Earnings Call Transcript - CMG Q1 2026

Operator, Operator

Good day, and welcome to the Chipotle Mexican Grill First Quarter 2026 Results Conference Call. Operator Instructions: Please note this event is being recorded. I would now like to turn the conference over to Cindy Olsen, Head of Investor Relations and Strategy. Please go ahead.

Cynthia Olsen, Head of Investor Relations and Strategy

Hello, everyone, and welcome to our first quarter 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. Additionally, supplemental investor information is available on our site as a reference for today's call. 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 in our Form 10-Qs for a discussion of risks that may cause our actual results to vary from these 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 Scott Boatwright, Chief Executive Officer; and Adam Rymer, 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 Scott.

Scott Boatwright, Chief Executive Officer

Thank you, Cindy, and good afternoon, everyone. Before we share our first quarter results, I want to begin by recognizing the extraordinary people who bring our purpose to life every day in our restaurants. Last month, we held our all Managers' Conference, bringing together nearly 5,000 restaurant and support center leaders. The energy was incredible as we celebrated their achievements, reinforced our commitment to developing world-class people leaders and sharpened our focus on delivering exceptional food and hospitality. I have seen that same energy in my recent visits with restaurants that are clean, well staffed and run by revenue crew members and executed at a high level with culinary that is outstanding. This is the standard our guests expect and it is exactly what we intend to deliver every day across Chipotle. More importantly, it gives me confidence that the work we are doing is taking hold where it matters most, which is in our restaurants. Now turning to our results. Our first quarter performance exceeded expectations, and we are encouraged by the early momentum we are seeing in our Recipe for Growth strategy that is gaining traction and positioning Chipotle to win in any environment. For the first quarter, we delivered revenue growth of 7.4% to $3.1 billion, including positive comparable sales and a return to positive transaction growth. In addition to improvements to in-restaurant execution, this performance was supported by the high protein line, the return of Chicken Al Pastor in stores and the launch of cilantro-lime sauce, all of which helped drive incremental transactions. We also continue to invest in value through our gas pipe pricing and low inflation because we believe reinforcing our value proposition is the right thing to do in this environment. Adam will take you through the financial details, but overall, we are encouraged by the momentum we are seeing, which has continued into April. Our Recipe for Growth strategy is built around what differentiates Chipotle and where we see the clearest path to stronger restaurant performance and long-term growth. As a reminder, the five pillars of our strategy include: connecting and strengthening the core by driving operational and culinary excellence to deliver exceptional value for our guests; modernizing our business model with industry-leading technology, including leveraging AI and relaunching our rewards program to elevate the experience for our guests and our teams; evolving the brand messaging and accelerating menu innovation and new occasions that drive demand in our restaurants; cultivating the best talent in the industry, energized and focused on speed and agility; and expanding our global reach by scaling with intention to improve company-owned and partner operating markets as well as strategic new regions. Starting with protecting and strengthening the core. We continue to roll out our high-efficiency equipment package, including the high-efficiency oven, 3-pan rice cooker and high-capacity fryer. For crews who are often in as early as 6:00 a.m. to prepare fresh food every day, these tools are a game changer. They help teams complete prep on time and be fully deployed for peak, while also improving the consistency and quality of our culinary and creating more capacity to meet higher levels of demand. The equipment is now in over 600 restaurants, an increase of 250 versus the prior quarter, and we are on track to reach 2,000 by year-end. For now, we are reinvesting the time savings from the equipment back into our restaurants to strengthen throughput and hospitality. And in markets where it has been rolled out we continue to see benefits translate into hundreds of basis points of improvement in comparable sales. Hospitality was a central theme at this year's all-manager conference because we know today's guests are more discerning than ever, and we need to be just as focused on how we make people feel as we are about the food that we serve. At Chipotle, this means extraordinary food, a clean restaurant, fast and accurate service and friendly teams that make every guest feel local. As part of this initiative, we are testing a new mystery shopper program to provide an independent view of our operations and validate our efforts. At our all Managers' Conference, we brought our focus on hospitality to life through on-stage competition that recreated the in-restaurant experience using real make lines, real food and guests moving down the line. Each region competed on throughput, accuracy and hospitality, and throughout the competition, we highlighted best practices our leaders could take back to their restaurants. This powerful visual of what great execution looks like supports GM learning in the most meaningful way. I want to congratulate our Mid-Atlantic region, which won the challenge. More importantly, the energy in the arena was electric and reinforced that our teams came out of AMC energized, ready to execute and committed to providing great hospitality. Turning to our second pillar. We are moving with speed to leverage technology and innovation to improve the experience for both teams and guests. Here are a few examples. First is our new digital makeline display we call Chipotle Kitchen, built by Chipotle for Chipotle. It is designed to enhance accuracy, speed and consistency. Unlike our prior text-based display, it uses clear visual cues for ingredients and makes it easier to introduce and integrate new menu items. This improved interface simplifies execution for our teams and reduces the potential for error during peak demand. It is now live in over 100 restaurants, and we anticipate completing the rollout across all locations by the end of the year. While still early, we are already seeing meaningful improvements in on-time performance, digital order accuracy and customer satisfaction. Second is leveraging AI and our restaurants to further support our teams. Avocado, our AI assistant, continues to deliver real benefits by streamlining hiring and freeing up more time for our managers. Now we are expanding Avocado's capabilities to assist our general managers with operational insights, scheduling, shift planning and operational guidance. We are also enhancing our facilities capabilities to triage equipment issues more quickly, reducing downtime and improving restaurant performance. These enhanced capabilities received a standing ovation in our all managers conference and we anticipate having them in stage-gate by the end of the year. Finally, our zip line pilot for drone delivery is showing encouraging early results, and we plan to expand the pilot to several more restaurants in the second quarter. Taken together, these efforts reflect the speed and breadth of innovation happening across the company, all in service of helping our teams perform at their best and give our guests more reasons to choose Chipotle. Moving to our rewards refresh. We have an all-new look and feel, designed to widen the funnel, deepen our connection with guests and accelerate engagement. In 2025, loyalty comps meaningfully outpaced non-loyalty, reinforcing the power of the platform and the opportunity ahead. This next evolution builds on that momentum through expanded choice, increased gamification and enhanced value. One of the best opportunities to widen the funnel is in our in-restaurant business, where only about 20% of transactions are currently linked to rewards compared to nearly 90% of app transactions. This month, we launched an in-restaurant campaign featuring menu panels and QR code signage to make enrollment more seamless and support our goal of driving further engagement. We also incentivized our team to promote the enhanced program to guests in restaurants. So far, we are seeing strong results with nearly a 25% increase in daily in-restaurant enrollments. And we are in the process of creating a single-scan feature within our mobile app, allowing guests to both earn points and pay in one step, further reducing friction. Now shifting to marketing and menu innovation. Our value proposition remains industry-leading and differentiating: delicious food made with high-quality ingredients, prepared fresh using classic culinary techniques and served with generous portions at a speed and price you can't get anywhere else. This year, we've increased the cadence of menu innovation, beginning with the high-protein line campaign, which broadened awareness across the full menu and the value we offer. Add-on protein reached nearly one-quarter of all transactions and has remained elevated, reinforcing Chipotle is the go-to destination for high-quality clean protein. We also recently wrapped up the return of Chicken Al Pastor, the first limited time offering we plan to launch this year. Our guests were excited to have it back and we saw strong momentum following the launch as it drove incremental transactions. Last month, we rolled out cilantro-lime sauce which is prepared fresh daily in our stores using chopped jalapeños that are roasted on the plancha and then blended with cilantro and lime and spices to create a creamy, bright sauce with citrus and a little bit of a kick. It was our first limited time sauce on the make line and the first launched with multiple size options, delivering higher incidence than both Red Chimichurri and Adobo Ranch. Yesterday, we brought back Chipotle Honey Chicken, a fan favorite that delivers a balance of smoky heat from Chipotle peppers and a touch of sweetness from pure honey and is one of our best sellers with the highest order rate. As we look to the back half of the year, we will have two more LTOs and additional innovation planned around sides and beverages that we feel confident will keep Chipotle top of mind with our guests all year long. Shifting to group occasions. Following encouraging results in our initial Chicago catering pilot, including the launch of a third-party delivery platform, we have expanded the program into Boston. Assuming we continue to see similar guest response and strong execution in the restaurants, we expect to begin a broad rollout toward the end of the year. Build Your Own Chipotle, our family or group occasion for four to six people, continues to resonate with our guests. Because the occasion has proven highly incremental, we are now testing a sharper pricing architecture and leaning into key marketing moments to build awareness. Today, catering and Build Your Own Chipotle together represent over 2% of combined sales, yet we continue to believe they could become a double-digit percentage of sales over time and a meaningful growth layer for the brand. Now to our fourth pillar, our people. We remain focused on strengthening our position as a people-first company by developing world-class leaders and creating opportunities for growth. At the end of the day, our growth story is ultimately a people story. And we continue to see Chipotle change lives in meaningful ways. At our All Managers Conference, we celebrated a number of inspirational journeys, including one leader who joined Chipotle 17 years ago, looking for a steady job to support her family. She started as a crew member and has developed into a certified training manager. Along the way, she raised her children, built financial stability, including purchasing a home with proceeds from employee stock grants and discovered a passion for coaching others. When she talks about why she loves Chipotle, she points to the pride in serving real food she believes in and enjoys seeing people she trained move into leadership roles. Stories like hers are what make Chipotle special. They show that our purpose to cultivate a better world comes to life in a powerful way through serving real food, creating real opportunity and helping grow the next generation of leaders. And because developing strong restaurant leaders is so critical to our success, we remain deeply focused on the general manager role and the pipeline behind it as we improve the role of our GMs and refine our apprentice program. The good news is that general manager turnover remains at historically low levels and stability is at a multiyear high. Against that backdrop, one of our priorities is ensuring that lunch and dinner each have manager coverage so that our restaurants are positioned to execute at the highest level during the busiest parts of their day. At the same time, we are aligning the apprentice role around a designated focus on hospitality. Our early read shows that this combination is improving execution while also strengthening the bench for the next phase of growth. I want to provide an update on how we are restructuring leadership to support our Recipe for Growth strategy. We are thrilled to welcome Fernando Machado as our new Chief Brand Officer. Fernando is an award-winning globally recognized brand leader. His experience includes 18 years at Unilever and more than 7 years leading marketing across Burger King, Popeyes and Tim Hortons at Restaurant Brands International, where he helped drive double-digit system sales growth and significant brand value expansion. His proven track record of building iconic brands, driving category-defining innovation and leading customer-centric marketing strategies is exactly what we need as we continue to elevate our brand, deepen guest loyalty, highlight the value of our real food and accelerate our long-term growth. We are also excited to welcome Arlie Sisson to Chipotle in the newly created role of Chief Digital Officer. Arlie has a strong track record of leading digital, data and loyalty at scale, most recently at Hyatt, where she led a global organization of more than 400 team members and advanced their digital and rewards ecosystem to drive stronger guest engagement and revenue growth. We believe she will play an important role in accelerating our digital platform and strengthening the connection between our guests and our restaurants. Together, this investment in talent will strengthen our leadership team and fuel our strategy. Finally, to our fifth pillar, expanding global access. Starting with our partner-operated restaurants in the Middle East, the well-being of our partners and their teams remain our top priority, and we are grateful that everyone is safe. Given ongoing geopolitical conditions, we expect some delays related specifically to restaurant openings in the Middle East this year. This may result in fewer partner-operated openings than anticipated. However, our long-term outlook for the region remains unchanged, and we continue to see the potential for hundreds of restaurants in the region over time. Outside of the Middle East, we continue to anticipate partner-operated openings in our new markets in Mexico and South Korea this year, while Singapore will likely open in 2027. In the U.S. and Canada, we opened 49 new restaurants in the first quarter and remain on track to open around 350 for the full year, with approximately 80% including a Chipotlane. New restaurant economics remain consistent and strong, and we are confident in our ability to reach 7,000 restaurants over time. In Europe, we recently opened a new restaurant at Westfield Stratford, one of the U.K.'s busiest shopping destinations, and it delivered our strongest opening day sales in the region's history. We now have 29 restaurants across Europe and anticipate at least one additional opening in Frankfurt this year. Momentum in our European business continued into the first quarter with positive comps across all countries. This performance reflects our ongoing alignment with North American standards across culinary, training, systems and operations. We are further strengthening our foundation for future growth and continue to believe Europe represents a meaningful long-term opportunity for our company. To close, I want to reinforce the leadership culture that defines Chipotle. Our teams are energized, aligned and ready to execute, and this is showing up in the positive momentum we are seeing in the business. We know what it takes to win: be brilliant at the basics, stay close to our restaurants and guests and deliver exceptional food and hospitality with consistency every day. This is how we strengthen our value proposition and bring our strategy to life one guest, one team member and one restaurant at a time. I've never been more confident that we have the right team, the right strategy and a very long runway ahead as we continue building Chipotle into a global iconic brand. I will now turn it over to Adam.

Adam Rymer, Chief Financial Officer

Thanks, Scott, and good afternoon, everyone. Our first quarter performance is an early indication that our Recipe for Growth strategy has started to translate into real results. We are seeing progress across the initiatives Scott outlined while continuing to manage the business with discipline. Our approach remains clear: reinforce guest value, support transaction-led growth and preserve the long-term strength and flexibility of our economic model. Turning to the quarter. Sales grew 7.4% to reach $3.1 billion, driven by a comparable restaurant sales increase of 0.5%. Digital sales of $1.2 billion represented 38.6% of total sales. Restaurant-level margin, adjusted for a 40-basis-point legal settlement, was 23.7%, down 250 basis points year-over-year. Adjusted diluted earnings per share were $0.24, representing a 17% decline versus last year. And we opened 49 new restaurants, including 42 Chipotlanes. As Scott mentioned, our first quarter performance was ahead of our expectations. We saw strength following the high-protein menu launch, the return of Chicken Al Pastor and the launch of cilantro-lime sauce. For the whole year, our comp guidance remains about flat. Although we are trending higher than our guidance as our initiatives continue to gain traction, our guidance reflects a conservative outlook given the dynamic consumer environment. As it relates to pricing, we ran just under 1% in Q1 and anticipate pricing will be about 1.5% in Q2. For the full year, we continue to expect it to be in the range of 1% to 2%. Before I walk through the P&L, I want to highlight a few encouraging trends we are continuing to see in menu innovation and rewards. Starting with menu innovation, our protein limited time offers typically generate a few hundred basis points of transaction lift over the life of the promotion. The biggest benefit occurs during the first few weeks as we see increased frequency as well as more new guests. Also, we sustain part of this comp lift longer term as many of our new guests continue to dine at Chipotle after the limited time offer ends. Sauces are showing a similar path. Beyond the mix benefit, they are effective in attracting new guests and increasing frequency. Taken together, these results reinforce that menu innovation is not simply a short-term sales driver, but a meaningful contributor to building our guest volumes over time and a core pillar of our Recipe for Growth strategy. And for rewards, we continue to see clear evidence that deeper engagement builds loyalty and drives comps. Loyalty-driven comps have now outpaced non-loyalty comps for several consecutive quarters, and the gap is widening. In the first quarter, loyalty as a percent of sales reached 32%, up 300 basis points versus the first quarter of 2025. That reflects both growth in active members and higher frequency among existing members, driven by programs like Summer of Extras and the expansion of Free. With the launch of our new rewards features, we are enhancing the benefits our guests already love while working to bring more in-restaurant guests into the program. I will now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 29.6%, an increase of about 40 basis points from last year. The benefits of lower dairy and avocado prices and menu price increases were more than offset by inflation, primarily in beef and freight as well as higher produce usage. Relative to our guidance, avocados remained favorable due to a better-than-expected crop in Mexico. For Q2, we anticipate cost of sales to step up sequentially to about 30% of sales as the protein mix benefit and modest pricing leverage will be more than offset by higher costs across several items, most notably avocados, dairy and beef. Overall, we anticipate cost of sales inflation to be in the mid-single-digit range in the second quarter and will step down into the low- to mid-single-digit range in the second half of the year as we lap elevated beef costs. This results in full-year cost of sales inflation of around 4%. Adjusting for 40 basis points related to non-GAAP legal contingencies, labor costs for the quarter were 25.7%, an increase of about 70 basis points from last year. The increase was driven by wage inflation, lower average restaurant sales volumes and higher benefits expense, including performance-based bonuses, partially offset by the benefit of menu price. For Q2, we expect our labor costs to be in the low 25% range with wage inflation in the low single-digit range. Other operating costs for the quarter were 15.6%, an increase of about 120 basis points from last year, primarily driven by higher marketing, utility and delivery costs. Marketing costs were 3.4% of sales in Q1, an increase of about 40 basis points from last year as we increased our marketing spend in the quarter to support menu innovation and to remain top of mind with our guests. We expect marketing costs to be below 3% of sales in Q2 and for the full year. For Q2, we anticipate other operating costs to be in the high 14% range. G&A for the quarter was $204 million on a GAAP basis or $198 million on a non-GAAP basis. Excluding $3 million related to net restructuring costs associated with our Recipe for Growth strategy and certain legal contingencies and $3 million related to retention and equity awards granted to key executives in August of 2024, G&A also includes $142 million in underlying G&A, $24 million related to noncash stock compensation, $5 million related to payroll taxes on equity vesting and exercises and $27 million related to our All Managers' Conference, which was held in March. We expect G&A in the second quarter to be around $181 million on a non-GAAP basis, which will include $151 million in underlying G&A as we invest in technology and people to support our ongoing growth, and around $30 million in noncash stock compensation, although this amount could move up or down based on our actual performance. Depreciation for the quarter was $97 million or 3.1% of sales. For 2026, we expect it to remain around 3% of sales. Our effective tax rate for Q1 was 25.4% on a GAAP basis and 25.3% on a non-GAAP basis. For fiscal 2026, we continue to expect our underlying effective tax rate to be in the 24% to 26% range, though it may vary based on discrete items. Our balance sheet remains strong as we ended the quarter with $1 billion in cash, restricted cash and investments and no debt. During the first quarter, we purchased $701 million of our stock at an average price of $36.14 and at the end of the quarter, we had $1 billion remaining under our share repurchase authorization. To close, I want to reiterate what makes Chipotle a special brand. We are able to invest in the highest-quality ingredients, offer accessible price points and still deliver industry-leading economics, a combination that is very difficult to replicate. Our Recipe for Growth initiatives further strengthen these advantages by sharpening execution, deepening guest engagement and continuing to build long-term demand for the brand. With a strong balance sheet, clear priorities and the team energized to win, we believe Chipotle is well positioned to build on that momentum to continue creating long-term value for our guests, our teams and our shareholders. And with that, I am ready for questions.

Operator, Operator

Operator Instructions: The first question today comes from Danilo Gargiulo with Bernstein.

Danilo Gargiulo, Analyst (Bernstein)

I'd like to start with a quick clarification and then the question. It seems that you have suggested some encouraging trends also in April. So I was wondering if you can help us quantify what you're seeing quarter-to-date in the early weeks. And the real question, maybe, Scott, for you is: very exciting that you're hiring Fernando Machado. And I'm wondering what specific elements of his past broad-based QSR experience you're expecting him to bring into Chipotle?

Adam Rymer, Chief Financial Officer

Yes, I'll start, and then I'll pass it over to Scott. So Danilo, yes, specific to April, we saw a nice step-up in April. Part of it was the Easter shift. Easter was about two weeks earlier than it was the prior year, but a bigger part of it was the launch of cilantro-lime sauce. It's really done an amazing job. It's actually outperforming Red Chimichurri, which was our most popular sauce up until that point, and the incidence is about two times. And then, of course, the rewards relaunch. So we believe all of those things contributed to a nice step-up in April.

Scott Boatwright, Chief Executive Officer

Danilo, thanks for the question. As you can imagine, we went on a very comprehensive search for the exact right individual, and we found that in Fernando. And I'll tell you, beyond his deep global brand-building experience, his numerous awards and accolades, what he has accomplished in his career is really unprecedented. What I admired most in my conversations with Fernando, even the earlier conversations where we met several times before we made the decision to partner, is his thinking about Chipotle, his love for the brand, his affinity for the organization, his love of high-quality fresh food and great culinary. He's always been a fan, albeit from a distance, of our great brand. Hearing him talk about what he has seen from our advertising historically and where he would take it to the next chapter was groundbreaking for me. It was an easy decision. He is an incredible marketer and he will do well here at Chipotle Mexican Grill.

Operator, Operator

The next question comes from Lauren Silberman with Deutsche Bank.

Lauren Silberman, Analyst (Deutsche Bank)

I guess if I could just start, I know there was a lot of noise during the quarter. I'm going to follow up on the comp side. Any color you can give in terms of relative trends as you move through the quarter? It's really encouraging to hear about the momentum in April. Any color on what your guidance embeds for comp in Q2?

Adam Rymer, Chief Financial Officer

Yes. So I'll kind of walk through and then Scott, please add in. Starting in January, I mean, we caught up on January in the last call. But just to reiterate, we saw strength in our protein menu and campaign. It not only drove transactions, but we also saw a double-digit percentage increase in double protein and single tacos. An amazing part about this is it wasn't just during the campaign in January; that increase in double protein and single tacos has really sustained even through April. Then we saw the weather impact. The weather impact in January was, at one point, about half of our restaurants were closed. So that was about 100 basis points to the quarter. But then as we roll around to February once the weather impact subsided, we really saw our trends improve even further, and that was really around the launch of Chicken Al Pastor. This is the third time that we've had it in our restaurants, but the incidence level is actually the highest compared to the first two. So that was really great to see. Then in March, there was a little bit of softening in our trends right around the time where the Iran conflict began, but then we saw the nice step-up in April that I talked about earlier on Danilo's question. And so when this kind of rolls into April and how we're looking at Q2, we're really anticipating comps probably somewhere in that plus 1% range. And that's kind of what our expense line guidance is based on in my prepared comments. This comp estimate, I would say, includes a modest increase from Chipotle Honey Chicken, which launched yesterday. But we are excited about the momentum that we're getting so far from our Recipe for Growth initiatives so far this year, but we really just want to remain cautious on our outlook given the dynamic consumer environment. Scott, anything to add?

Scott Boatwright, Chief Executive Officer

I think what we should highlight here is what we demonstrated in Q1 was really our ability to engage with our customer base in new ways and drive incremental sales and activate against a broad range of consumer segmentations, whether that's income or age group.

Operator, Operator

The next question comes from David Balmer with Evercore ISI.

David Balmer, Analyst (Evercore ISI)

I'm wondering how you're thinking about how this year might play out. One of the things you seem to be saying here is that by doing more frequent LTOs or your protein windows that not only do you get a boost, but that boost sticks around. So the 2-year trend gets a lift each time. That would imply that with the comparisons we see ahead of you that comp trends would accelerate from here. Is that your base case? I know you want to be cautious about the underlying environment, but is your base case that given what you're seeing in terms of the performance of these LTOs that you will see comps climb through the year if the environment doesn't deteriorate? And I have a quick follow-up.

Scott Boatwright, Chief Executive Officer

That's exactly right, David. What we learned through our demand map refresh last quarter is that consumers were looking for menu innovation, and they were asking for greater innovation at a greater frequency. We have doubled our cadence of LTO innovation and stage-gate processing in our culinary center to solve that challenge, evidenced by what you will see here in 2026. They're also looking for deeper digital engagement, which I think we saw with the app refresh and relaunch. And then they were looking for culturally relevant marketing, which we've done some of in Q1 with a lot of success and expect to do more of with Fernando joining in the next couple of weeks. So I think we're targeting the right levers to activate against the core consumer and bring new consumers into our brand.

David Balmer, Analyst (Evercore ISI)

The other thing I wonder about is how you think about bringing an LTO that was around before, obviously Chicken Al Pastor and Honey Chicken, you're bringing them more frequently, but they're familiar. They were successful, but they were stuff that you've done before. To what degree do you feel like doing new, new is going to be more important going forward? Is that something on the horizon?

Scott Boatwright, Chief Executive Officer

It absolutely is, David. We have a couple of things that are in process or in test as we speak that are new LTO center-of-the-plate protein items. We have a few more we'll test in the back half of the year that will inform the 2027 strategy. But that's exactly it. We need to come back to tried-and-true favorites occasionally, but then pepper in new menu items that will drive interest, drive occasion, are on brand and uniquely Chipotle. That's exactly the strategy.

Operator, Operator

The next question comes from Brian Harbour with Morgan Stanley.

Brian Harbour, Analyst (Morgan Stanley)

Adam, can you just talk about the traffic and mix components of same-store sales and kind of what your outlook, at least on the mix side, might be?

Adam Rymer, Chief Financial Officer

Yes, sure. So with the comp up 0.5%, transactions were up about 60 basis points and check was a slight decline, call it about 10 basis points. Price was around 90 basis points and then mix was a drag of about 100 basis points to net to that check. When you're looking at mix, it's still driven by lower group size. This is kind of that continual normalization from that really high group size that we saw around COVID. And then there are also some other elements in there. For example, rewards when people come in and redeem a free entrée, that's going to lower your group size, as well as other more recent things we've done around BYOC. For example, there's a little bit of cannibalization — not a lot — but that would be somebody coming in and getting 4 or 5 or 6 entrees previously is now only getting one item. So that's providing part of that drag, as well as some of the other menu items like protein cups or single tacos. To a smaller extent, we are seeing people come in during snack occasions to get those items. So that's also putting some pressure on group size. But on the flip side, we are seeing some nice offsets. The extra meat, for example, from the protein campaign is providing a nice mix lift as well as sides. First it was Red Chimichurri earlier in the quarter and then cilantro-lime sauce later in the quarter. So when you look at these going forward, I would expect mix to be closer to flat in Q2, and that's really thanks to the check benefit from cilantro-lime sauce. In the second half, it's really going to depend on a few factors, around LTOs, the protein LTOs and the pricing around that, as well as sauces. We'll keep you informed on a quarterly basis as we continue to flush out our LTO strategy for the rest of the year.

Brian Harbour, Analyst (Morgan Stanley)

Scott, I know you've been talking about hospitality for a while and just renewed focus on that. What specifically is changing? At your conference, what did you kind of zero in on? Is deployment something that addresses it best? Or are there other things that we might see change in the stores? How would that show up?

Scott Boatwright, Chief Executive Officer

It's a broad answer, so I'll try to be brief. The customer — we learned last year that the customer was much more discerning on how they spend their cash and hospitality was a component that they were looking for in a more meaningful way than they have since COVID. We leaned into it aggressively. Jason Kid and his team rallied around this idea at AMC to deliver not only speed down the line and great culinary, which we do very well, but also this idea to give the guest or treat the guests like a guest in your home. We really pushed on it at AMC. The team bought in, and we saw the benefits of that coming out of AMC manifest in things like better KPIs on staffing, best-at-model levels we've seen in years, GM turnover at historical lows, taste of food and guest satisfaction scores that are moving up and to the right. Now it's not to say we don't still have opportunities in pockets around the country. But on balance, I am really proud of our teams and how they've executed in Q1 and how they're leaning into Q2 in a meaningful way and driving this idea of great hospitality at Chipotle.

Operator, Operator

The next question comes from Gregory Francfort with Guggenheim.

Gregory Francfort, Analyst (Guggenheim)

Scott, you guys have pretty good price points on your food. I think maybe you've had a bit of a pricing perception issue over the last year or two. With Fernando coming on board, how much do you want to integrate value and price points into the marketing message? How much are you testing with doing that? What could that look like? How important is that to what he's tasked with?

Scott Boatwright, Chief Executive Officer

It's a great question. We are open to testing many different ideas, and we won't handicap Fernando with historical or entrenched thinking. But we won't do anything to detract from overall brand health and brand growth. I believe we charge a very fair price point for what we offer the consumer: high-quality ingredients, prepared fresh with classic culinary techniques at a speed and with portions you can't get anywhere else. We continue to grow our pricing power by underpricing the industry now for the second consecutive year, which we believe is right for the consumer as we try to protect or drive demand for our organization. We think it's the right thing to do. We're still a 20% to 30% discount to our fast-casual peers, and we continue to grow that gap year-over-year. That gives us pricing flexibility and pricing power that we could pull at some point when the timing is right, whether that's a better entry-level price point like we did with the high-protein menu at $3.50 for a taco or testing other innovative ideas. We're going to test here in a couple of weeks in one of our markets where we're testing a happy hour from $2 to $5 with tacos at $2.50. We're going to test ideas like that to understand where we have pricing power elasticity, where we may have challenged markets from a pricing perspective and what levers we can pull to get consumers in our restaurants and feel like they're getting extraordinary value.

Operator, Operator

The next question comes from Sara Senatore with Bank of America.

Sara Senatore, Analyst (Bank of America)

I have a data question and then a broader question. In the past, you mentioned perhaps softening among younger cohorts and maybe not just lower but also middle income cohorts. You commented about engaging customers across income and age groups — are you seeing the gaps converge in terms of transaction growth with those cohorts that had previously been under pressure, relative to the rest of your customer base?

Scott Boatwright, Chief Executive Officer

Sara, thank you. In Q1, through targeted messaging and driving culturally relevant moments, we were able to get the younger consumer more engaged with our brand in Q1 than we have historically over the last year. We're seeing an uplift across all ages and all income cohorts for Q1. We know what levers to pull to ensure we're thoughtful about engaging all those cohorts the right way to keep moving the needle up and to the right. I have a lot of confidence that is built into our Recipe for Growth strategy and we'll continue to do that for many months and years to come.

Sara Senatore, Analyst (Bank of America)

And then on Europe: you mentioned seeing some of the highest volumes in terms of a recent opening in that region. Can you update us on unit economics there — AUVs or margin — since those have been hurdles to accelerate unit growth. Any update and whether that means perhaps you're at an inflection point to pick up the pace?

Scott Boatwright, Chief Executive Officer

We absolutely are, Sara. We're now in the double-digit range on margin, and we're seeing about a 40% return on investment in year two for the new restaurants we're opening, which gives us a lot of confidence. Not only are we on track, but we need to begin to look for real estate in a more meaningful way in Central London and in Germany. I think we are ready to go as quickly as we can go.

Operator, Operator

The next question comes from John Ivankoe with JPMorgan.

John Ivankoe, Analyst (JPMorgan)

The question is on competition, but I'll ask a couple of ways. On a chain basis it seems a lot of competition is coming in chicken and Mexican concepts among the top chains. On a local basis many similar-type concepts are growing. Is there any opportunity to think about marketing differently locally where different markets have specific opportunities and needs based on where competition is growing? Second, it looked like new unit volumes may have been a touch light in the first quarter. Any timing or other factors that could have influenced that? How were unit volumes relative to your expectations?

Scott Boatwright, Chief Executive Officer

We did a deep dive analysis on competition, specifically in New York and Florida, where many of these competitors are growing fastest. While we see some level of cannibalization when one of those restaurants opens near a Chipotle in the first six months or so, it recovers pretty quickly in months six, seven and eight and then climbs back to Chipotle standard trends. What we're seeing is when one of those competitors opens, they bring more consumers to the retail trade area, which helps buoy our restaurant performance long term. We watch competition closely, but the current impact is low. As it relates to marketing spend, our marketing dollars work hardest on the national level and to bifurcate that spend to attack locally would be costly, and I don't know if it's the most efficient use of our dollars.

Adam Rymer, Chief Financial Officer

To follow up on store productivity, John: we're seeing about 80% of target productivity for new stores, which is where we've been in the last couple of years. We're proud of our Q1 openings and the trend over the last year. You may be looking at cadence — some openings may have been pushed a little later in the quarter versus being evenly spread — but we're still in that approximate 80% range on new unit volumes.

Operator, Operator

The next question comes from Jon Tower with Citi.

Jon Tower, Analyst (Citi)

Maybe following up on Greg's question around value perception: delivery can be an area where you get lower value scores than the in-store experience. What are you thinking about the premium currently charged for delivery? Is that an area you're exploring to improve value scores?

Scott Boatwright, Chief Executive Officer

We tested different premiums on delivery across DoorDash and Uber and found consumers use those platforms differently. They primarily use Uber as a discount platform and DoorDash as a premium faster delivery-time platform. You have to market on those platforms differently. Our prices on marketplaces are still below our peers in the channel. We did see another tick up in delivery — still in the teens as a percent of sales — in the quarter. What I'm most excited about is we surpassed 20% of order-ahead in the quarter, which tells us consumers are being more discerning and coming to the restaurant to pick up orders instead of having them delivered. We're encouraged by that. Arlie Sisson starts next week, and we'll take a hard look at our third-party aggregators to see where we're performing well and where we have opportunity, using learnings from last year's testing to inform our go-to-market strategy in the back half of the year.

Jon Tower, Analyst (Citi)

On labor: you're rolling out tools at the store level to help GMs and hourly employees be more efficient. Some investors push that stores need better staffing over time. Are stores fully staffed today or is there more opportunity to invest there?

Scott Boatwright, Chief Executive Officer

There is more opportunity to invest. The heat program frees up a couple of hours of productivity, which we are reinvesting back in the business. Other initiatives like Chipotle Kitchen, tools for GMs, and Avocado on the hiring side free up managers and teams to be more efficient and deliver a better team-member experience, which ladders to a better guest experience. We are reinvesting that time into the business rather than taking it out. We're also taking a hard look at our management complement to ensure the right managers cover peak dayparts — lunch and dinner every day. Jason and his team have a plan in place to ensure we have the right manager coverage all day, every day, which will lead to a better team and guest experience.

Operator, Operator

The next question comes from Drew North with Baird.

Andrew (Drew) North, Analyst (Baird)

My question is on the margin trajectory. I appreciate the color on Q2. As we look further ahead, any updated perspective on the shape of margins as we get to the second half? I know the expectation has been that pricing versus inflation will narrow as the year progresses. Any thoughts on the shape of restaurant margin or what comp or traffic figure might be needed to see expansion as we exit the year?

Adam Rymer, Chief Financial Officer

You're right that the first half of the year is when margins will be under the most pressure year-over-year. Price we're running in Q1 of about 0.9% compared to inflation in the mid-3% range, and that creates much of the dislocation. As we get to the second half, inflation will drop down a bit, mostly because we'll start to lap elevated beef prices from the year before, and we'll continue to see pricing tick up with a slow, measured approach. I would expect toward the end of the year for that dislocation to be minimal based on the current trajectory. Going forward, the flow-through to get margins higher will come through our usual strategy of utilizing price to offset inflation and getting margins higher through incremental transactions.

Andrew (Drew) North, Analyst (Baird)

Helpful. Could you elaborate on what you're seeing from the high-efficiency equipment package in the early days? Scott, you mentioned hundreds of basis points of comp outperformance. Has that gap widened versus control for early restaurants with the equipment? And how should we think about the pace of rollout through the year to get to 2,000 by year-end?

Scott Boatwright, Chief Executive Officer

We're seeing outperformance on throughput, taste of food, guest satisfaction and hundreds of basis points of comp lift in those restaurants, ranging from about 200 to 400 basis points depending on the restaurant. We are at about 600 restaurants today and will be at 2,000 by year-end. This quarter we're at roughly 30 installs per week; we'll move to about 45 installs per week in the next month or so. We're moving as quickly as possible while doing it responsibly so we don't have to close restaurants to install equipment. We do installs overnight to avoid affecting business and ensure teams are trained correctly to use the equipment. While the equipment is plug-and-play, it requires training. It takes about a month for teams to get proficient and then another month to hit their stride. We think we can get the full portfolio done late 2027 to early 2028.

Operator, Operator

The next question comes from Christopher O'Cull with Stifel.

Christopher O'Cull, Analyst (Stifel)

Scott, just a follow-up regarding the heat package. How long does it take to see the same-store sales improvement in test stores once you deploy the package?

Scott Boatwright, Chief Executive Officer

About two months. It happens pretty quickly: a month to get proficient and then another month to hit your stride. After about two months, we start to see pretty material uplift in the business.

Christopher O'Cull, Analyst (Stifel)

Marketing spend grew meaningfully in the first quarter and following a heavy push in the fourth quarter. While you're seeing positive inflection in comps, the marginal lift relative to that level of investment appears modest. How is the team measuring incremental return on the spend and are you seeing strong enough conversion trends to justify maintaining this level of marketing?

Adam Rymer, Chief Financial Officer

Yes. We measure each investment individually and ensure we're getting the best return on each. The incremental spend supporting four LTOs is getting good returns, as are some of the more targeted promotions we've been running. There's still noise in consumer behavior given the macro environment, so we're expecting improvement over time. The team does a strong job assessing each investment and determining where to allocate next.

Scott Boatwright, Chief Executive Officer

It's important to note some marketing spend has a tail: some of it drives sales near-term and some builds brand over time. We view return on ad spend responsibly and will continue to invest incrementally where it's margin-accretive and drives brand health.

Operator, Operator

The last question today comes from Andrew Charles with TD Cowen.

Andrew Charles, Analyst (TD Cowen)

Adam, I wanted to ask about the Q2 same-store-sales guide of up about 1% versus Q1. Q1 had a 60-basis-point transaction gain; Q2 guidance implies a 50-basis-point step-up in price quarter-over-quarter and mix closer to flat. Are you embedding a 50-basis-point traffic decline in Q2 or is the Q2 guide similarly conservative to the full-year guide?

Adam Rymer, Chief Financial Officer

You're picking up on something that's right. We're being modest on the increase we expect to get from Chipotle Honey Chicken and some other initiatives given the consumer environment, including geopolitical pressures and gas prices. So the Q2 guide is conservative relative to the upside we see.

Andrew Charles, Analyst (TD Cowen)

Helpful. I also wanted to follow up on the sustainability report published this week, which indicated a large pickup in hourly turnover in 2025 after three years of declines. What drove that and what are the plans to improve turnover in 2026? Also, what are you doing to improve throughput to lead to a faster experience?

Scott Boatwright, Chief Executive Officer

2025 looked like an anomaly driven by sales deceleration, which led to fewer hours and therefore some attrition. Our renewed focus on hospitality required us to reassess employees in our restaurants and ensure we had team members with the right inclination toward guest service; that led to some difficult decisions. I'm happy to report Q1 we're back to historically low turnover levels, so we're on the right track. On throughput, we're deploying heat equipment, Chipotle Kitchen, and other process and staffing improvements to improve speed and overall experience. The combination of equipment, training and staffing focus is driving improvements in throughput.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Boatwright for any closing remarks.

Scott Boatwright, Chief Executive Officer

Well, thank you, everyone. We're pleased with the results in the quarter, showing progress in reinforcing that our Recipe for Growth strategy is working and driving traffic across all income cohorts. I want to leave you with the idea that we're building on a strong team with the addition of a new Chief Brand Officer and Chief Digital Officer. We expect our initiatives to continue building throughout the year and have transactions improve as innovations like heat, group occasions, rewards and restaurant execution scale over time. We'll continue to lean into what makes Chipotle great: hospitality, generous portions, great culinary and strong throughput. With that, I want to say thank you to our teams out in the field that really do the hard work and heavy lifting for this brand. I wish everyone a good day.

Operator, Operator

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