Good day and welcome to the Chipotle Mexican Grill Second Quarter 2016 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, sir.

Thank you and good afternoon, 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 2016. 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 our business recovery, sales trends and potential to recover lost sales, funding of new restaurant growth, projections of the number of restaurants we intend to open, as well as statements about planned marketing programs, future restaurant margins, projected trends in food, labor, marketing, promo and G&A costs, and 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 in our subsequent Form 10-Q 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 third quarter of 2016, it will begin September 1 and continue through our third quarter earnings release planned for October 25. We will start today's call with some prepared remarks and then we'll take approximately 20 minutes of questions. On the call with us today are…

Thanks, Monty. Throughout the quarter, we continued to heighten our marketing initiatives to drive sales and increase positive perception of our brand. Through quantitative and qualitative research we've undertaken regarding purchasing habits, we have a better understanding of customers, their motivations and visitation patterns than we ever had before. We continue to increase promotional efforts more than we generally would because we think it's critical to reestablish contact and frequency among our guests so that they can recall how much they enjoy Chipotle. In the last few months, we executed an integrated approach which included a number of different marketing activities. We launched our largest ever mobile and direct mail promotions, we introduced chorizo as a new menu item and we will have it in all of our restaurants before the end of the year. We developed and launched our first-ever customer rewards program, Chiptopia, and we'll be studying the initial three-month program to help us develop a more lasting rewards program. We maintained a larger ongoing advertising presence than usual and we launched a new animated short film, A Love Story, to support Chiptopia which was aimed at reminding and inspiring our fans and attracting new customers. It's already been viewed in totality more than 17 million times with support from PR, paid digital and social media buy, along with placement on more than 10,000 movie screens. These marketing activities are an important part of our strategy to help drive our sales recovery and we are seeing encouraging results in the consumer research. In a June 2 survey by YouGov, for example, consumer perception for Chipotle turned positive for the first time since November. While sentiment is not back to where it was prior to these issues, it shows movement in the right direction. This improving sentiment is also…

Thanks, Mark. The sales comp in the second quarter showed modest improvement from the trends we reported in April when we reported that comps were running in the negative 26% range. We'd like to see the sales recovery happen more quickly but we are as committed as ever to do all we can to reengage with our customers to restore their trust in Chipotle and reestablish customer frequency. The first half of 2016 has been focused on establishing and executing industry-leading food safety practices along with aggressive offers to invite our customers to return to Chipotle. As we begin the second half of 2016, we are optimistic about engaging our customers at a deeper level, going beyond basic, broad-based free food offers with things like Chiptopia, with branding efforts that are uniquely Chipotle such as the Love Story video, rolling out chorizo, and continuing to show leadership in food quality by removing the few remaining artificial ingredients from our food. Although it's very early, we're optimistic about the customer engagement with Chiptopia so far. Over 3.6 million actual or digital cards have been issued and, as Steve mentioned, nearly 30% of all transactions are engaged in Chiptopia. Sales comps over the past two weeks have improved to down 20% to 21%, in that range, but importantly transactions have improved from down 20% in June to down 15% during the first half of July, an improvement of 500 basis points. Our main objective with Chiptopia is to reward and incentivize our loyal customers who have decreased their frequencies since late last year and to restore their visit frequency back to their previous levels. Our research has shown that most of our loyal customers have returned to Chipotle but not at the same frequency, so Chiptopia is targeted at those customers, and…

And we'll take our first question from Brian Bittner with Oppenheimer and Company. Brian Bittner - Oppenheimer & Co., Inc. (Broker): Thanks. Good afternoon, everybody. I just want to better understand the strategy of your new loyalty program, Chiptopia, because with the comps still down over 20%, I guess the impact to the overall trend of the business does seem pretty muted despite all the data that you talked about including 30% of transactions using it. Can you just comment on the reasoning behind why the strong data isn't necessarily having a bigger impact on the recovery? And secondarily, what's the plan when summer is over regarding loyalty? Are you going to maybe switch to something that's aimed less at those that have already come back and maybe more at regaining those that you've lost? Thanks.

Yeah, the program has only been around for less than three weeks and the first week had a holiday weekend which we saw some pretty choppy enrollment during that time with the 4th of July being closed and the buildup to the 4th of July, it's just not a regular transaction or sales builder for us. Since then, we've seen a very regular engagement. We've seen a very regular ramp-up of people that are participating in the program. We have significant – every single day, we have over 100,000 people that are added to the program. The majority of them are registered in the program. And we've seen significant repeat visits. We've seen like 28% of the people that are enrolled, they're engaged in Chiptopia, have come back a second time. So we're seeing saying exactly the results we had hoped that our already loyal customers who had reduced their visits after the results of – or after the events of last year are coming in more often. We're hopeful that will happen is as we get into the end of this month – and, by the way, there's an incentive for people to come back more often as the months close because each month account towards earning the big end-of-program awards. And so achieving a level in July is the starting point, then it starts over. Basically, now you need to achieve that same level in August and then September. So it's very, very early and so we're optimistic that we got a 500 basis point impact in effectively less than three weeks. In terms of what's going forward, after this, we're going to watch this very closely, we're going to learn from it. We're going to find out what works, what doesn't work both for our customers and for our teams in the restaurants. And we anticipate we will have another program. We just don't know yet whether it will be another temporary program, will it be a permanent program? But it's very, very likely that we'll have something to follow on when Chiptopia ends at the end of September. Brian Bittner - Oppenheimer & Co., Inc. (Broker): Okay. Thanks, Jack.

Thanks, Brian.

We'll take our next question from Joe Buckley with Bank of America.

Thank you. I guess, a couple of questions on Chiptopia as well. The improvement in July, you gave us sequential improvement in June, is some of that showing the benefit from the year-over-year comparison? If so, how much? And the GAAP widening between transactions and same-store sales, should we read into that the cost of Chiptopia is going to be rather high? And the last one on Chiptopia, and the last one, as you roll it out, are there learnings about the technology framework within the company? And do you have a sense that you have to invest more heavily in technology either on the expense side or CapEx side over the next couple of years?

Okay. Joe, I'll take a shot at these. The first question was about the comparison. The comparison is not easier in July. In fact, if anything, the comparison is tougher in July. So we feel good about the 500 basis points of improvement so far. In terms of the average check, it's only down less than 3% in July. We had a gap even before July started, Joe, and a lot of that was due to lower group size. It's also due to the fact that we've had promos throughout the last few months as we tried to earn customers back. With the less than 3% that we're seeing in July so far, right about half of that is due to the retention of awards, that was part of the program. We were prepared to offer compelling incentives to get people signed up, and so all you have to do is come in, get a card. You don't even have to register yet and you'll free chips and guac. A lot of those have been redeemed already. The fact that there's a lot of redemption of burritos already means that our customers are marching through the levels. They're already earning Mild status. A bunch of them have earned Medium status. And believe it or not, within the 12 or 13 days, we have thousands of people that had earned the Hot status, which means they came 11 times already and you can't come more than twice in a day. So you have to come basically 11 days and people had already been part of the program within the first 12 or 13 days that we were open. So, the redemption of awards we totally expected that. The other thing we did on purpose, we had a pretty low threshold where if you came in and spent $6, which basically means come in and get a burrito, you'll be part of the program. Again, Joe, our objective was to get as many visits as possible, the idea there being, once we get people in the restaurants and if we can delight them with a terrific experience we have a shot at keeping them. And so we didn't want set a high threshold and so that has contributed to folks participating without all the add-ons, without the drinks and things like that. So the average check, we are ready for that and we think gaining the customer visit is most important and we'll work on the average check later. And then, in terms of technology, I don't know if Curt is on the phone. I think the question, Joe, was have we learned something about technology and do we have to make significant investments in technology going forward with our customer?

Hi, Joe. This is Curt. Chipotle has got some great technology assets already in place with the mobile app that's very popular in the marketplace and in-store technology that's very capable. I think – and certainly we're committed to continuing to innovate and build upon those experiences and reduce friction in the customer experience with them. I think the great opportunity that we have going forward as we look at investment is capitalizing upon these programs to understand the incredible amount of data that we now have available to us as our customers engage in programs like Chiptopia. We're already starting to see some significant insights and learnings from that data and I think there's an opportunity for us to continue to do more in that space around personalization and other ordering capabilities that will, again, remove friction for our customers.

Thank you.

We'll take our next question from Jeffrey Bernstein with Barclays.

Great. Thank you very much. Just two related questions on the comp. One, in terms of the recovery, you mentioned a couple times that maybe the pace was slower than you had initially expected. I'm just wondering what you believe the greatest impediment or frustration is with the survey work you've done or learnings or whatnot, and whether or not you feel confident in that full recovery or whether that just seems harder to see at this time? And the second one was just how would you define success with the comp? I'm just wondering going from here, it seems like you are down 21% in July. What's the pace of expected improvement in 3Q? How do you think about the 4Q comparison? I'm just trying to define what success might be. Thanks.

Jeff, success to us is getting all the sales back. The timeframe, we can't predict what that is. We're frustrated that we're further along but there's never been a case like this. Any of the case studies that we looked at in the past just didn't have the amount of publicity and didn't have things like what happened in March where nothing happened and yet there was a news story about somebody – or that some of our crew that didn't work because they were ill, didn't show up to work, no customers got sick, and yet that turned into a news story. So it's been frustrating that there have been things beyond our control where things had worked perfectly well and we followed all our protocols, and yet that still caused our recovery to see a setback. So it's been challenging and frustrating but our objective is to fully win all of our customers back. How long it will take, we just don't know. In terms of some of the things we've learned on why it's been slower, we know that we have to build our customer trust back. A lot of the research has told us that customers are looking for more information. They're looking for a longer time period where nothing happens. And so, so far, so good in that. Mark had mentioned this. I don't know if you picked up on it, that he and the team are starting to put together a strategy where we will communicate what we've done in a compelling way. It's not something that we're excited to talk about in terms of food safety but we're doing some amazing things. We're talking to some of the best experts or the best experts in the country and so we are doing things that are industry-leading and we are going to find a way to share that with customers so that they will – we can rebuild their trust back that it's okay to come back to Chipotle. We're also going to continue to introduce things that make Chipotle special. And I don't know, Mark, if you want to talk more about that where we're going to talk about Food With Integrity, we're going to talk about what we're doing with ingredients and talk about the things that people have come to love about Chipotle.

I think in addition to the content and communication specific to food safety, you're starting to see us get back into a pattern of the marketing that we used to do with A Love Story. We're adding new news with chorizo. We're adding new news with Chiptopia and trying to reclaim our voice with the Love Story film and begin to get back into a rhythm of new programs and new news that reminds our fans of the Chipotle they know and love, and introduce Chipotle brand to new people with efforts like A Love Story. Steve Ells - Chairman & Co-Chief Executive Officer: Thanks, Jeff, for the question.

We'll go next to Sara Senatore with Bernstein. Sara H. Senatore - Sanford C. Bernstein & Co. LLC: Thank you. Two questions, if I may. One about the product and one about margin. First, on the product, obviously with all the changes you've made about in your supply chain, there's always some debate about whether people like it as much, whether the food just tastes as good as it did before you made some of these adjustments. The social media coverage varies on what people are saying. So I wanted to see if you had a view on that, whether that's played any role, a change in pace or perceptions on customers' traffic? That's one. And then the second question I had was for Jack about margins. I'm trying to reconcile what we're seeing in your margin structure now versus historically, which is to say I think you suggested at the current run rate roughly $2 million AUV, restaurant margins are kind of where they are in the mid-teens. If I go back to 2011 when your volumes were around $2 million, your restaurant margins were 26%. So I understand that there's been inflation and you clearly have some food costs associated with it, but I'm just trying to understand where that – if there's any way to bridge that roughly 1,000 basis point gap between what your margins have looked like at these volumes in the past and what you're guiding to now? Steve Ells - Chairman & Co-Chief Executive Officer: Sure. Sara, I'll start with the food and the taste of the food. So during the time of the incident last fall, we didn't know the cause and so we looked at every single ingredient that we were bringing into our restaurants. And working with a number of…

They do. And in fact, Sara, our complaints amongst customers have actually gone down in terms of food complaints. So we feel very, very strongly about the quality of our food, the taste of our food and the customers' perception and satisfaction with the quality and taste. Sara H. Senatore - Sanford C. Bernstein & Co. LLC: Thank you.

Sara, on the margins, if you look at our 15.5% today and what's different then, it would've been a few years ago – and listen, I don't have the details of 2011, but I do know the pieces. There's about 300 basis points and, call it, 350 basis points are so, between 325 basis points, 350 basis points of what I would call nonrecurring expenses. Two hundred of that is in our marketing and promo. We're intentionally overspending on that line item and it's way above historic norms. There's another probably 125 basis points to 150 basis points or so of inefficiencies. We're wasting a lot of food. We're not very efficient with labor. And part of it is because we are taking on a lot of new procedures and that's been inefficient. We're being inefficient in terms of dealing with the promotions and we're tending to overstaff rather than understaffed. So that's in that 325 basis points to 350 basis points. Food costs, I believe back then was probably in the 31% range or so, maybe even below that. There was a time when our food costs was in the 30% range. And so without the details in front of me, I'm guessing that was probably 300 basis points or so difference in food costs. And what's happened there is we just haven't raised prices very much over the years. Our model a year ago so it could handle a 34% food cost. With the deleveraging effects and all the efficiencies, the 34% food cost is a lot more painful today. We also have labor inflation that has crept in since then, and I'm just guessing that's probably at least another 200 to 300 basis points. The labor inflation especially in the last year has been significant. We had…

We'll take our next question from Nicole Miller with Piper Jaffray. Nicole M. Miller Regan - Piper Jaffray & Co. (Broker): Thank you. Good afternoon. What data are you collecting through the loyalty program? And what do you intend to do with it? And a follow-up, how is the turnover at the store level? And as you realign the incentives, is it changing? Or do you expect it to change? Thanks. Steve Ells - Chairman & Co-Chief Executive Officer: Nicole, I think I'll take a shot of that and I don't know if Mark wants to add onto it. The single biggest thing we're doing is we can now match up specific customer behavior using credit card data and people's enrollment in Chiptopia and we've been able to go back, so far, we've gone back to June but we're going to go back to even a year ago before all these events happened to see the loyalty of our customers. We've got lots of outside data showing us what's happened to the loyalty of our customers. So we're going to be able to do a better job of seeing those customers that were once loyal a year ago, they were coming twice a week or three times or four times a week and have dropped their visits now to once or twice a week, we're going to be able to see whether Chiptopia is bringing them back up to the two or three or four times a week that they visit. We've done that so far just going from June to July and we're very encouraged and I shared that data with you. We also now have greater engagement with a lot of the customers where we can actually reach out and market to them. And so we have a communication link that we have with our customers as well. And then, Mark, I don't know is there any other customer data that you...?

I would focus mostly on – we used the data and the regression analysis to really hyper-target those who had descended in their frequency or those who had lapsed to make sure we could invite all of those people into the program. And now, we can match up those who are now in the program to determine what their return frequency level is and utilize all of that data we're mining there to help influence the evergreen loyalty program we are currently evaluating in the months to come. Steve Ells - Chairman & Co-Chief Executive Officer: And then the other question was on turnover. Monty, I don't know if you wanted to comment on turnover? Montgomery F. Moran - Co-Chief Executive Officer, Secretary & Director: Yeah. Our turnover is going various directions for different positions. The crew turnover right now is fairly high. It's in the 130%-plus range and our kitchen manager turnover has sneaked up a little bit, whereas the manager – or the general manager turnover has gone down quite a lot. And we've really targeted general manager turnover in particular. In an effort to try to reduce general manager turnover, we are making certain to communicate and understand exactly the reason for every single person turning over. And in fact, you need officer approval for a general manager to turnover at Chipotle because we want to have that intimate of an understanding as to why they turnover. So that system has really worked. But we also implemented a similar program where any manager turnover is something that has to be approved by our team director, team directors in the company. And so we anticipate that we'll continue to work on that. We'll get a better understanding as to why some of the turnover is happening and continue to work on reducing turnover. Nicole M. Miller Regan - Piper Jaffray & Co. (Broker): Thank you. Montgomery F. Moran - Co-Chief Executive Officer, Secretary & Director: Thanks, Nicole.

And that does conclude our question-and-answer session and brings us to the end of the conference. We appreciate your participation. You may now disconnect.