult – that our messaging, that they're doing something that is more natural or that would imply that there's higher-quality there. And so that does make the message more clear, but we believe that the source of where our comp will come from will still come from educating people about Chipotle, increasing the awareness about why we're different from others. And we've had a great experience where people come in and try Chipotle and they have a great dining experience. They tend to want to come back and so while, yes, it's more challenging, yes, we have higher volumes, yes, there are more competitors out there, generally our job is or our challenge is to get more people to understand and come to Chipotle more often.

Great. Thanks very much.

We'll go next to Jason West from Credit Suisse. Jason West - Credit Suisse Securities (USA) LLC (Broker): Thanks. A couple questions. Jack, on the pricing, the 1.3% that's tied to the beef items, you had also mentioned on the last call some pricing in certain minimum wage markets. Is that on top of the 1.3% or is that included in that run rate?

It's included, Jason, but the only reason why we didn't point it out, it's just very, very small. Right now it's literally a handful of restaurants, a few dozen restaurants. And so it's a very small part of the 130 basis points. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay. Got it. And as you're thinking about next year and we do have some wage pressures, it sounds like food costs, not really a big pressure. How are you thinking about the next wave of pricing, when you'd want to start looking at that? Is wage pressure something that you want to get ahead of as we get into next year?

Yeah, we don't have any plans right now for any kind of a national price increase to deal with wage pressure, but we do have a number of isolated markets, a number of which are coming up in January. We'll take the same approach that we took with – we talked about it, I think it was on the last quarter, and it was in the San Francisco area and then also in the, I think it was the mid-Atlantic area. We had a couple of markets that had pretty significant increases in minimum wage. Generally, we're not affected by minimum wage, but in some cases, the minimum wages are being increased to $10, $11, $12 per hour, and those will have some impact. We don't automatically increase prices in those markets. What we do is, we look at all the cost of doing business in that area. And in the two cases that we mentioned last quarter, we increased prices there because not only our wage is up, but those areas already had a higher cost of doing business, things like higher occupancy cost and local taxes and things like that. And when we looked at competition, the competition was pretty aggressive in raising prices. So we'll do the same thing with minimum wage increases on a market-by-market basis, and we'll make the decisions on a market-by-market basis based on the wages, other cost of doing business, what the competitors are doing and what our current margins are. We'll consider all those factors. Jason West - Credit Suisse Securities (USA) LLC (Broker): Okay. Thank you.

We'll go next to Keith Siegner with UBS.

Thank you very much. Jack, you highlighted $1.58 billion in cash. You highlighted how the best use of that is to put it towards new unit opens. You're already accelerating Chipotle opens. This year is above target, next year is even more. How close are we to accelerating the unit opens for ShopHouse and Pizzeria Locale?

I hate to put a timeline on it. We are accelerating to a certain degree, but I assume what you mean is to really ramp it up aggressively. They're still in the nurturing phase, it's still in the brand building phase. When we open up a new restaurant, it behaves a lot like Chipotle 12 years, 15 years ago, when we went into a new market where it's an unfamiliar brand, it takes a while for customers to figure out what ShopHouse is. Pizzeria Locale, while it's pizza, it's pizza that may be unfamiliar to customers that are used to traditional pizza. And so there's still a brand building and an understanding of what we're doing, very similar to what we saw with Chipotle in the early days. We're seeing encouraging signs, like we're seeing some very strong comps in the markets that we've opened. It's why we've done things like – with ShopHouse, we're going to open a new market in Chicago. And so it gives us now three different markets where the brand building and the awareness is being created. With Pizzeria Locale, the same thing, we will – very soon we're in two markets, right now we'll be in a third market. So I think we're planting the right seeds. We're doing it in a number of markets where more and more customers will be able to visit these restaurants to figure out what's different about ShopHouse, Pizzeria Locale. And as we see the awareness build, as we see the comps continue to build, just like we did with Chipotle in the early days, we'll continue to invest in those markets. And I would say this is a very similar reaction to what we're seeing in Europe. We're seeing very attractive sales comps. We're seeing some inconsistency in the way the stores open. Some open hot and open up pretty high right away, and some it takes a little time to build. So they're still what we consider to be in the early brand building stage, but we're seeing some encouraging signs.

Okay. Thanks. And maybe one quick one for Mark. If we really are going through this three-year cycle, this is a point where the company is very well flush with cash, the traffic is a little lower in this part of the three-year cycle, when we talked about some of these other awareness issues. Why not use this as a perfect opportunity to really put some money into the marketing program for long-term brand awareness, long-term brand building actions to kind of cement that relationship and awareness for the Food With Integrity? Why not step up some of those efforts a little more at this part of the cycle? Thanks. Montgomery F. Moran - Co-Chief Executive Officer, Secretary & Director: Well, I'd say that we actually probably are stepping it up in some regards. I mean, one thing that I think is important to understand about our strategy here is that we deliberately spend less on our marketing so that we can afford these higher quality ingredients. And that's essentially the main benefit, the main marketing benefit to our customers. And so we find different ways to tell that story, entertaining ways to do it, but we have recently shifted our focus more to telling the basic story about where our ingredients come from and how they're made. And we've significantly increased our focus on digital marketing, which we've found to be very effective. We're going to be using some more of our in-store assets to communicate some of these messages like our packaging. And so I think we're doing it. I think what you won't see from us, though, is some people might think ramping up would mean head to television or something like that. The problem with television beyond the expense, is that it's really, really tailored toward 30-second spots which really only deliver if you have some sort of promotional or call-to-action message in them, which is a very slippery slope. So we're going to stay the course on telling this brand story, but we're working on several large initiatives similar to the ones you've seen in the past as well as what I just mentioned, which is an increased focus on digital and in-store communications. So I'd say we are ramping it up in some way, yeah.

Thank you.

We'll go next to Nicole Miller with Piper Jaffray. Nicole Miller-Regan - Piper Jaffray & Co (Broker): Good afternoon. When you look at comps in October, November, and December of last year, just like you gave us an idea of what was your best and worst this past quarter, does it get easier or more difficult as you exit this current quarter, please?

It's similar, Nicole, because even though we had a lower comp last year at 16%, if we do a comp that's similar in the fourth quarter to what we saw in the third quarter, you'll see a three-year comp, and I keep going back to this three-year trend. That will be very similar. Okay, so it feels about the same. I wouldn't say it's any tougher; I wouldn't say it's any easier. It feels like it's a very similar comparison. Nicole Miller-Regan - Piper Jaffray & Co (Broker): In each month? Okay.

Yeah, in each month and they bounce around with the holidays, but I wouldn't say there's anything out of the ordinary within the quarter that is out of the ordinary worth pointing out. Nicole Miller-Regan - Piper Jaffray & Co (Broker): And I'm sorry, I missed it. Was it $165 million remaining on share repurchase or $135 million?

$155 million.

$155 million, so right in the middle of what you had. Nicole Miller-Regan - Piper Jaffray & Co (Broker): $155 million. Okay.

$155 million, yeah – one five five. Nicole Miller-Regan - Piper Jaffray & Co (Broker): And then just a big picture question, with the acceleration in development, are you finding more sites that are perfect for Chipotle? Or is this also a benefit of the nearly 5,000 hires you made recently that Monty was talking about earlier? Montgomery F. Moran - Co-Chief Executive Officer, Secretary & Director: No, this is really – our real estate people throughout the field are gaining confidence in that we've gone into a lot of smaller or sort of newer markets or off the beaten path markets lately with a lot of success, and our new store openings continue to be at a very solid volume. And so I guess just the confidence of our teams in the field who are out looking for real estate is very, very high that they can confidently sign deals. And also, we are better known than ever as a tenant. We're better trusted than ever by landlords, and so we're a very sought after tenant. And given a little bit better availability of money, I mean people are willing to build an endcap with us in mind or build a three-unit complex and put us in it. And so we are able to just find a whole lot of deals even while walking away from deals and striking a relatively harder bargain. And also, our team has been organized in a new way that's more efficient, that's allowed us to work really, really well together, and with our increased confidence, the team is just feeling great. And they're producing a lot of great sites with really great terms, with great tenant improvement allowances and building these things for less than we did last year, which is superb. But it really isn't any result of our hiring. Our hiring is something we did because we're really trying to become staffed as well as we can in our existing restaurants, to have an adequate complement of people to build it for our future leadership, and have a great base and being able to build when we do build new restaurants. Nicole Miller-Regan - Piper Jaffray & Co (Broker): Thanks, Monty. Montgomery F. Moran - Co-Chief Executive Officer, Secretary & Director: Yeah. You bet, Nicole. Thanks.

And at this time, for closing remarks, I would like to turn the call back over to Investor Relations Manager, Mark Alexee.

Thanks, everyone, for joining the call today. We appreciate your time. We look forward to speaking with you on our fourth quarter and yearend call in January. Thanks again.