Greetings, and welcome to the Chipotle Mexican Grill First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen only mode. An interactive question-and-answer will follow the formal presentation. As a reminder, this conference is being recorded. I'd like to turn the conference over to your host, Mr. Mark Alexee, Investor Relations for Chipotle. Thank you. You may begin.

Good afternoon, everyone, and thanks for joining Chipotle's first quarter 2017 earnings call. By now, you should have access to our earnings announcement released this afternoon, or it can 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 regarding the impact of management initiatives on our business; the future potential of our digital ordering programs; the impact of marketing programs; forecasts of the number of restaurants we intend to open in 2017 and restaurant returns, estimates of food, labor, occupancy, marketing and G&A cost trends for future periods; projections of effective tax rates for 2017; statements regarding our ability to meet business goals; as well as other statements of ongoing developments and 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 reports on Form 10-K and as updated in our subsequent Form 10-Qs for a 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 16th day of the last month of each fiscal quarter and continues until the next earnings conference call. For the second quarter of 2017, it will begin on June 16 and will continue through our second quarter earnings release planned for Tuesday, July 25. We will start today's call with some prepared remarks and will then take questions. On the call today are Steve Ells, our Chairman and Chief Executive Officer; Mark Crumpacker, Chief Marketing and Development Officer; and Jack Hartung, Chief Financial Officer. Curt Garner, our Chief Digital and Information Officer, will also join us for the Q&A session. We ask that you please limit your questions during Q&A to one per individual. With that, I'll now turn the call over to Steve.

Thanks, Mark, and good afternoon, everyone. In December of last year, I returned to the role of sole CEO, with a commitment to restoring the simplicity that had made Chipotle so successful. Since December, we've implemented sweeping changes throughout the organization, nearly all of which are aimed at dramatically improving the guest experience. At the core of these changes was the revamp of the Restaurateur program. Restaurateur is the elite status bestowed upon our very best managers. Over the years, the Restaurateur program had become overly complex and laden with a vast array of esoteric concepts and abstract measures that prevented our teams from running their restaurants well and, frankly, didn't focus on the customer or reward great, sustained performance. By refocusing the entire program on five understandable measures, we have been able to quickly align our entire company around running great restaurants and delivering an excellent guest experience. We still have work to do but I'm very proud of our teams and I'm incredibly excited by the changes I'm already seeing. And we're beginning to see some very tangible results. Through the first three months of the year, we've seen positive sales momentum and improvements in our key operating metrics. We generated revenue of $1.07 billion in the first quarter, an increase of 28.1% compared to the first quarter of 2016 on comparable restaurant sales growth of 17.8% and opening 57 new restaurants. These strengthening sales trends and improved operational execution generated diluted earnings of $1.60 a share. Our better performance for the quarter was due to a combination of factors including the continuing simplification of our operations; a relentless focus on the guest experience; thorough and ongoing crew and manager training; improved execution of digital ordering; increased marketing and improvements in customer sentiment; and a continued focus on…

Thanks, Steve. We've always worked hard to differentiate our brand based on our commitment to making better food made with whole unprocessed ingredients available to everyone. We carefully constructed a brand's narrative about our commitment to serving better food, which resonated with our existing customers and helped draw new customers into the brand. We often relied on non-traditional forms of marketing, including entertaining films, TV shows and events like our Cultivate Food and Music festivals to build the brand narrative. Using this type of marketing, we were often able to break through to consumers even though we generally spend less on marketing than our competitors. But our desired brand narrative was disrupted in 2015, and that required us to shift our approach. First, we elevated our promotional activity, which drew customers into our restaurants. Next, we applied more resources to traditional advertising so we could reach millions of new customers. Now, during the first months of this year, we have returned to marketing the benefits that differentiates Chipotle from the competition. While we don't normally advertise during the first quarter, our strategy this year is to advertise throughout the entire year. During the first quarter, we continued to run the Ingredients Reign campaign which portrayed animated ingredients as royalty in a world where ingredients rule the land. That campaign ran in digital, social, outdoor, radio and in video and on television in some markets. We also promoted digital ordering and catering during the quarter with positive results. Ingredients Reign proved to be effective in helping to restore the image of our brand by focusing on our high-quality ingredients. Earlier this month, we launched our largest-ever advertising campaign, As Real as it Gets. The campaign features outdoor, radio, digital video and online ads and social media advertising, and for the first…

Thanks, Mark. I want to start by saying how proud I am of our restaurant managers, our crews and our field leadership for how quickly and effectively they been able to shift their focus to simply running better restaurants and delivering an excellent guest experience. As a result of their efforts, we have seen six consecutive months of improving customer-related scores in each of our three key measures. This is the best consistent month-over-month improvement we have seen since we started tracking these measures and it's a tribute to the hard work and commitment of our field teams. We know that our economic model can only be fully restored if our customers are treated to a compelling experience when they visit, and the results so far are an indication that we're on the right track. While elevating the guest experience is the most important and the most impactful thing we can do right now, we're also seeing our restaurant teams to deliver better fundamentals in terms of running a good solid P&L. Specifically, we're seeing more efficient labor scheduling and management to the best levels we've seen in nearly seven years. We're seeing decreased food waste and reduced inefficiency in controlling food cost, although we still have an opportunity to get even better here. We're seeing more effective management of controllable expenses, such as kitchen supplies and maintenance and repairs inside the restaurants. And we're also seeing the lowest general manager turnover that we've seen in more than eight years. Our GMs have fully embraced and are excited about our new focus, and they're motivated by their ability to thrive in this new environment. It gives us great confidence that by keeping talented leadership in our restaurant, we can continue the momentum we've seen emerge in just a few short…

Thank you. And our first question comes from Nicole Moore (26:04) from Piper Jaffray. Please go ahead.

Good afternoon. So I caught your TV campaign a bunch of times and I hesitate to share it has been on the Bravo channel. But I just wanted to understand which channels you picked and why? How many weeks will you be running this campaign? How are you splitting out impressions? And then kind of finishing out and rounding out the question, how are you measuring the returns? And do you want us to understand this as a short-term initiative or a longer-term strategy? Thank you.

Thanks, Nicole (26:40). So I'm glad you're seeing the spots. We're running them at a high level of frequency. In fact, just across the first two weeks, it's about 160 million impressions. In terms of how we're choosing where we run them, they're running against what was primarily considered appointment TV or TV shows that people tend to watch live, like Desperate Housewives. I'm not going to suggest that's what you were watching. But that or SportsCenter or any sort of game. The Voice, we run on. So those types of shows that people are less likely to DVR and then skip the commercials on. And with regard to how the campaign is structured, it runs in two flights. The first one runs now through really through the beginning of July. And then in July and August, we actually run a different type of promotion, which I alluded to in my prepared statements. And then we run another flight of the TV in September and October. But throughout the entire year, there are certain aspects of the campaign that run continuously. With regard to your question about whether or not this is a long-term strategy, this is part of the overall effort to rebuild the brand's narrative and so the type of advertising that you're seeing now really is brand advertising. This is obviously not advertising that's promotionally driven. It's instead brand-building advertising. Having said that, the campaign is multifaceted so the digital components and social components are much more food focused. In fact, all of the online advertising drives to our online ordering site. So it has a lot of different components to it, but this is part of the long term strategy to reengage our customers in the aspects of our brand which make them more loyal while at the same time layering on aspects of the campaign that drive transactions and that drive digital ordering. So hopefully that answers your questions.

And just in terms of measuring the return and then I'll hop off. Thank you so much.

Sure. The return – we're going to measure this in several ways. So the most traditional way we do it is with pre, mid and post-wave campaign research which we haven't come to the midpoint of the campaign, so we've only got our pre-wave benchmark on that. So that's one form of research. The other is we do user acceptance research, and we've already fielded that. I alluded to some of the results of that in terms of how people are engaging where they're liking the ads. Then of course we look at the sales impact. It's a little bit difficult ,of course, as you know with these sorts of things to tease apart a part of a comp that's directly the result of the campaign and not weather or other seasonality affects, but we'll do our best in terms of studying that. And then a great deal of this campaign is actually using first and third party data to target our customers directly. In those parts of the campaign we're reaching people who we know on a one-to-one basis, so we can actually see them transact as a result of the campaign. So as this unfolds, we'll be able to provide much more data on exactly how effective digital components that were targeted one-to-one were actually performing.

Thank you.

Our next question is from John Glass from Morgan Stanley. Please go ahead. John Glass - Morgan Stanley & Co. LLC: Thanks very much. If I could just ask a little bit about little sales, first of all, in the past you sort of provided a cadence on a one-year basis for comps for the quarter. So if you could maybe talk about February and March? And I think, Jack, you talked about a two-year trend, but maybe just be very explicit on a one-year basis where sales exit in the quarter? What we're referring to in April? And since I know it's early days in the advertising campaign, have you seen since it is the first time you're on TV and I expect you see some immediate impact – can you quantify what that impact you're seeing early days on the advertising campaign is on sales?

Yes. John, I'll take the first sales question. February – we had a nice step up in February. We already reported January comps were in the 24% range. February and March were going against lower negative comps from the prior year, but both came in at around 14%. Now keep in mind we lost a day in February because of weekday and we picked up a day in Easter, but both months were going up against about a down 26%. And so the most important metric, John, that we looked at is on a two-year basis, how far down are we? And for the first time in really many months we had a significant move from a down about 20% in January, and we were down a little worse than 20% in the fourth quarter, to a down on a two-year basis to 16% in February. We held that in March, and then we're seeing a similar trend into April so far where we knew – when we do our best to factor out the Easter noise into April, it looks like we're still trending at about a down 16% range. So I hope that helps on sales and the... John Glass - Morgan Stanley & Co. LLC: What is that on a one-year basis, though, Jack? Just to be clear, what's the one-year comp in April, then?

So April is running, John. If you set aside the Easter compare, it's in the low double digits during April. John Glass - Morgan Stanley & Co. LLC: Okay. Thank you.

And with regard to the TV, we don't have a direct correlation to sales right now, and it's primarily for the reason I mentioned earlier which is it's very difficult to tease apart which part of the sales comp we're seeing is a result of the television or not. And because this is national, we don't have our normal control markets that we would normally have in order to compare the advertising against markets where we didn't advertise. Having said that, the initial research is showing that we do have increases in consideration and increases in a number of other metrics that would suggest that we're having an impact, but it's only been running for 15 days. So we'll have a much better idea about this after 30 days or more. John Glass - Morgan Stanley & Co. LLC: Okay. Thank you.

Our next question is from Karen Holthouse from Goldman Sachs. Please go ahead. Karen Holthouse - Goldman Sachs & Co.: Hi. A question on the increase in digital orders, which it's great to hear, success with the new platform. Is there any noticeable difference in comp trends at stores where you're seeing sort of bigger year-over-year increases or just bigger usage to begin with? And against that really impressive growth, sort of going from here, what other areas you're focused on in terms of continuing to refine and improve either at the store level or on the sort of digital platform itself?

Yes, I'll take the comp, and then, Curt, I don't know if you want to talk about the digital specifically. Karen, it's too hard to separate how much of the comp – remember, we're comparing it to significantly negative numbers and we're seeing an inflection point that I described during February. We're not seeing anything that we can specifically point to, to say, okay, of the comp, of the improvement we're seeing in the sales trend, x amount is digital. We know digital is growing at a very fast rate. We know that's taking people off the frontline, and so that's helping – theoretically should be helping our throughput because we should be having shorter lines. And so we feel like it's a contributor, but to put a specific number on it, we're not able to do that right now.

And Karen, I can add a little bit of color around the roadmap for digital for the rest of the year. We recently made some improvements on both the web and the mobile site to allow customers to customize their meals much like they do in the frontline of our restaurants and have seen a really positive reaction to that. We continue to expand the network of delivery providers that we have, and have seen great growth in that channel. And we'll be introducing catering delivery to more of our restaurants throughout the second quarter. The other big initiative that we still have for this year is a wholesale rewrite of our mobile application to match some of the improvements that we've made on our online site. Karen Holthouse - Goldman Sachs & Co.: Great. Thank you.

Our next question is from Brian Bittner from Oppenheimer & Company. Please go ahead. Brian Bittner - Oppenheimer & Co., Inc.: Hey, guys. Thanks for taking the question. I've just got a question and then a follow-up. In your recent proxy filing, you guys revealed some new compensation goals for the executive team, and I think part of the weighting of this is based on same-store sales going forward. And I think the target for the payout is at a compounded annual growth rate of 7% over the next three years. Can you talk a little bit about how this target was constructed? Was it kind of back of the envelope math where that's kind of what you need to get to kind of your goals? Or was it bottoms-up driven? Anything you guys can say about the target in the proxy would be helpful. And I have a follow-up.

Yes, Brian, this – our comp committee put that together, and they had a lot of advice from some outside comp experts. I will tell you the – there are two components to it. One was the stock price, and that is a significant increase in the stock price where the target equity would only be earned if the stock price achieved a weighted average over a period of time of at least $650. There's a lower payout if you hit below that, but to get the target, you have to hit $650. And then I think it was – a third of it was the comp. And there were three different targets, 5%, 7% and a 9%, and a 7% would return the company to a very respectable sales level which would have the potential to enable a very respectable and significantly higher margin for the company. And so it would put the company back on track to have some significant EPS growth. And of course, there are higher awards that are available to be earned if we hit a 9%. A 9% compounded over a three-year period would be a significant increase. And that 9% would get us all the way back to somewhere in the $2.4 million, $2.5 million average range. But keep in mind, by the time we get there, we have somewhere in the neighborhood of 600 to 800 additional restaurants at that kind of a volume. So our comp committee put it together, but there was some modeling that would suggest that that would put the company in a very strong earnings situation. Brian Bittner - Oppenheimer & Co., Inc.: Okay. That makes a lot of sense. And just to follow up is you kind of talked about getting hopefully to the run rate guidance at some point this year, and I'm assuming what you're referring to is kind of the $10 EPS run rate. The question I have is what then becomes the big opportunity to build earnings power from there? At that point, does the model upside and the earnings power side kind of come from what we just talked about, just continuing to get sales back and the leverage that comes with that? Or is there any significant opportunities outside of restoring sales once you get to the $10 run rate?

Yes. The most significant thing, Brian, is for us to recover our sales – fully restore our sales. And we've saved money. We're doing a better job at labor. We've seen some improvements in some of the miscellaneous line items on the P&L. And to give you a perspective, if you look at the margin that we achieved during this first quarter of 17.8% and if you said, for example, well what – based on the current way we're managing the business, what if our volume over time does return to a $2.4 million number? If you just take into account the same kind of management, take into account the expected kind of leverage, our margin should improve to about a 23.5% to 24% range. Keep in mind, we've absorbed inflation over the last three years. And so if you, for example, added on a 5% price increase and you saw little or no resistance, that 23% or 24% margin gets to a 27% or 27.5% margin. So that gives you an idea that sales alone with the current efficient way we're managing the business would get us back into kind of a 27%, 27.5% margin for the first quarter. And keep in mind, first quarter is not our best margin quarter. So we feel like in terms of running the business, in terms of managing efficiencies and still staffing for things like, to support the higher volume second make line, we think our teams are doing a fantastic job. So now what we've got to do is continue to welcome people in the restaurant, continue to deliver an excellent guest experience. And if we continue to step forward and fully recover our volumes, our economic model will be in full force. Keep in mind, these margins that I'm talking about, we have 100 basis points of additional, incremental food safety-related costs that we've got in there. And so we would have fully absorbed that and still have margins equal to or perhaps even better than our historic high margins in the past. Brian Bittner - Oppenheimer & Co., Inc.: Great. Thanks, Jack.

Thanks, Brian.

Our next question is from Sara Senatore from Bernstein. Please go ahead. Sara Harkavy Senatore - Sanford C. Bernstein & Co. LLC: Yes. Hi. A couple questions. One is a follow-up on the stretch targets that you've talked about and the 20% margin. Now that we're four months into the year, could you give a little color on where, versus expectations, the chart you laid out with the build from 2013, 2014 up to 2020, I would guess maybe food costs are not quite as good? Maybe pricing is an offset. But I'm just curious where you might have seen more or better than expected contribution versus what may have disappointed a little bit. And then I had a related question. As you see digital mix increase, are there any kind of additional investments you have to make? I know you've talked, I think, a little bit about maybe kitchen display, back of the house, just to ensure the throughputs there in the second make line. But anything that might need to be done on that side as well to increase capacity. Thank you.

Yes. Yes. Sara, in terms of the stretch target, the 20% margin, the $10 EPS. In terms of surprises on the positive side, this isn't a direct margin or EPS impact. But I think the thing that we're the most delighted about is how fast we've been able to pivot and focus on the customer and how fast we're seeing every single measure. Every way we measure customer satisfaction, we're doing a better job. And it's month after month after month. And so we thought we could do this fairly quickly, but we thought it would take many more months and our teams are moving very, very fast. And it just goes to show that when we simplified operations, when we define success in a clear way which – what Steve described as these five key measures of success, our teams, while they're not easy to get there, they're easy to understand. And our teams have mobilized very quickly. And so that's, I think, the biggest surprise overall. I think in terms of – from a margin contribution, we're really surprised and delighted by the fact that we're doing a way better job scheduling and deploying our people such that we're ready at peak hour. We're ready to support the increase in second make line sales. And yet we're – in terms of deploying the right number of hours and deploying the right number of managers throughout the day and managing that part of the business, we're the best we've been in seven years. And that happened in a matter of a few months. And so that happened much, much quicker than we thought. We're seeing progress in things like food costs. We picked up a couple basis points just in terms of doing a better job of ordering, scheduling…

Thanks, Sara.

Our next question is from Jeffrey Bernstein from Barclays. Please go ahead.

Great. Thank you very much. I had two questions. Just one on the follow-up on the pricing color you gave. I think we had heard it was 5% increase in maybe 20% of your stores. I'm just wondering, as you read those results, what would be a good response? Maybe how much traffic pushback would you say is acceptable? I'm just wondering what you're looking for when you read that. I know you said you did it in kind of low-risk markets, but I wasn't sure if that was defined as stores that had much better traffic in those markets or whether those markets had tremendously high labor costs and therefore everybody was raising. I guess I'm just trying to gauge the likelihood that you ultimately deem it a success and at what point we would see another significant increase for the rest of the system?

Yes, Jeff, historically when we've raised prices – we haven't raised prices that often and when we track resistance, we track it into different areas. One, we look at transaction resistance; and two, we look at average check resistance. So – and we monitor both of those. And then in most cases in most markets historically, we've seen little or no resistance. We plan for around a 25% resistance and that would be a combination of resistance on the average check or resistance on the transaction. So if we raise prices by 5%, which we didn't, we saw a resistance of 25% of that, so one-fourth of that. So about one and a quarter. So if we saw that we're only seeing a pass-through of 3.75% or 4%, we would still consider that to be within the range of normal. Historically, we've seen even a better result, in other words less resistance than that, but if we saw something like that, we'd be okay with that. We did pick low risk markets just because we wanted to start with low risk markets, and when we decide that we want to take the next step, I think we'll take the next layer of markets and say okay, this is the next layer from a risk standpoint. And risk does mean what are the current competitive prices, what are the current sales trends, how strong are the trends right now, and what is the cost of doing business in those areas. And those are what we consider to pick the first 440 restaurants and, as we go to the next wave, we would consider those same things. So hopefully that helps in terms of what we're looking for in terms of whether it's going well.

How long of a read do you think that takes? And is it possible that later, in the back half of this year, you'd pick the next 400 stores for a 5% increase? Or do you really want to get comfortable and therefore we're talking about 2018 or beyond?

It just depends on what we see, Jeff. I was careful too in my prepared comments to say we're going to be patient because I know as soon as word got out that we did some target increases, there was a lot of excitement about, oh, my god, they're going to raise prices across the system and that's not a knee-jerk reaction that – that's not how we're thinking about it. If we saw that we went through the next few months, the next three months or four months or so, and we saw really muted or virtually none at all, we'd consider, okay, which would be the next market. And so there is a chance that you might see some markets roll in 2018. I just don't want people to think that it's a predetermined. We've done a 440, and then next we're going to immediately follow that up with another 400 and then another 400. We're going to be a little bit more patient. We're going to be a lot more patient than that actually.

Got it. Thank you.

Thanks, Jeff.

Thank you. And our last question comes from Sharon Zackfia from William Blair. Please go ahead. Sharon Zackfia - William Blair & Co. LLC: Hi. Good afternoon. Two quick questions, I guess. In December, I think you gave some grades for the stores and I think half of them were kind of below par on customer experience. I'm just wondering if you could maybe quantify what percent now or A or B, or if you're actively grading them. And then any update on West Coast trends, Jack? I know that was something that had been lagging. Have you seen any narrowing of that gap?

First on the grading, Sharon, I thought and so did the team think that it was going to take quite a while to get our field leaders and managers refocused on a new brand of Restaurateur programs that focuses on very measurable metrics that are customer-facing, the things that affect the customer experience. We expected it to probably take a year to change that culture. It happened much, much faster. The managers and field leaders did an extraordinary job rallying the teams and the restaurants to embrace these new customer facing measures. And the results have been great. We've dramatically improved the customer experience. And while we don't disclose – I mean these are internal measures that don't necessarily mean much to the outside world, the results though is that our customers are noticing the difference, and it's a big difference and so we're really pleased with the momentum and that's going to continue because these measures are based on things that will be sustainable and so it's very, very good news.

Sharon, on the West Coast, West Coast is still lagging. And if you think about when we look at overall the company on a two-year basis, we're down about 16. The Midwest and Rocky Mountains continue to outperform that, so they're better than the down 16 on a two-year basis. The South and the Southeast are doing pretty well. They're not quite at 16 but they are in the teens. The Northeast – we mentioned this at the last call, the Northeast had been a laggard and they have closed the gap and so they're more in kind of the teens, maybe the high-teens range. They've made a move, but the West Coast still is in overall, call it, that low 20% range. And so we still have some work to do out in the West Coast but most of this country is coming along nicely. Sharon Zackfia - William Blair & Co. LLC: That's great. Thank you.

Thanks, Sharon.

Thank you. This does conclude the question-and-answer session. I'd like to turn the floor back over to Mr. Alexee for any closing comments.

Thank you for joining our call today. The quick news, our Annual Shareholder Meeting will be held next month on Thursday, May 25. After that, we look forward to sharing our second quarter results with you on July 25. Thank you.

Thank you. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.