Good afternoon and welcome to the Chipotle Mexican Grill Fourth Quarter and Fiscal Year-End 2019 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Ashish Kohli, Head of Investor Relations. Please go ahead.

Hello, everyone, and welcome to our fourth quarter and fiscal year-end 2019 earnings call. By now, you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.chipotle.com. I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements, including projections about comparable restaurant sales growth, new store openings, our effective tax rate and expected G&A expenses. These statements are based on management's current business and market expectations and our actual results could differ materially from those projected in the forward-looking statement. Please see the risk factors contained in our 2018 annual report on Form 10-K and in our Form 10-Qs for a discussion of risks that may cause our actual results to vary from these forward-looking statement. Our discussion today will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the Presentation page within the Investor Relations section of our website. We will start today's call with prepared remarks from Brian Niccol, Chief Executive Officer, and Jack Hartung, Chief Financial Officer, after which we will take your questions. Our entire executive leadership team is available during the Q&A session. And with that, I'd like to turn the call over to Brian.

Thanks, Ashish. And good afternoon, everyone. We had a strong ending to 2019 as Q4 marks the eighth consecutive quarter of accelerating comparable sales, which highlights that running great restaurants with the right leaders and the right culture delivers outstanding performance. Our guests love what they see in our restaurants and our team members deserve all the credit. They are more passionate and committed than ever to delivering on our purpose of cultivating a better world. For the quarter, we reported sales of $1.4 billion, representing 17.6% year-over-year growth, which was fueled by 13.4% comparable restaurant sales growth that included 8% transactions growth. Restaurant level margins of 19.2% which is 220 basis points higher than last year. Earnings per share adjusted for unusual items of $2.86 representing 66% year-over-year growth and digital sales growth of 78% year-over-year representing 19.6% of sales. Full-year results also showed great progress, with sales growing 14.8% to reach $5.6 billion, driven by an 11.1% comp with 7% transaction growth. Restaurant AUV, about $2.2 million, margin expansion of 180 basis points to 20.5% and digital sales of $1 billion dollars which grew 90% versus the prior year. These results were driven by the same five key fundamental strategies that I've mentioned previously. Number one, making the brand more visible and loved. Number two, creating innovations utilizing a stage gate process. Number three, leveraging our digital make line to expand access and convenience. Number four, engaging with customers through our loyalty program. And number five, running successful restaurants with a strong culture that provides great food, hospitality, throughput and economics. While Chipotle had an excellent 2019, what excites me the most is that we are just getting started. I believe we have the opportunity to continue to expand AUVs, margins and store count over time. Our strategy…

Thanks, Brian. And good afternoon, everyone. Once again, we delivered outstanding financial performance in the fourth quarter as comps and margins continue to expand, highlighting our strong economic model. Sales were $1.4 billion in the fourth quarter, an increase of 17.6% from last year. Comp sales grew 13.4% in the quarter which includes no net impact from our rewards program. Deferred revenue from our rewards program was essentially offset by a refined breakage rate assumption for chips and guacamole as we gather more historical data. Moving forward, as we begin to lap the launch of our loyalty program, we expect quarterly deferrals to have a modest impact on our comp. Restaurant-level margins of 19.2% expanded 220 basis points over last year and earnings per share adjusted for unusual items was $2.86, representing 66% year-over-year of growth. The fourth quarter had unusual expenses related to our transformation as well as legal reserves that negatively impacted our earnings per share by $0.31, leading to a GAAP earnings per share of $2.55. For the full year, sales increased 14.8% to $5.6 billion on a comp increase of 11.1%. Restaurant level margins were 20.5%, an increase of 180 basis points, and we generated earnings per share adjusted for unusual expenses of $14.05, an increase of 55% over last year. Unusual expenses mostly related to transformation and legal reserves negatively impacted our earnings per share by $1.67, leading to GAAP earnings of $12.38. We're pleased that our unit economics strengthened in 2019 with average volumes now exceeding $2.2 million and restaurant margin reaching 20.5%. This margin included temporary pressure from carne asada and avocado pricing, without which our restaurant level margins would have been just over 21% which is within striking distance of the 22% margin potential at a $2.2 million AUV. The growth in…

Thank you. [Operator Instructions]. And the first question will come from David Tarantino with Baird. Please go ahead.

Hi. Good afternoon and congratulations on a strong year. My question, Jack, is about the margin performance at the restaurant level. I'm just wondering if you could comment on the flow-through that you saw in Q4 and throughout the year. And I think you mentioned that, at $2.2 million AUV, the expectation would be that you have margins in the 22% range and you're a bit below that. So, can you reconcile some of the factors that are driving that and what the algorithm might look like going forward as you grow the unit volumes?

Yeah, David. First of all, we still think that the margin potential at $2.2 million is right around 22%. There are a couple of things that were headwinds during the year. One, we saw some really, really high avocado cost during the summer. That had an impact. And then, we also had carne asada, which, I think, as you know, for most of the quarter, we priced carne asada at just $0.50 above steak and it cost us about $0.35 to $0.40 or so. And we did that intentionally as a transaction builder, but it did have a temporary negative impact on our margin. Now, during the quarter, we did take a price increase. We increased carne asada another $0.25. We got a $0.75 upcharge and we didn't see any degradation in demand at all. So, we think there is room when we do additional premium offerings like that we can price them at full margin. The other thing that's going on, David, that also had what I would call temporary headwinds is, we just started our loyalty program last year. We did a great job of acquiring well over 8 million customers in the program. With that acquisition comes the discounts, and yet we hadn't really monetized that [indiscernible]. So, that has a little bit of an impact on the margin as well. And then, our delivery business is growing well also. So, all these things are what I would call temporary or cyclical headwinds that we can overcome all of them and we still feel confident that, when we get to $2.2 million, we can generate a 22% margin. We get to $2.3 million, we could generate a 23% margin. We think that potential still exists within the model.

Thank you.

And the next question will come from Nicole Miller with Piper Sandler. Please go ahead. Please go ahead, Nicole. Perhaps your line is muted on your end. All right. We'll move to our next question. That's Katie Fogertey with Goldman Sachs. Please go ahead.

Great. Thank you. I have a couple of questions here. So, first of all, with the – bringing the super greens on to the menu in January and kind of expanding the lifestyle bowl offerings that you did in 4Q. Can you give us a sense of how your bowl versus burrito mix is changing here and how that is evolving and any kind color that you can give us on labor and margin efficiencies as you move to the bowl away from the burrito? And I have a follow-up.

Sure. The reality is continues to show a slight migration to bowls. The thing that's great about that is that's our fastest product on the Chipotle menu and which also provides, I think, the customer the greatest value proposition because of all the customization that they see right in front of them, with all our ingredients right in front of them. So, the good news is the super greens proposition has been well received. It's performing in line with expectations and the customer feedback on it has all been very positive. So, it's perfectly in sync. And I think we talked about this earlier. One of the things we heard early on from our customer was they would like us to improve our salad and that's what we're doing with the super greens salad mix.

Great. That's helpful. And do you have a sense of the mix of the bowls versus burritos?

Rule of thumb is two-thirds bowls is the way to think about it. And then, the next piece is burritos followed by tacos. Tacos are small.

Okay. And then, on the delivery cost side, we're seeing more and more restaurants pass on the delivery cost to the customer and not seeing really any kind of impact to demand. You kind of talked about having some room to move on carne asada and not seeing any traffic hit there. Is that a potential opportunity for this year for you guys to pass on some of the delivery cost to the customer?

Yeah. Look, the good news is our value equation is really strong at Chipotle. So, we have room if we find that the economic proposition requires us to pass along some of these costs in the delivery channel. Or if we want to bring out some elevated ingredients. The good news is our value proposition is really strong and the elasticity would allow us to do it. Currently, we like the economics that we have and we're more in the mortgage acquisition mode of using delivery as a tool to get people into our digital ecosystem. So, the good news is we've got the right value proposition that if we wanted to flex it, we could.

Okay. Thank you so much.

Next question, we'll move back to Nicole Miller with Piper Sandler. Please go ahead.

Thank you. Good afternoon. Can you hear me okay now?

Yeah.

I apologize for that earlier. I wanted to ask about how you think about directing the balance sheet. So, when we look back on last year, clearly, was better at every quarter versus where you started guiding the year, what the Street expected. So, maybe some of the things that you didn't do. So, not necessarily an acceleration in development. How do you view that as a use of cash? The share repurchase hasn't necessarily increased and would you use leverage? And then, when might a dividend be appropriate? Thank you.

Yeah, Nicole. Let me start with buybacks. We bought, I think, like $168 million during the year, $38 million during the quarter. Our cash balance did grow during the fourth quarter. We actually suspended our buys during the quarter for a while as we got into serious negotiations with the government. Our counsel advised us to suspend that for a while. With this release, we'll be able to get back in the market. And so, I think what you'll see is we will be opportunistic as we look at the share price and we look at our balance sheet just to do buybacks at the appropriate level. In terms of investing in return-generating assets, the best investment we can make is into our Chipotle restaurants. And I would not expect us to see – to do a stair-step increase in the opening, but you will see an increase over time. Our pipeline is building very, very nicely. And that's going to be a great return for us. We're also going to dabble in remodel this year as well. So, we've got several hundred restaurants that needed refresh, so that they're more digital forward. So, we're going to experiment with that. And if that goes well, which we're optimistic about, that will be another opportunity for us and I would expect that would be a return generating asset as well. We from time to time, Nicole, talk about dividends, but it's not really on the radar screen right now. We think that we're more in growth mode and opportunistic buyback of our stock and not dividend generating. That might change in the future, but right now we're not considering a dividend.

The only thing I would add is we have a billion-dollar digital business that continues to grow nicely. And where we see opportunities to invest and continuing to push the digital access in our business, we're going to do that because it makes a lot of sense for both performance today and performance in the future.

And just a follow-up, what's the practice on leverage? How do you feel about it? Would you deploy it?

No. Nicole, that's financial engineering. That's something that I think is more appropriate for a more mature slow-growing company. So, I would not expect us to put leverage on the balance sheet.

Excellent. Thank you.

Thanks, Nicole.

And our next question comes from Sara Senatore with Bernstein. Please go ahead.

Thank you. I have one question and one follow-up please. First on just menu innovation, you talked about the super greens performing in line with expectations. But if I think about carne asada, I think it's probably exceeded expectations, which is why you are bringing it back permanently and maybe was, we'd estimate, maybe much of a mid-single-digit mix or lift. So, how should we think about menu innovation going forward? Is that sort of a unique experience and we wouldn't expect to see these kinds of big hits or is it just that you could have more opportunities that would be as meaningful? And then, I have a follow-up please.

So, actually, we're really delighted with the carne asada performance. It's evidence that are our stage gate process towards innovation really is working. The thing that was great about carne asada is we stay true to our principles around Food With Integrity and bringing out great quality meat. And when the customers got to try it, they loved it and they came back for more. So, we're working right now to figure out, can we get a supply, so that we could make it permanent. And if we can secure that supply, then we probably make it permanent. But we haven't been able to finalize that point yet. So, customers loved it. The performance was great. As we figure out our supply scenario on this, we'll figure out the right time to bring it back. And if we can, we'll figure out a way to make it permanent. 's: And Queso Blanco is the most recent product that's gone through our stage gate process that now we are ready to bring this to market and replace our existing queso. I think we've mentioned we've been working on quesadillas and some beverages. So, the thing that's great is, I think we've got a cadence that's building. And as I mentioned before, we're not going to be moving to a place where we are doing something every 4 to 6 weeks. That's not our business. That's not who we are. You can expect us to do one or two of these initiatives on the menu because it's the right cadence for operators to execute really well and it's also the right cadence I think to give our customers the variety that they're looking for in our business. So, I love what's happening in our menu. And I love what's happening in our pipeline. And I think this stage gate process is proving to be a very effective tool.

Okay, great. Thank you. And then, my follow-up is just, I think in terms of the guidance, mid-single-digit comp. I think, Jack, historically, you've kind of guided to whatever the current run rate of volume that you're not assuming much of an acceleration. But is it safe to say that quarter-to-date you're still seeing kind of low double-digit comps? That would be the implication I think if I...

Yeah. The way I would say that, Sara, is that these dollar sales that we saw in the fourth quarter continued into the first quarter, but the comparison is different. So, yeah, the comps are strong. Just keep in mind, we'll have to compare to our 13.4% in the fourth quarter of next year. And then, when we run through the carne asada, we'll lose some check as well. The carne asada added about 150 basis points to the average check, so we'll see that as well. We're optimistic we'll keep all those transactions, but that will have a bit of an impact.

The only thing I would add to that is, we mentioned that the brand has got, I think, really excellent momentum. And I tried to highlight that in the script by talking about how we've seen trust and favored brand metrics really move forward. And so, I just want to make sure people understand. I think the reason why we had the quarter that we had is not because we had carne asada, and it was just one thing that drove this business. I really do believe our operations are running better than they ever have been. We saw an opportunity to be even better. But our operations are running better. They're running faster. The food is more consistent. We have lower turnover. And I think we've got better execution. If you think about all the progress on digital and then I think the progress we've made on allocating our marketing dollars, so that it is driving purchases without using discounting as the crutch. And then, obviously, layered on top, we had a nice menu innovation on carne asada. So, I just want to make sure people understand it's not a one trick here on why we've got 8 points of transaction growth and a 13.4% comp as a result of it.

The next question will come from Andrew Charles with Cowen and Company. Please go ahead.

Great. Thank you. Brian, you mentioned during the quarter an openness to work with other third-party delivery providers beyond the national partnership you have with DoorDash and also the agreement you have in place with Postmates. I'm curious, what would lead you to pursue working with other delivery providers? As well as, does your agreement with DoorDash indicate you would see higher commissions if you were to onboard another delivery partner? And then, I also have a follow-up for Jack.

Okay. Yeah, look, I think the reason why I said we're going to be open to it is, at the end of the day, we've got to give access to our customers where they want Chipotle, when they want Chipotle and how they want Chipotle. And I think the delivery channel is proving to be one of those access points. The relationship with DoorDash has been great. Working with Postmates has been great. We'll see how things unfold going forward. But I do think ultimately the delivery marketplace is not going to be an exclusive proposition. I think the delivery marketplace is going to be about giving customers access accordingly. So, we're continuing to talk to all the players. And when the right opportunity presents itself, we'll figure out whether or not we bring on additional players or not. But, yeah, we're open to it. And the real driver of it is we want to deliver on the needs of our customers.

Sure. And then, Jack, beyond if you would see a higher commission from DoorDash if you were to onboard another provider, looking at labor, it looks like labor dollars per store growth accelerated quite a bit. Our model is just about 10% growth, which is well in excess of the 4% to 5% labor inflation you called out despite the accelerated digital growth which is obviously more favorable for labor. What do you attribute this acceleration to? Is it the incremental benefits? Is it the greater number of crew members to handle the greater traffic? Just curious, for modeling purposes, how we should think about labor in 2020?

Yeah, it's traffic driven. So, if you just take a standard 10% increase in labor when we have 8% – keep in mind, we have 8% in terms of transactions, but we also had mix which means we're cooking more food as well. So, we only had a 2% price increase. So, the rest is more food, more customers that we're serving. It does take more labor. And so, our labor is more partially fixed, partially variable. Frankly, during the quarter, our labor performed the way that it should have. We saw 60 basis points of leverage even though we had about 140 basis points of inflation and then benefit headwind. So, we had to come up with couple of hundred basis points of leverage based on the price increase and based on the higher transaction. We also during the fourth quarter – keep in mind, we opened up a record number of restaurants. And so, that's another piece where, just with that alone, you're going to add labor, not just to staff the 80 restaurants, but we also have to train those folks before the restaurants open. And we tend to have an allocation or allowance for more labor hours early on in the first week or the first several weeks because people are learning and we don't know exactly what the sales are. So, there's a number of things why you see higher labor in the fourth quarter.

Thanks.

And the next question is from David Palmer with Evercore ISI. Please go ahead.

Thanks. And congrats on a great year. Interesting that your digital mix increased by 7 points in that fourth quarter. Your same-store sales growth was obviously a lot higher at over 13%. So, you can see how the new product news is letting you not lean as hard on delivery and digital order growth to drive the comp. Looking into this year, how do you see your growth contribution going forward? You mentioned a new product. But then again, you're also talking about ways to engage that loyalty member. And I have a quick follow-up.

Yeah, David. So, the way we're thinking about it is, marketing, combined with our CRM is a real opportunity to grow the business both with new users and existing users. And then, as we think about our digital business, one of the things that I'm really excited about is our order ahead business, as we continue to get people into our digital system, they really see the benefits of, one, joining the rewards program, but, two, just the convenience, the ease of access by using whether it's the website or the app. So, we believe there's going to be continued growth there. And then, obviously, I continue to believe that there is more growth just running our restaurants better. As we continue to improve on our throughput, that just basically continues to be a multiply effect, right? It's like, carne asada, the digital business, none of it will be nearly as effective if we don't have strong execution on the basics with our restaurant. So, I feel like every one of these calls, people are always like, what was the one thing and what's the one thing to drive comp going forward. I really continue to believe the strategies that we've outlined all contribute to our ongoing growth model. And we've got lease on – some will provide more at certain times of the year and others will provide more at other times of the year. But, in the end, that's why we had the year that we had, and that's why I believe we'll continue to perform going forward.

The quick follow-up on that is related to, I think, a conception that going into this year, you're going to be lapping free delivery windows. And you've done those margin dilutive ways to onboard consumers. And I guess the question I would have is, once you have them on board, I think you said 8 million strong, how do you convert them into more digital users? Or you feel like you can maybe have your cake and eat it too with margins and sales as you grow that digital user base? And I'll pass it on.

Yeah, yeah. Look, David, obviously, what you just articulated is how we want this to play out where we continue to invest to grow the database. The good news is, I think, going forward, it's going to be more balanced between invest in acquisition as well as kind of driving behavioral changes. And, as our digital business continues to grow, as Chipotlanes become more prevalent, we think there is opportunity for us to become even more efficient in how we provide people that great Chipotle experience. The one thing I would mention is, Jack said this at the very beginning, the bottom line is, we hold ourselves accountable to make the economic model consistent with what we've been talking about. You get to $2.5 million, we'll have 25% margins. And we think we see a clear sight of path on how that all happens through a combination of initiatives, and then just being really, I think, smart about how we manage the P&L accordingly. So, it's a great situation to be in where we've invested. And now, we are going to be able to take advantage of those investments in the digital space. But I think it also plays out in a lot of different ways that people access the Chipotle brand. So, obviously, we're very proud of where we are, but I'm really excited about where we're going, is kind of the summary.

Thank you. The next question will come from Lauren Silberman with Credit Suisse. Please go ahead.

Thanks. I wanted to ask about the loyalty program. So, now at the 8.5 million members less than a year after launching, what do you think makes Chipotle different than maybe some of the competitors as it relates to customer acquisition? And thinking about the trajectory of membership growth going forward, any color on kind of when you start to turn on more of the personalized marketing?

Yeah. Look, I think, Chipotle is a unique restaurant company. And any time we have found that we provide people the ability to have more engagement or more access, they want to be a part of that. And I think that's why the rewards program has had such quick adoption. I think it's a testament to the fact that we are committed to Food With Integrity, we've got a great value proposition, all the reasons why you love Chipotle. Okay? Now, the thing that's great is we have 8.5 million customers and the personalization really is just getting started. So, I'm already seeing some of our tactics going to the marketplace. And what's great to see is we're seeing it have an effect on just about every cohort that we're targeting. And we define those cohorts both on purchase frequency as well as, I would call it, lifestyle. And so, I think it's going to continue to be something we're going to want to invest to continue to grow. But at the same time, we're now taking that universe and really using it as a smart way to grow the business. And it's a hugely valuable asset and it's an asset we're going to really drive going forward.

Great. Just a follow-up to the digital sales growth. I think there is a perception that the majority is coming from deliveries, but the customers don't see the third-party platforms. Are there opportunities to convert them to the Chipotle digital ecosystem?

Yeah. I would tell you that's a little bit of a misconception. The thing that's great is, as we see people come into the digital system, we see really nice gains in our order ahead business. So, in the early days, obviously, delivery was on 8% growth rate, was one of the biggest parts of our digital business. But one of the things I'm really excited about is the progress we're making on the order ahead business. And delivery is proving to be just a great experience for people that maybe didn't have that occasion with Chipotle in the past. Now, they believe it's convenient, so they can have those occasions with Chipotle, both order ahead as well as delivery. So, it's working nicely as a system between rewards, order ahead, delivery and now the Chipotlane.

Great. Thank you.

Sure.

The next question is from Peter Saleh with BTIG. Please go ahead.

Great. Thanks for taking the question. I wanted to ask about the second make line. The second make line is digitized. The second make line is now in all the stores. Digital sales are now approaching 20%. So, are you starting to see some leverage on that second make line? Is there anything noticeable? Any which way that you guys can break out the contribution that you're seeing from our second make line now?

Look, I think we're going to be very smart about how we take advantage of that efficiency. Our most important thing right now is we want to give people a great digital experience. That's why we've invested in those digital make lines, we've invested in the – we're calling that – the digital portal pickup. The thing that's great is, we know the efficiency is there and we're going to be smart about how we implement that efficiency into the business, so that we don't affect our growth and/or the experience that the customer has. So, we're delighted that we're closing in on 20%. But that's not the end of this journey. That's just one of the stops on our journey to, I think, a much bigger business than where we are today.

Great. Thank you very much.

The next question is from Jake Bartlett with SunTrust.

Great. Thanks for taking the questions. My first one is on throughput. You mentioned an improvement in the peak hour throughput. I think you said 10% or maybe it's 10 seconds. Maybe I misheard. But if you could just remind us what that was and where you are in terms of throughput versus the kind of the low of your throughput. Trying to see how much you've improved since that low and maybe when that low was.

Yes. So, the 10% improvement is what I said. But, yeah, I think we talked about this as – at our peak, we're doing low 30s, mid 30s and the max 15. And unfortunately, that dropped to kind of the low 20s, mid 20s. And what I'm happy to say is, Scott and the team have really put a lot of focus on how do we get back to great throughput. And the more we have stability in the restaurants, the more we have consistency in our KPIs and what we're going to hold our teams accountable for, I think we'll continue to see this metric improve which just provides a better experience for our customer. But the way to think about it is we've had about a 10% improvement. And what I'm happy to say is, as we've moved into 2020, we continue to see the improvement. So, this is one of those things that builds on top of itself. And if you were to talk to any of our team members, they would all know throughput is a key pillar as well as having great food, great teams and having those restaurant staffed correctly. So, I'm really optimistic about where operations are going to take this metric going forward.

Great. I think of throughput as a key sales driver, but it also could be a cost savings. Is throughput part of what you talked about in your prepared script around just flow-through – better flow-through of profits in 2020? Is that going to contribute to kind of keep labor in check?

Yeah. It's part of it. The flow-through I'm referring to is kind of where Jack started this conversation in regard to – look, for every incremental dollar, we expect X% to flow to the bottom line. And then, that's how we hold the model consistent, so that when we do get to $2.5 million, we'll have 25% margins or better. So, it's not just one thing, but obviously that's a key indicator that we're running the restaurants correctly. You're not running the restaurants correctly if we're not going fast. And so, one thing we do know is a busy restaurant, a restaurant that's running quick is a well-run restaurant. The team members prefer working in that environment and the customers prefer getting their food in that environment. So, all really good stuff.

Great. And then, Jack, last question on G&A. You mentioned this kind of the underlying G&A and the guidance for the first quarter, I think you said $77 million to $80 million, if I got that right. That to me is up – it looks, versus the first quarter of last year, up about 9%, 10%. Is that the right run rate just in terms of the underlying G&A, that underlying G&A should grow that quickly. I was kind of more under the impression that you could kind of keep a mid-single-digit G&A growth longer-term.

I think that's right. Over the long term, I think that's about right. We started the transformation in this move about a year-and-a-half ago. And so, there's a few gaps that we need to fill. And so, that's why we want to make sure you guys saw what we are doing into the first quarter. So, I think more of a mid-single digit-ish in terms of underlying G&A. So, we will grow our G&A at a less than the sales rate, so we can leverage it. So, I think that's correct to think about it long-term. But keep in mind, as Brian mentioned, we're in the early days of digital. So, some of these resources – a lot of these resource, in fact, are making sure that we've got the right skill gaps, whether it comes to digital, whether it comes to some of the CRM and things like that. And so, we want to make sure we get ahead of those. But I think over a longer period of time, I think something more in that kind of mid-single-digit as opposed to a high single-digit is probably a good way to think about it.

Okay. And just to be clear. The first quarter should be higher than the rest of the year, should be more in line with the long-term or the whole year is kind of a year of investment?

Well, the whole year is going to be up because we're going to hire people and then they're going to be into the base.

Got it. Thank you.

The next question is from Dennis Geiger with UBS.

Great. Thanks. Brian, you talked about employee benefits and initiatives, kind of how that's been translating into operational excellence. Just kind of wondering if you could talk a bit more about building the talent pool, what that's meant for the quality of restaurants. Looking ahead, in particular, as you – I don't know if you still frame it as far as a restaurant, et cetera. Just the progress that you've made there on the restaurant pool. And then, just going one step further, thinking a little longer term around restaurant development, it feels like this has always kind of been the limiting factor from an employee talent perspective. Just how you're thinking about those benchmarks from a talent perspective to where you can kind of see a step change looking ahead from a store growth perspective? Thanks.

Sure, sure. So, look, I'll give you a little bit of example to bring to light the progress that I think we're making on the restaurant. So, I was actually in Denver just a couple of weeks ago. And Denver is one of our older markets. And I was visiting with our team director there, Alfredo Ponce, and he has got just terrific restaurant general managers. And this one young lady who is running one of our restaurants, she's had three consecutive quarters where she hit all the KPIs and her and her entire crew have all gotten bonuses. And she is on her way in the fourth – the first quarter, but she – she just walked in there, she's like – she wanted to show me her AB scorecard. It was all green, it was As everywhere. And the first thing she told me is like we're going to get our fourth quarter in a row of accrued bonus. And every one of those employees had a smile on their face. They were truly energized, truly engaged. And I give that just as one example of what I see as I now travel more and more across the country. Whether you're in Arizona, Boston, New York, we're seeing our team members I think just be more energized, more engaged and just super-proud of making a difference. It's hard to put a value on that. As part of this process, though, we ask them what does more support look like for you to be successful at Chipotle. And what they came back with is, look, tuition reimbursement is great, but I actually need a debt free program, like I need a program where I don't put myself in a place where I'm behind the eight ball and that's why…

Thank you.

The next question comes from John Glass with Morgan Stanley.

Thanks very much. First, just on the loyalty and program enhancements, Brian, that you're planning, how much work has been done? Are you ready to do sort of phase two and do more bespoke offers? Or is there more work behind the scenes that you need to do before you can do that? I know it's easier said than done. And when should we expect those more bespoke or personalized offers to start appearing?

Yeah, John. Great question. The bespoke or more personalized offers have begun. We're kind of rolling right now with it. So, it's going to be happening all year long, and I think as every week goes by, we're only going to get better at it. And I'm really – it's nice to see the work that's been done over the last year start to come to fruition in 2020.

All right. And then, Jack, just two margin questions. One is, you didn't mention in the labor commentary the cost of the bonus program. Can you just quantify what that may have been? I assume that's entirely variable, right? So, if comps were to moderate, some of that bonus goes away, so we shouldn't worry about labor dollars per store growth. It's going to be relative to comp growth. Is that fair as it relates to that bonus?

Yeah. We're not breaking out the dollar amount, John. I would put that into the category of the 4% to 5% inflation. That's the piece where I mentioned we have about 140 basis points of headwind in labor. So, that includes normal wage inflation, includes debt less degrees and includes the bonus program, all these things that Brian mentioned. Those are all in that. And I know that doesn't technically qualify as wage inflation, the way that you might think about it, but these are all things we're doing to make sure that we have the best workforce we can and that we engage them and that we keep them. So, that's all included in that number. And I wouldn't think of it as 100% variable, John, because there is qualitative figures in there as well. Sure, when sales are good, that means the margin is going to be good. And so, they'll be hitting those metrics, those other metrics as well that aren't as direct. So, I would call it semi-variable. So, generally, it's going to be tougher to earn the bonus. We don't have very strong sales, very strong margins, but it's not 100% variable to sales.

Okay. And then, just finally, you mentioned there may be a modest impact to comp on the loyalty program or deferred benefits. What does modest mean? How big could that drag be?

We had seen 30 and 40 basis points early last year, John. And as we've seen the program mature a little bit and people have earned their rewards, they're redeeming them and the redemptions are now offsetting the deferrals. And so, it will be, we think, in most quarters, it's going to be less than it was early last year when it was in the 30 basis points, 40 basis points. So, like this past quarter, because we also made a little adjustment on our breakage rate on chips and guac, there was no net impact. And so, I think in the future, it's either going to be very little to no net impact.

Got it. Thank you.

And the next question will come from Chris Carril with RBC. Please go ahead.

Hi. Thanks for taking the question. So, you noted the very strong productivity of recent openings. And I think they were described as the highest in company history. I know you mentioned earlier in the context of investment that we shouldn't expect large accelerations in openings. But given these really strong productivity results, does this potentially shift your thinking incrementally at all on development in the near to medium term?

Yeah. So, I think we've been sharing this with you guys is, the economic model and the availability of sites for Chipotle continues to be a huge opportunity. And we increased obviously what we're going to build in 2020, and I think we're going to continue – you're going to continue to see us I think accelerate that into the future years for two reasons. One, the economics support it, the customers want it. And then, the second key piece is, I think we now have our operations in a place where we're developing leaders to be ready to take over those restaurants. So, we want to be smart about how we continue to move forward on adding new units. The good news is the returns continue to be great. Our operations are running better. Our people development is in a much better place, and I think it sets the stage for us nicely to continue to grow from where we are right now. So, I see a future where we could get back to the 200 plus restaurants. It's just not going to happen this year.

Great. Thanks.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Brian Niccol for any closing remarks.

All right. Thanks. And thanks, everybody, for taking the time. Obviously, very proud of Chipotle for delivering what was a great 2019. I think we touched on each of our key strategies. The thing I just want to emphasize, everybody, is I believe you don't get these results without developing the right culture and the right people and I think that's happening in all facets of our business, whether it's operations, marketing, digital, HR, public affairs. I do believe we are building out a team that has world-class leaders in all aspects of this company, and those leaders are building a strong culture that's focused on cultivating a better world and developing future leaders, so that these strategies that I believe have a tremendous runway of growth can be executed flawlessly. So, I do want to say thank you to everybody for a terrific 2019. But as we mentioned earlier, these strategies are not just about 2019. They're about 2020 and well beyond. And we're confident Chipotle is going to continue to be a unique brand that provides a unique experience that will continue to drive and attract great people and a great culture. So, thanks for listening and we'll talk to you in a quarter. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.