Good day, and welcome to the Chipotle Mexican Grill First Quarter 2022 Results Conference Call. All participants will be in a 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 Adam Rymer, VP of Finance. Please go ahead.

Hello, everyone, and welcome to our first quarter fiscal 2022 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. 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 statements. Please see the risk factors contained in our annual report on Form 10-K and our Form 10-Qs for a discussion of risks that may cause our actual results to vary from the forward-looking statements. 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, Chairman and 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 will turn the call over to Brian.

Thanks, Adam, and good afternoon, everyone. Before I share our first quarter results, I want to express my gratitude for the 3,200 outstanding general managers and field leaders that attended our All Managers Conference in Las Vegas last month. It was our first time together in nearly four years, allowing us to celebrate our general managers as well as inspire and learn from one another as we codified our 2022 strategic priorities. It truly was great to be back together again. Chipotle's performance in the first quarter was strong despite challenges from the Omicron variant. For the quarter, sales grew 16% to reach $2 billion driven by a 9% comp, in-store sales grew by 33% over last year, digital represented 42% of sales, restaurant level margin was 20.7%, a decrease of 160 basis points year-over-year, adjusted diluted EPS was $5.70, representing 6.3% growth over last year and we opened 51 new restaurants, including 42 Chipotles. Although our restaurant margins remain bumpy due to inflation, we have the ability to be patient while costs are volatile, and the growth in pricing power to recover our margins over time. And I'm pleased to report that Q2 is also off to a strong start, fueled by Pollo Asado our most popular new protein to date. Our five key strategies continue to position us to win today while we create the future. These include: number one, running successful restaurants with a people accountable culture that provides great food with integrity, while delivering an exceptional in-restaurant and digital experiences; number two, sustaining world-class people leadership by developing and retaining diverse talent at every level; number three, making the brand visible, relevant and love to improve overall guest engagement; number four, amplifying technology and innovation to drive growth and productivity at our restaurants and support centers;…

Thanks, Brian and good afternoon everyone. Sales in the first quarter grew 16% year-over-year to reach $2 billion as comp sales grew 9%. Restaurant level margin of 20.7% decreased 160 basis points compared to last year and earnings per share adjusted for unusual items was $5.70 representing 6.3% year-over-year growth. The first quarter had unusual expenses related to our previously disclosed 2018 performance share modification transformation cost as well as restaurant asset impairment and closure cost slightly offset by a reduction of legal expenses, which negatively impacted our earnings per share by $0.11, leading to GAAP EPS of $5.59. As we look to the remainder of 2022, the remains uncertainty from macroeconomic impacts as well as COVID and make it difficult to provide full year comp guidance. Comps in April so far have continued right around the same 9% we saw in Q1. And while it’s difficult to predict the comp in Q2 due to these factors, assuming current sales trends continue, we expect it to be in the 10% to 12% range as we expect the comp to increase throughout the quarter. Our restaurant level margins continue to be impacted by unprecedented levels of inflation. Our Q1 margin was impacted by a higher level of commodity inflation than we expected, primarily from avocados, tortillas and dairy resulting in our Q1 margin falling below the nearly 22% guidance we provided on our last earnings call. To offset these rising costs, we increased menu prices over 4% at the end of the quarter. And looking ahead to Q2, we expect our restaurant level margin to be around 25%, which will benefit from a full quarter of the new menu prices and assuming we don’t see additional inflation above our current estimates. I’ll now go through the key P&L line items beginning…

Thank you. [Operator Instructions] And the first question will be from Nicole Miller with Piper Sandler. Please go ahead.

Good afternoon and thanks for the update. If I could just ask two quick ones, I guess, both really centered first on the top line. If the comp is set to improve through the quarter, is it basically saying you haven’t seen any pushback on price? And if I’m looking back in a year ago in 2Q, it looks like traffic comparisons ease as you exit the quarter? Is there anything else – is that what’s going on? And is there anything else we have to take into consideration in terms of a digital influence or a party size influence around mix shift?

Yes. I mean, obviously what we’ve seen is very little resistance to the pricing so far. And in regard to kind of entrees per ticket as our in store business goes up, I think it was up like 30-some-odd percent this quarter and kind of digital is held as a percentage. You’ll see some shifting number of entrees per ticket just because the in-store occasion is more of an individual occasion than the digital occasion.

All right. So that’s where you see a little give back in the mix shift, right, is around an individual order essentially versus a big party order?

That’s right, Nicole. Because our transactions actually are up, even though we had pricing that was in that about 10% range. Our transactions are up 5%, but our check is down 6%. That’s partly because of group size, which is the shift from digital to in-store that Brian talked about. And then also with digital, you tend to have attachment rates that are a little bit higher with things like queso, avocados, extra meat. And then we’re also comparing against Cauliflower Rice from last year as well. So those are all the things that drove the checkdown. But underlying transactions are healthy. And the price increase is sticking just as expected. We don’t see any resistance.

Okay. And so just a second and last question, I mean, that’s exactly what we’d be looking for any weakness you would observe in the consumer on price or other behavior. And it’s really just a reconciliation of the in-store. I could see one of the criticisms down the road, if the consumer does weaken or the macro, whichever way you want to take it, I’d be curious, if you’re underlying assumption with the development going to be a record setting year, you don’t have franchisees that slow you down. You don’t have landlords or lenders that slow you down. So if you feel the pressure on the consumer, will you slow that development purposefully to lower end of the range? Or will you just keep pushing through?

No. I mean, our plan is to grow and we think the strategies that we have and the results that we’re getting give us a lot of confidence to stay the course on our growth plans.

Yes. And Nicole, I would just add. I literally just had a conversation with Tabassum who heads up our Real Estate. We had a leadership meeting and she’s out in the field with her teams and we had that conversation saying, listen, there’s a lot of noise going out there. The market is under stress, interest rates are going up. But no matter what happens out there, we have a strong balance sheet. We know we have a strong economics and we’re in this for the long haul. So make sure your teams realize we’re not slowing down. If anything, if there’s opportunities because others do pull back, let’s take that as an opportunity to go faster, not slower.

Thank you.

Thank you. And the next question will come from David Tarantino with Baird. Please go ahead.

Hi. Good afternoon. Jack, I just want to come back to the Q2 guidance for my first part of my question. Could you just explain why the comp you expect to get better as the quarter goes on? Is it strictly related to comparisons or is it something else that you think...

There’s a lot going on, David, comparisons a lot of it. Easter shifted, we see a nice seasonally shift right after Easter and we saw the nice shift this past week. Easter last year was in the first week, it was like the third or fourth. So it was two weeks later. So we definitely saw that step up, which gives us confidence that now we’re in kind of a normal post-Easter phase. In the last week or so since Easter is behind us, we are seeing that step up. We’re seeing the full flow through of the menu price increase and we take those sales trends and then project them through the rest of the quarter. It gives us confidence that we’re going to step up from the approximately 9% that we’ve seen so far month to date in April up to that 10% to 12% guidance ranges that we gave.

Got it. Okay. That’s helpful. And then I wanted to come back, Brian, to your comments about throughput. I guess, this is one of the first calls you’ve highlighted that as a big opportunity in a while. Could you maybe give us a framework for where you are on the metrics you’re tracking versus where you used to be? I guess, prior to the pandemic, I guess, to frame up how much opportunity there is to really drive better throughput and potentially better sales through that attribute.

Yes. Sure. So if you kind of go back just to kind of set kind of like a range for you. In our best time period, we were kind of in the low 30’s per 15 minutes peak. And then I think you heard me talking about this before the pandemic, we were targeting to get back to the mid 20’s, high 20’s and we were making a lot of great progress where we were closing on the kind of mid 20’s. And now where we are is we’re closing back in to get back to those mid 20’s. So, still a lot of headroom for where we can grow from here. But the thing that’s been really nice is as we’ve gotten stability in the teams, the restaurants are staffed, we’re seeing performance in throughput and we’re also seeing great performance in our digital make line of being on time and accurate. So lots of opportunities on both of those, but to kind of give you the gauge we’re kind of in the mid 20’s on throughput and we’d like to get closer to 30% sooner rather than later. So lots of work to do, lots of opportunity though with it.

Great. Thank you.

And the next question will come from Andrew Charles with Cowen. Please go ahead.

Great. Thank you. Jack, if we look out past the commodity and labor inflation that’s weighing on the industry in 2022, you guys have previously talked about 27% plus margins when $3 million volumes are reached. Is this still realistic? Is this still a real realistic level that could be reached without having taken outsize level of pricing?

Yes. Andrew, listen, we still can get to that level. I mean the question is, when and how bumpy is it going to be between here and there. I mean, this really has been the most difficult period I’ve ever seen in terms of commodity month to month, quarter to quarter. But we know that we told in our guidance, we share that we expect to get back to the mid 20% range. And based on that volume to go from the current volumes in the $2.7 million range up to $3 million most of the flow through, most of the GAAP from the mid 20’s to get up to 27% will happen from flow through. And I think there’s going to be other efficiencies that we can find along the way, again, in a normal operating environment. So I still think that 27% is in play at that kind of volume.

Super that’s very helpful. And then Brian, I know we’re talking a lot on this call as dine in rebounds about priorities in place before the pandemic, where such as throughput. One question I have for you just on catering. Can we talk about the opportunity there and how Chipotle is positioned sees on that as gatherings are happening. I know May is obviously a high volume month for you guys for catering given Cinco de Mayo, given graduation parties. How is Chipotle set up to capitalize on this opportunity?

Yes. Look, it’s a great question. And I think it’s a great opportunity for us. The good news is we’re already seeing catering interests come back. And you mentioned you kind of got kind of the key events for a group gatherings coming up with graduation season. And the team’s done a great job I think of making our digital process a much easier process for people to do the catering. And then, we’ve got a team focused on how we continue to drive those group occasions going forward. So we think there’s upside for sure in it. It’s nice to see the consumer coming back to the occasion and I think we’re well positioned to continue grow in that space.

Very helpful. Thanks guys.

And the next question will come from Jared Garber with Goldman Sachs. Please go ahead.

Hi. Thanks for taking the question. My question’s related to the labor line. Wanted to get an update on where you are, I guess at staffing levels. And maybe I don’t know if the best way to frame that is versus pre-COVID or maybe more appropriate is where those staffing levels are versus how you’re expecting them to run right now, given the level of volume in the business? And then a follow-up on that. We saw last week in one of your releases that turnover was high. I mean, I’m sure it was you as the entire industry. But just wondering if there’s any way to frame, maybe how much incremental labor costs flowed through the system last year and are still are flowing through the system, given some of the incremental training costs and maybe some lower productivity from new employees.

Yes. So the first part of your question, I would say the good news is we’re in the call it 85%, 90% of restaurants being staffed at model, which is really tremendous. We’ll always want to strive for 100%, but being that 85%, 90% range is really something that would say is better than we were pre-pandemic just to kind of give you a gauge. Pre-pandemic, we’re probably more in the 80% range. Going forward, one of the things that we’re really happy to see actually is at the manager level and above we’re seeing more stability. So we’re seeing less turnover take place there. Usually, how that works then is that cascades into the crew. You are coming up on kind of a season where you’ve got some transition just with kids coming out of college and the end of the school year for people it’s just a shift in people’s working habits. So we do see some bumps in kind of turnover at that timeframe. But I really think we got a lot of strength in our management leadership and when you have strength in the management leadership that cascades into the crew. So we’re liking how we’re set up for kind of coming into the spring summer season.

Great. Thanks. And then Jack, I’m not sure if there’s anything on just thinking through labor productivity in the stores, as we think about the margins for the balance of the year and go forward.

Yes. Jared, I would say we’re in a – like a – I’d say a normal operating environment meaning our turnover is normal at the crew level. It’s better than normal for the past few years at the manager level. So that means we always have hours built into our P&L for training. And that works as long as you have a few people a month that you’re bringing on in terms of new crew to train. Now during a time like last year at about this time when we were losing more people, our turnover was up and it was harder to rehire that would put a lot of stress on the system, put a lot of stress in terms of training, put a lot of stress in terms of overtime. So there are stresses not just from how the teams are forming the customer experience, but also the stress on the P&L. And I would say, we’re back to business as usual right now. So I think other than the inflation that we’ve already taken on the labor line, I think going forward in terms of the training, the turnover exclusions, knock on wood seem to be largely behind us with Omicron. It’s business as usual with our hiring training and leading our crew.

Very helpful. Thank you.

Thank you. And our next question will come from John Glass with Morgan Stanley. Please go ahead.

Thanks very much. First just a follow-up. Where did wage inflation fall in the first quarter? Some of some of your competitors are starting to talk about some stabilization of wage growth. So it's not that it's getting better, but the rate of inflation is starting to go up. Are you experiencing that? Or is it still an inflationary, meaning accelerating quarter-over-quarter or month-over-month?

No, it was normal, John. It was more in kind of that mid-single-digit kind of range. I mean, remember, we took that big step up, that 15% raise back in the second quarter. And so, it's been more in the normal range, but it's on top of the 15% we already took.

Thank you. And Brian, you mentioned automation and this Chippy robot or whatever it is that that makes chips. How big an opportunity do you see this? I understand these are longer-term bets. But is there – how big an automation opportunity is there within Chipotle? Is this something that could have a meaningful impact over time on store margins? Are there more tasks you're looking at to automate? Or is this sort of a one-off and kind of an interesting thing to test?

No, look, I think there is a real opportunity frankly to make the restaurant be much more efficient. Obviously, Chippy is our first attempt. And we've worked with a lot of our employees to identify what are the tasks that they would love to see us bring automation to or AI, so that hopefully the role can become less complicated. And then I think there is just other places in the back of the restaurant where we have the ability to automate, whether it's on the digital make-line or other tasks. I think there is just tremendous opportunity for us to become even more efficient where it results in a better employee experience and also a better customer experience. And that's really the lens we're using on this.

And do you think that's years away or quarters away? And what's the time – as you look at where the technology is today? Or what's the time horizon which this starts to really materialize?

Look, I think the technology is very close in. The ability then to scale it and get it installed. That's what we have to learn. And we're getting ready to put Chippy into a restaurant and then we've got a lot of other initiatives in works at our Cultivate Center. So the technology is actually close in. The prototypes are close in. It's then putting it through the stage gate process and really understanding people's ability to scale up and then actually install, assuming it performs the way we think it's going to perform.

Okay. Thank you.

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

Thanks. A quick follow-up on the throughput opportunity you mentioned. Where do you often see the bottleneck if there is one or that maybe on the other side lead you to an initiative or an area of focus for you? Obviously, you're measuring people against this in terms of speed. But maybe there is a certain area in that, whether it's a kitchen or other. And I'm wondering also is your labor scheduling tool a part of this solution?

Yes. So it's twofold. It is having better deployment, which, obviously, the labor scheduling tool will help us with that. It also better informs our forecasting as well versus moving from just looking back over the prior four weeks and trying to project up prior four weeks. It's now using real-time information to project what's going to happen in the coming week. So what we see is a better forecast, which results in a better schedule. And then what it also helps us do is deploy correctly. And the reason why the deployment is important is we need people to be in their positions, right. And the most – probably most pressing spot is that expedited role, which is really in between kind of the last phase of making your bowl of burrito and getting to cash. And if the team isn't deployed correctly, but sometimes that's the spot that doesn't get the right support. And as a result, it kind of slows the line down. But obviously, it all has to work in concert, right. You need to have people that have had a lot of reps. They need to be trained to be able to move people down the line and make the bowls and burritos correctly. But it's the combination of those two things, having people in the right positions and arguably one of the most important positions is that expediter position, the way you get there is to make sure you got a right forecast.

And then I just – one about just insights. As we get into a little bit more of a mobile consumer environment and maybe people getting back to work, are there any sort of emerging realities that are surprising to you about perhaps your dinner staying were at higher levels, your lunch not coming back as quickly as you'd like, maybe competition taking share as they're reopening in certain trade areas, any insights there about the reopen.

No. The biggest thing I would tell you is the more we see people have mobility, the more we see our lunch business come back. And the nice thing is we've seen these new occasions whether it's a dinner occasion or a group occasion remain pretty sticky in the business. So I think the thing that is playing out is what people that have had experience with us for new occasions love the culinary and they're using us for these other occasions. And our rewards program, I think, is doing a nice job of understanding those journeys and then building the right engagement going forward. So mobility is a key piece of the puzzle because you want people out and about and you want people go into their office or going to their activity. That's how you get that restaurant experience back.

Thank you.

The next question will be from Jon Tower from Citi. Please go ahead.

Awesome. Just quick in terms of a – well, bookkeeping and then a question. In terms of the delivery mix in the quarter, I was wondering if you could comment on where that settled. And then just thinking about the labor situation going back to that point, I know obviously, you guys have made quite a bit of investment in your employees over time and have given them a nice path to make a lot more money over time, assuming they earn it in the system. But I'm curious, when you think about the investments that you made, do you think that's enough to keep people engaged into the balance of this year and going forward? Or do you foresee perhaps even more labor investment necessary in the future outside of just normalized inflationary spend?

Yes. Look, I think the one thing I want to emphasize on labor is what we've heard from people that are with our company. So they've been with us five, six, seven years, what they get excited about is all the growth because they can go from being an apprentice to a general manager to a field leader to a team director, regional vice president. And it's a reality because we're building 200, 300 restaurants a year. They know they have to be developing themselves and others, so that they can step into the next opportunity. That's where they get the greatest change in both, I would say, professional satisfaction as well as the wages that come with it. We do know we've got a very competitive starting wage, but what people get really excited about is where that starting wage can take them. And our company can take them really far and also really quick. So it's great that we have all the other benefits that I think separate us and continue to be consistent with our purpose of cultivating a better world. But when I've had the opportunity to get out in the field and talk to people, what they're really excited about is the fact that they're a part of a company that's committed to its purpose and committed to growth. And that growth is both for them as an individual as well as those that work around them. And that's what we're going to keep investing in. So we haven't seen a whole lot of pressure on the starting wage, where we are putting a lot of pressure is on making sure that we're developing our people, so they're ready for the growth.

Got it. And just delivery mix and then the second piece in terms of…

Yes, sorry, delivery mix is like low 20s, 20%, 21%.

Okay. And in terms of thinking about. Sorry about that.

No, no. Go ahead.

I was just going to ask about pricing expectations for the balance of 2022. Obviously, you just took a chunk recently. Curious if all else holds for the balance of the year based upon your expectations for wage rate inflation and obviously commodities appear to be all over the map. But at this moment, are you anticipating future pricing action in the balance of 2022?

You know, gosh, I really hope we don't have to take more pricing, but I'm going to kind of give you the same answer I've been giving you for the last, call it, 12 months, which is, if it moves and we can't find efficiencies to offset it, the good news is we've got the pricing power to make a move. I really don't want to be ahead of it. So I think a great example is probably what you just saw over this last quarter. Look, inflation continued to move in a big way. We saw it wasn't going away, so we had to take the pricing action that we did. And hopefully, that won't continue to be the case. But if it has to be the case, we have, I think, the organization, the people and the pricing power to do it, but it really is the last thing I'd like to do.

Got it. Thanks for taking the questions.

Thank you. And the next question will be from John Ivankoe with JP Morgan. Please go ahead.

Hi, thank you. I wanted to revisit some of the numbers that were in the ESG report that you guys published because it did look like some of the general manager and field level turnover was actually up 2021 versus 2020. Was that something that just happened maybe in the middle of the year as part of kind of the great resignation we've seen a significant improvement in trends? I guess did that surprise you in any way? And I guess how has some of that normally maybe slightly more stable, your employee base changed as we've come into 2022?

Yes, sure. So obviously, that's looking back at 2021. And yes, look, there were a lot of ups and downs with Omicron. There were a lot of ups and downs with wages. And obviously, that was a tough time to be running restaurants. There was a lot of situations where you were understaffed. And then it was very hard to get people to sign up to work. And the good news is we've made tremendous progress. Obviously, we've increased our starting wage. I think we've done a much better job of explaining the growth path at our company. And then illustrating that growth path by having 90% of our promotions come from internal promotion – internal employees. So that's why when you fast forward to 2022, we're in just such a better place with stability, definitely at the manager level. And then I think that will follow into the crew. So what the challenges were in 2022. I think we get them. And we're leaning into our purpose values and growth platforms to keep people excited about being at Chipotle.

And hopefully, this is an appropriate follow-up. But obviously, in the last six months or so, labor units have really become a very topical subject for companies that didn't quite frankly, even mention them for years of discussion of covering some of these means, both in the retail and the restaurant side. It's obviously great that you guys recently had in all manager conference that was just in March. I guess what can you do? I guess you'd kind of always stay in front of that issue and maybe de-risk that from a Chipotle perspective? Again, hopefully, that's a perfect question to ask in a public call.

Yes. Look, I mean, what we're committed to is developing our people and growing people that want to be at Chipotle. And the best thing we can do is make sure that they're trained, so that they're successful in their job, and then that we give them a culture and a leader that develops them so they realize they have the growth opportunities at Chipotle. And that's why – look I can't remember who asked the question, but it's kind of – hopefully, you're not surprised by my answer when you asked like, well, what's next after Chippy. Well, the answer is we talk to our employees to find out what would be the tasks that would make sense for us to automate in the restaurant to make the employee experience better because we know if the employee experience improves, we'll have better retention and also we'll have better execution than for our customers. And so we really spend a lot of time communicating and taking action on how we can improve the employee experience. And then we spend the time developing our people. And you mentioned, we just had this all manager conference, right. I mean, it was electric man. It was so great to have all our leaders in one place understanding the future of Chipotle and how they play such a critical role. And we had the opportunity to have everybody in the room stand up that's been promoted over the last four years and you know what, almost every person in the room was standing up. I don't think there are many places where that happens, so we have to continue to stay committed to our purpose, our culture and the development of our people. So that when you end up at all manager conferences, and you got just about everybody in the room standing up because they've been promoted or they've developed others that have gotten promoted so that's what we're focused on. That's our proposition. That's who we are. If you want to be a part of that we're going to be building lots of restaurants that present an opportunity for you to be a part of it.

That's great. Thank you.

The next question is from Dennis Geiger with UBS. Please go ahead.

Great. Thank you. Jack, I wanted to ask another one on margins and thinking about cost pressures over the balance of the year. Great insights on the 2Q and kind of getting back to that mid-20s level already and recognizing there's a lot of moving pieces through the year, but is there any additional color that you could share even at a high level in thinking about back half restaurant margins with respect to food inflation? I guess particularly in light of how Brian, just spoke to pricing philosophy, if there's anything you can add at a high level there?

Yes. We – again, we just had at our leadership meeting, of my group, we talked to Carlos, our Head of Supply Chain and there's nothing we can see on the horizon that says, things are going to retreat, that things are going to go down, but things have at least for the time being stabilized. So that's what right now we can hope for as a stable environment, we do expect there's going to be an inflection point at some point. The pressures of getting some of our like packaging, for example, in from overseas, the pressure that some of the suppliers are having, whether it's from a labor standpoint or just from a cost standpoint for their input costs, what we can hope for is that, that they don't step up from here. They stabilize. And at some point they just kind of normalize in the future, but right now, if I was going to build a model, I would not build in a reduction in food cost for the fourth quarter, it looks like it's more going to be something in 2023 before we see that.

Great. Thank you. And then just one quick one, apologies if I missed it, but could you guys speak to kind of the percent of the dine-in sales or traffic that have recovered at this point, I don’t know if you can touch on kind of that overlap with digital, that digital dine-in customer. And then related to that, just how exciting the further dine-in recovery can be here as it relates to how low that that overlap is, if there's any commentary there. Thank you.

Yes, look, I think one of the things we mentioned was our in-restaurant sales increased by 33%, while digital remained roughly 40% of our business, right. And one thing that I mentioned earlier in the call is as we continue to see people increase their mobility, I think we will continue to see gains in the in-restaurant experience. And I don't see these digital occasions just disappearing. I think they're going to continue to play their role and we're working hard on keeping digital to be frictionless and just completely intuitive. And then at the same token, we're working hard on having great throughput with great culinary and the good news is there's a lot of room to grow in both of these things. That's why we're optimistic, we'll get to 3 million AUVs. And while we do that, we're going to build a lot of restaurants. So I think we're in a really good spot. And obviously I'm excited for, hopefully COVID staying behind us and inflation stabilizing, and hopefully in 2023 maybe you can see some improvement on that front. But regardless, I think we've demonstrated we've got a business, a brand and an organization that can handle it all.

Great. Thank you very much.

The next question is from Lauren Silberman from Credit Suisse. Please go ahead.

Thank you for the question. Jack, I think you had mentioned new store productivity at record levels. Can you just provide an update on where new unit productivity and cash on cash returns are running today?

Yes. The productivity's been in that kind of mid-80s to high 80s, depending on the quarter, it may have touched like 90% from time to time. And what I mean by that is that's the percentage of mature restaurants of our comp restaurant when we deliver those kind of openings, sales, when most of them are Chipotlane, which is more efficient than a non-Chipotlane. Our cash-on-cash returns are in the 40%, 45% range out of the box. When you put a couple years of comp on that, as they basically close the gap and get very close to our average volumes, our comp restaurants, we're talking about returns in the 60%, 65% returns within just a few years.

Great. Thank you for that. And just on menu innovation, can you talk about how you are thinking about menu innovation for the rest of this 2022 and specifically just how you're thinking about opportunities for innovation around proteins versus other parts of the menu?

Sure. I think we've kind of established a pretty good cadence here where we do, call it two to three menu initiatives a year. And we have a few protein initiatives in place that, I'm sure you'll see in test. And then we're continuing to work hard on trying to figure out a dissert proposition or another call it add-on item, right. So to compliment how we have guac on, 50% of our transactions, I think queso on like, what is it, 20 some odd percent something of our transaction. So it's like if we could find another add-on like that, whether it comes as a dessert or in that space, like a queso guac, you'll see us continue innovating in those areas. But we think we've got a lot of room to still I think excite and engage customers with the chicken steak plant-based solutions and at the same time look at these other add-on opportunities.

Great. Thank you guys.

Sure.

The next question is from Brian Vaccaro from Raymond James. Please go ahead.

Thanks and good afternoon. Question was on the commodity inflation backdrop and sorry if I missed it, but Jack, what was inflation on the basket in the first quarter?

Yes, it was in that like 12% to 13% range. Again it's the highest inflation I've ever seen.

Yes, I guess…

Hopefully we've seen the last of it. Like I said, in a few comments ago, things have stabilized for now. If you get one month in a row, that's stabilized, that's a start, but let's see what happens the next two or three months to see if we see stable costs.

Right. And if you did see that stabilization sort of hold, would you start to see that year-on-year inflation moderate into Q4 or at this point, are you just thinking, we'll be in the low teens for now, until that dynamic changes?

Yes. I mean, listen, as you go throughout the year, if it stabilized completely that 13 is going to tick down as we compare to some of the inflation we saw last year, but most of that 13 is going to be with us for the rest of the year. I think importantly is the food cost that we talked about being in kind of that 31% range if commodity costs stay stable, we should stay in that range for the rest of the year. And we know that our margin, we have our full margin potential ahead of us, if we keep our food costs in that like 31% range. So knock on wood that things stabilize to make pricing increases we've taken so far will give us that margin potential that we know is possible.

All right, great. That's helpful. And then on the comps, could you just level set, if you don't take additional pricing, where would effective pricing be over the next couple quarters? And then on mix specifically, does that start to normalize now on a year-over-year basis? I know we're kind of, there's been some funky comparisons on the mix front, the last four quarters now it seems, does that sort of flatten out next several quarters?

Yes. Well, on menu prices, they'll step up a bit in the second quarter. So we'll move from like call it a 10, 10.5 to like call it a 12.5, something like that. Then it steps down to a little under 10, then it'll step down in the fourth quarter to like in an 8.5. Mix, it just depends on the mobility that we talked about before, mix for the foreseeable future is going to be at this lower check size, because we're comparing to – last year where most of the year, a good part of the year still had very heavy digital. I mean, we did start stepping down near the end of the year. So I think you're still going to see like year-over-year, the group size is going to be lower. There's going to be relatively, in terms of a percentage growth, like we saw 33% growth in in-restaurant versus digital. I think you'll see some numbers like that. So I still think you're going to see some distortion where the group size is getting smaller and you're going to see transactions grow while the average check, excluding menu price increase is going to decline a bit, but we'll keep you guys updated each quarter on what those components are.

All right. That's very helpful. Thank you. I'll pass it along.

Operator, is there one more question? Hello?

Well, I don't know if we're having technical trouble. We can't hear the operator or anyone else. We're about at the end of the time. So Brian, I don't know if you want to make a closing comment.

Yes, sure. So I'll just close this real quick. Thanks for taking the time. Thanks for the questions, obviously very proud of our results in the quarter. Very proud of the work that's been done today. I think the one thing that's worth reminding people, there's a few things that haven't changed, right. We have a great brand, we've got a great culture. We've got a unique purpose around cultivating a better world. And we've got tremendous growth in front of us both within the existing restaurant, between the combination of our in-restaurant opportunity and our digital business, as well as adding additional restaurants across the country. And one thing that I'm confident about is our culture. Our people will capture the upside for this business and continue to drive growth going forward. So thank you for taking the time. And I look forward to talking to you next quarter. Take care.