Good day, and welcome to the Chipotle Mexican Grill, Inc. Fourth Quarter 2007 Earnings Call. (Operator Instructions). It is now my pleasure to turn the floor over to your host, Chris Arnold, Investor Relations for Chipotle Mexican Grill. Please go ahead.

Hello, everyone and welcome to our call today. By now you should have access to our earnings announcement release this afternoon for the fourth quarter and full year 2007 ended December 31, 2007. It may also be found on our website at chipotle.com in the Investor Relations section. Before we begin our presentation, I will remind everyone that parts of our discussion will include forward-looking statements within the meaning of the securities laws. These forward-looking statements will include of projections of restaurant comp sales, the number of restaurants we intend to open, earnings per share, certain expense items and other statements of our expectations and plans. These forward-looking statements are based on the information available to us today and we are not assuming any obligation to update them. Forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We refer you to the risk factors on our annual report on Form 10-K for 2006 as updated by our subsequent 10-Q, and the 10-K we expect to file around the end of February for a discussion of the risks that could impact our future operating results and financial condition. Our presentation today may also include non-GAAP financial measures as defined by the Securities and Exchange Commission. Reconciliation of those non-GAAP financial measures can be found in the supplemental information at the end of our earnings release. I want to remind everyone that we've adopted a self-imposed quite period restricting communications with investors during sensitive periods. This quite period begins on the first day of the last month of each fiscal quarter and continues until the next earnings conference call. For the first quarter, it will begin March 1st and continue until our first quarter release in late April. On the call with us today are Steve Ells, our Founder, Chairman and Chief Executive Officer; Monty Moran, our President and Chief Operating Officer; and Jack Hartung, our Chief Finance and Development Officer. After their comments, we will open the call for questions. With that out of the way, I would like to turn the call over to Steve.

Thank you, Chris. I’m really proud of our accomplishments during the fourth quarter and full year 2007. We generated a 10.6% comp for the quarter and a 10.8% comp for the year making this our 10th consecutive year of double-digit comps. Our diluted earnings per share grew by 61% for the quarter and 66% for the full year. These are extraordinary accomplishments for Chipotle, accomplishments that are the direct result of the hard work of our restaurant managers and crews and the loyalty of our customers. But they are also the direct results of our relentless focus on our vision to change the way the world thinks about and eats fast food. Chipotle is changing food culture in this country by bringing consumers a new kind of dining experience, something that they never had before and something most never would expect from a chain restaurant. But we are also changing food culture through our Food with Integrity initiative. Again this is our philosophy of selecting the very best raw ingredients we can find with an eye toward great taste, sustainability, care for the animals, land and farmers who raise the food. We continue to care more about the quality of the food that we serve than our consumers do. And while they are not asking for these better ingredients, we strongly believe that they will continue to develop a greater appreciation for what we are doing, which will only strengthen the bond that our customers have with Chipotle. Most of our customers are not aware of our Food with Integrity mission. They come to Chipotle for great tasting food and great service in an interesting restaurant environment. But with more access to information than ever before and more attention being paid to issues associated with food and farming, people are…

Thanks Steve. Steve talked about our vision and our discipline, our focus on doing just a few things, but doing them better than anyone else. While our customers might not immediately notice the results or the benefits of this focus, it is at the heart that what makes Chipotle special. Another thing that might not always be apparent to our customers but which strongly colors the experience that they have is the attention we pay to the hiring and development of our people. For years, we have been a place that people want to be a part of, but we're consistently working to improve in this area as well, by creating a culture which rewards our top performers and empowers them to rise into position where they can have a stronger impact on our company. By creating this sort of culture, we are laying a foundation that will continue to support an increasingly relevant and exciting dining experience and which will allow us to add more restaurants so that we can bring this new way of eating to more people. This foundation starts with hiring the best people. At Chipotle, we look for a certain sort of attitude and a sense of hospitality and maturity that are nearly impossible to train and then we teach these people how to cook and how to provide great customer service. Once they start working with us, our highest performers quickly move to the ranks and become effective leaders within our company. We are already seeing great results from this approach especially within our restaurants where our turnover is low and where our crews and managers are more effective than ever. Two years ago, we started a program called the Restaurateur program. Basically what it did was elevate the status of those restaurants managers…

Thanks Monty. We are proud of what Chipotle has accomplished during 2007. These are accomplishments driven by the significant efforts of our restaurant management and crew. And we are especially proud that we're able to achieve these results in such a difficult operating environment in the restaurant industry. Our restaurant economic model continued to strengthen during the fourth quarter and full year 2007, with higher average top-line sales and higher restaurant level margins. You have heard us talk often about how we focus intently on the strength of our restaurant economic model. It's important to us for two key reasons. First, our strong economics at the restaurant level allows to invest in the premium ingredients that Steve talked about earlier. In other words, efficiencies we generate from a focused menu and economies of scale from higher sales in each restaurant, are reinvested into higher cost premium ingredients. So, we can afford to invest more in food as a percent of revenue than other restaurant companies because of the strength of our model. It funds our vision of changing the way world thinks about any fast food by making these premium ingredients successful and affordable to everyone. Our restaurant economic model is also critically important to us, because the stronger it becomes, the more value we can create as we continue to open new restaurants. As we continue to thoughtfully expand the Chipotle brand across the US, we know we are not only making Chipotle acceptable to more people, we are investing with expectations of generating high restaurant level returns. So let's take a look at some of the highlights of what we accomplished in 2007. Our average restaurant, now generates $1,734,000 in sales, and that's for the nearly 600 restaurants which have been open for at least 12 months. Restaurant…

(Operator Instructions). And we will go first to Jeffrey Bernstein with Lehman Brothers.

Great, can you hear me?

Yeah, Jeff. Go ahead.

Couple of questions. First, your final comments you talked about reiterating the long-term guidance for at least 25%, but obviously noting significant near-term challenges. Just wondering based on the comp and the unit growth assumptions you laid out there and like you said hoping to maintain most of it, if not all the margins. As your model should have any concern around reaching that target at least for '08 or at this point you still comfortable with at least 25% for '08 as well?

Well Jeff, you heard the comment exactly right. We are very confident over the long-term. We just don’t have a great crystal ball for 2008. If commodities stay relatively stable, from hereon now and so far, we know that we're going to lose 50 basis points on our food line. To cover that 50 basis points, would only require about an increase in menu prices incrementally of about 1.5%. Based on the increases we took last year, we will run about another 1.5% increase just based on the increases we took last year. So with a combined about 3% price increase, we know we can hold the margins, we know we can cover that 50 basis points. And looking at what other restaurant companies are doing, they are generally raising prices quite a bit more aggressively than just a 3%. And our main purpose in saying that, there is a little bit of -- I don’t want to say doubt, but in the short-term there I think we can't control, because there maybe individual quarters for example, where commodities spike up, they spike up unexpectedly. And we've often said that we're not going to react suddenly or in a knee-jerk reaction into rate prices. Just to save a particular quarter or to say a particular period. So, if things hold pretty steady, Jeff we are confident that even in 2008 that we get the 25%, but if things happen unexpectedly, yes, its possible we may fall short.

Okay. And actually just kind of follow on to that, you kind of reiterate the constant low digits in '08. This is the fourth quarter '07 was tremendous up close a 11%. I am just wondering whether you think '08 are likely, I mean its likely to prove conservative or, have you seen a maybe a sequential decline in 4Q or something early '08 that might give you more cautious in terms of '08 kind of breaking that double-digit record?

Well, listen, we certainly hope that approved to be conservative. What I can tell you Jeff, the way we do this is, we take a look at just our dollar sales through the fourth quarter and we push them out and then we adjust for seasonality to come up with this kind of guidance and the comp guidance is exactly the appropriate guidance and so I think that low to mid is still the right guidance. We’ll be able to update you as the year unfolds. Now, I can tell you, our business is as strong as ever. We finished the fourth quarter as you saw with a very strong better than 10% double-digit comp, that’s in the phase of other restaurant companies having difficulties. So our business continue to be very, very, very, strong and so there is not being really any kind of noticeable decline in our business. But for the time being it’s the best guidance we can give, its difficult really to workout of pattern so far in this first quarter, because the weather throughout the country has been very, very difficult and so I think the best I can say is as the year kind of unfolds and as we layer each quarter we can give you more update, but right now I think is right guidance to give.

Okay. And then just lastly we get a lot of questions as I’m sure you guys do on Class A versus Class D, just wondering whether there is any newfound plans to merge, obviously there is a great disparity in the shares and has been in the past and business really seem justified I’m just wondering if you have any thoughts potentially make a change to that? Thanks.

I’m sorry Jeff, I miss part of it, make a change to what?

To the CMG versus Class D shares obviously the disparity significant being justified, just wondering whether you might merge those share or what your thoughts are?

So there are certain circumstances and those are not small hurdles that we would have to overcome to even attempt to do something with the share and the penalty if it goes against us is really severe, meaning we indemnify McDonald's that if we do anything that would jeopardize the tax free nature of the split-off, we indemnify them, which is a significant penalty in that neighborhood of hundreds of millions of dollars. So, we can't do anything until October 2008, and after that, we at least will be able to look at whether we can class the shares, but there is some hurdles for sure that we have to get over.

Thank you.

Thank you. We'll take our next question from David Tarantino of Robert W. Baird.

Hi, good afternoon. Could you give us an update on the Food with integrity and the rollout of naturally raised meats and what you might see in '08?

Yes, David, as you heard us talk about in the past, it's difficult to predict and then tell you exactly when we might rollout natural meat. We are doing great with more than 80% chicken and about 50% beef. We for sure, have additional supply, coming on board we sure have markets that we have tentatively lined up during the year. Its one reason why I feel pretty good that an incremental 1.5% or so price increase, mostly related to the rollout of natural meats is feels pretty good. But in terms of specific markets and when we might roll, we are very cautious not to communicate that because we're very, very particular about making sure that supply is exactly meeting our specs and so we are really very patient with that. So I hesitate to say exactly which markets and when that might happen. But for sure there will be more activity there.

Okay. Thanks. A follow-up to that. What is your philosophy on taking pricing outside of Food with Integrity? I know you have not done that in the recent past. But would you ever raise prices if commodity pressures dictated that?

Absolutely. We have always said that strategically, we prefer to raise prices when we have Food with Integrity opportunity. The opportunity to rollout natural meat. But for sure, we are beginning to see that, like everyone is, that these commodity cost increases don't seem to be cyclical. They seem to be more fundamental shifts in the cost. We have been very fortunate that we found lots of efficiencies where we could increase the quality of our ingredients, increase the cost of these ingredients, still bear the higher cost of commodities of non-naturally raised ingredients and still raise our margins. But it's getting tougher, 2008 is going to be tougher. We have some markets that have all natural meats right now and for sure we are prepared to raise prices when it makes sense to do that, even without a rollout.

Okay. Thanks. And then, Monty, can you talk about what the potential drivers of throughput might be in '08?

Sure. The things that will continue to drive throughput predominantly are those same things that we have already identified in the past. Basically, two different categories; training our people, and then the equipments that we work with. On the training side, really good scheduling, having our top crew people in the right places in the line, having all hands on deck during peak hours, so the people aren't doing prep work, which could have been done before the rushes of lunch and dinner. Having an expediter next to the cash register at all those times, having great [knees and claws], in other words, having everything setup and ready to go before the shift begins or before the lunch rush brings and then continuing to focus on 15 minute periods of time, so that even if we don't have a line for an entire hour, we're still charting and encouraging. We are charting 15 minute periods and encouraging our managers to work on throughput even during shorter periods of time. On the equipment side, we're still working on our tortilla warmer and we anticipate we'll start rolling out some more of our new tortilla warmer, which will help us. We're still making changes to the POS stations, you've heard about the coin machines which are in all of our restaurants now, and we continue to work and test this handheld POS, which we're now going to roll out in 50 restaurants over the next eight weeks or so. Beyond that, our customers continue to become more and more familiar with how to use Chipotle, and they are more familiar with what they want, how to put it together, how to order, especially multiple orders and that's helping. Additionally, we're continuing to work on more and more business through fax or DSL order, which allows us to make the food off of the main line or a second make line, which keeps those transactions out of the way of the busy lunch line. We believe that we will continue to see gains and throughput. Frankly, this is a pretty tough time of the year to look at that, because our fourth and first quarters are lower transaction times of year, and so what we're working on now is making sure that we get everything in place, get the handheld for US well understood and well trained, so that when April, May and June comes we can really address those crowds with the best possible training, the possible equipment, the best possible techniques we can in order to continue to make those strides in throughput.

Great, thank you.

Thank you.

Thank you. We will take our next question from Glen Petraglia with Citi.

Thanks. Can you hear me?

Hi Glen. Yes, we can hear you.

Thanks. I am travelling, so I apologize if you have had to repeat some things. But Jack, first, you made a comment that interest income I think in 2008 would be about half of what it was than it was in '07. I was hoping maybe if you could repeat exactly why that might be. I missed that?

Yeah, Glen, it's just interest rates. We have invested all of our cash in very-very safe, very short-term instruments, and the yield has just dropped dramatically. Last week we were able to get tax free MUNIs for example, in 3.5%, 3.6% range or something like that. Right now those rates are below 2% and so just nothing we can control, but our interest is going to be lower because of that.

Sure and in terms of the G&A realignment, in terms of the restaurateurs and having your area managers cover 12 stores I think it was versus 8. I guess how quickly can that happen if you have only got 78 restaurateurs now. Are you anticipating being able to view that over the course of the next couple of years, and I guess what concern is there that -- that's just too much on one area manager's plate, whether it is a restaurateur or not. And it perhaps got the other way, is this something that you have tested already?

Yeah, well, great question. Basically we sort of have tested it. I will answer the last question first. We sort of have tested it, but let me describe it in a little bit more detail. Basically what's going is our restaurateurs are very, very good and very self sufficient. The area managers we have, who have been able to develop a lot of restaurateurs, find it pretty darn easy to manage more restaurants and so we have got some area managers, for instance, who have developed five restaurateurs and those area managers are able to spend more and more of their time just developing those managers who aren't restaurateurs and focusing on perhaps taking up additional responsibility in other areas of their job. Basically, those folks come to us wanting more work to do. If an area manager has no restaurateurs and has sort of average managers, it certainly creates a lot more work for them and puts a lot more work on their place. When I talk about 12 restaurants per team leader, this is something only our team leaders, which are essentially the elite area managers, are going to get 12 plus restaurants. We will continue to have "regular" area managers, who will still have something less than that and we will not make area managers into team leaders until they've demonstrated the ability to develop additional restaurateurs. When they do that, what the team leaders will do is, when they have 12 restaurants, you would think well, that means they have 12 managers reporting to them, right. Well not really, because what happens what we're going to do is ask our restaurateurs, our best restaurateurs to mentor a restaurant, a neighboring restaurant or two, if they can handle two or perhaps more in the future. But we're…

Okay. Jack, I don't know if you mention this or not, I didn't hear it, but I know that the average unit volume is about 1.734 million. Are the new stores still opening at about 85% of that level and as you go out into smaller neighboring markets from the major market that you are in, are the economics replicable even at a lower, presumably lower average unit volume?

Yeah Glen, there are things right in that same range kind of that mid 80s percent of the existing stores. Even though existing store volume continues to increase. The economies do vary by markets, but we have great unit economics in areas like Ohio and in faraway areas, remote areas in Ohio, where we've got $1.8 million, $1.9 million, $2 million restaurants. And so, we haven't found any area, anywhere in the country that we know we will be enormously successful. We do have some markets that started out a little slowly, but even markets today that are underperforming; they are less than $1.7 million for example, $1.734 million and they are comping, they are comping very well. And so, we could see the momentum building, and so we have not seen an area in the country whether it urban or suburban, remote, small towns or major suburbs. We haven't seen any area where we start building Chipotle and start adding restaurants where we don't feel like we will be successful.

Okay. And then just last one. Elasticity of pricing, I think you are up in the $9.50 to $10 average check range in general, that's getting up there. I know you have answered the pricing question before, but is there anyway to test how consumers react, if they don't understand that you're are doing Food With Integrity and they're not asking for these things, you're not running the risk, but as you raise pricing more that they just think it becomes too expensive.

We actually just did a study and we did it in Arizona, because we just rolled on natural meats Arizona. Now, if you think about Arizona for example that's a market that I had mentioned in the past has been a little soft for us, not as soft as other restaurants that accommodate, but it has been soft. When we rolled natural beef and natural chicken out in the fourth quarter, we had not raised prices in nearly four years in Arizona just because we were generating efficiencies and building margins without raising prices. So, we raised prices by 10% in this market that is economically sensitive. We did not see, the Arizona had fallen off in terms of a transaction as I mentioned previously but increased prices, we didn't see any additional fall off whatsoever in transaction. We went and talked to customers and 70% of the customers said they're willing to pay more based on our Food With Integrity inititative, based on the fact they understood that we're offering natural meat, natural beef and natural chicken. We also talked to them about the value, the money that you're spending for Chipotle meal and 90% of the people that we surveyed, said that, Chipotle was good for the money or lot of food for the money. And so 90% of the people felt really good about the money they are paying, it is because they felt that is a lot of food or it was very, very high quality food .So, and we kind of feel like that was a tough market to do this in, a very, very high price increase in a market that's economically sensitive and so this is reinforces a fact that if we communicated well, we talk about our high quality ingredients with our customers and they are willing to pay a little bit more. And keep in mind, a little bit more doesn’t means a little bit more than they were paying before. If you compares the Chipotle prices to other restaurant and you can figure out which restaurant you want to compare it to, but other kind of fast gradual restaurants, our menu price is right there with them yet our food quality is dramatically higher. Adapt casual restaurants, our menu prices are right there with them, yet our food quality is dramatically higher.

And are the Arizona customers typical of the rest of the system?

Well, that’s hard to say. I think they are typical as anybody, the volumes there are right about at average. There is nothing unusual in Arizona. We've done this type of thing, although not as formal of a study before, when we talk to customers and we found very, very similar results.

Okay. Thank you.

Thank you. We will go next to Jason West with Deutsche Bank.

Yeah. Thanks a lot. I just wondered if you guys could provide a little more color on the commodity outlook. I believe you have said in the past that you had cheese contract rolling of the end of '07. I just wonder if you decided to re-up that or if you are just in the open market right now and then also can you talk about on the protein side, what the contracting status is there?

Yeah. On cheese, we have not locked in, we were considering it. You probably heard us talk about we are considering it in the fourth quarter. We have not locked in. We are considering it still. But we are watching the market very, very closely. The impact is in that 50 basis point that I mentioned. In fact, most of that 50 basis points impact is from cheese. And in terms of meat, we don’t really have any lock on meat, mostly because we want to serve less commodity meat and more natural meat and its very difficult to lock in natural prices. Now, on chicken, though, we do have very, very stable prices with our natural meat. Generally, they are not as volatile as commodity, just because they are not affected by world markets. They are not effected by world prices, if you will, and so generally they are stable but in terms of a real lock, a really forward contract, we have not really done that for say, with our meat.

And with the bulk of the commodity pressure, do you expect to be in the first of the year since that’s when cheese will have a tough compare or is it that you guys are thinking about that as more balanced?

In terms, was that a question on cheese or on beef?

Just across the food line.

Well, from what we know right now, nothing else changes, we think its going to be roughly 50 basis points. We're as pretty much across the air from where we are today.

Okay. And that's based on lot of mid single-digit comp?

Yes.

Okay. Thanks a lot.

Thank you. We'll go next to Steve Rees with JP Morgan.

Hi, thanks Jack. You mentioned the unit volume continuing to open the discount, which is actually a nice part of the story as those ram up over time to contribute the comp. So can you perhaps comment on how your traffic is holding up in some of your more mature markets that you’ve been in for say four or five years?

Yeah, our older stores in general, not even going by market, they generally comp a little bit less than our new stores. But even our older stores still comp, like in the fourth quarter thye are comping kind of in that generally mid single-digit. Its not that we don't have stores in the low single-digits, we do but generally, if you take store opening by class and take somewhere older market, there is still comping in that at least that mid single-digit kind of range. We have market that we’ve been in for a lot longer than five years, there are very high volume, much higher volume than average that are comping above average, they are comping above kind of that 10% range, as well. So generally there is this the older the store, generally the comp is going to be lower, but it still very, very respectable and then we have a exceptions to that as well.

Okay, and so for the '08 comp forecast that just based on a slower ramp up period for the new units or is that just in a lower comp over all entire base?

Its just our best estimate, first of all not great, but its our best estimate of what we think the comps will be. Frankly, if we don't get better as Mark and Steve talked about in running better restaurants, serving better food, that is the comp that we will deliver. The only way we will beat that is to run better restaurant. The same situation, when we looked at our sale last year and then gave the same kind of a guidance, the outlook looked very similar, meaning we would do a comp in that kind of a guidance unless we get better, unless we are going to track more new customers in to our restaurants, unless we can invite our existing customers in to our restaurant more often. So we have to continue to get better, so that we can continue to kind of raise that comp line.

Okay. Great thank you very much.

Thanks.

We will go next to Jeff Omohundro with Wachovia.

Thanks. Just wondering what other changes like the shift from three to five regionals or perhaps in infrastructure, you might be contemplating to manage this growth?

We sort of – that's sort of yes. We try to think long and hard of about how we want to structure this, who we want to put in positions and we very deliberately did all of this sort of in one fell swoop, so that we feel like all the positions throughout the country is well covered and that we had the right people in them. So you are sort of looking at it.

Great, thanks.

You bet.

Thank you. We will go next to Dean Haskell with Morgan Joseph.

Thank you very much. As you are expanding in 2008, how much of that expansion will be in existing markets versus new markets? How do you expect that to positively impact pre opening expenses hopefully down? And then I have one more question.

Okay. First of all Dean, most of the restaurant openings are going to be in existing markets. Some 90% or so will be in existing markets and that is just because we've entered most large market throughout the country. I would not expect to see really much of an impact in the pre-opening cost at all. If you look at pre-opening cost they average somewhere in kind of that $70,000 to $75,000, about 60% of that, 59% of it to be exact, is non-cash, its related to straight line rent. Okay. So, that’s just the calculation, that even though we're not paying rent during the construction period, the accounting rules require us to go take the rent over the entire lease period and then basically straight line it over that entire period, including about 3.5 month construction period. And so, we got this $70,000 $75,000 per store number, but 59% of it is non-cash and so, we're kind of stuck with that. Most of the rest of that, very little of it actual rent that we pay. The rest of it is like marketing expenses and its local store marketing, its sending out mailers to surrounding businesses and, doing things to invite people into our restaurant for the new store opening. So, I would expect that the pre-opening cost would stay relatively intact.

Okay. And the last question is, as you continue to expand, are you having a tweak your real estate model any, to push the edges as you entered new and different demographics?

Well, I don’t know what you mean by push the edges. We are -- when we go into a market, and ones we've been there for a while, we have found that we can go further and further into the outskirts of the market. And we have found that we can go into lower income area. So, we might go into an area to begin with and look for more of the higher income area. But as the brand gets established and as we develop loyal customers, we're able to find that we can push out to the outskirts both in terms of income and in terms of geography and do exceptionally, exceptionally well. And so, yes, as our brand, becomes more well known, we are finding that, we can push out and be a little bit more aggressive. Well, we generally do that in markets that we're already in, that were very successfully and the brand is very well known.

Okay. Thank you very much.

Thank you. We'll go next to Mitch Speiser with Telsey Advisory Group.

Thanks very much. Two questions. First, I believe you said you went into five new markets in '07?

Right.

Could you tell us about the experience, the sales ramp up of the new stores in new markets versus the new stores in existing markets, if there is any difference? And then I have a separate question?

It varies a lot by new market. So it's a lot more volatile, I would say. Of the five markets that we entered, two of them were above that mid 80% range, you know that I talked about. We talked about new stores opening up kind of in that mid 80% range. Two of them opened above that, two of them opened up a little below that, within striking distance and one of them opened up quite a bit below that, one of them opened up slow. So one of the five opened up, what we would say is slow. But that's not unusual. I mean that will happen and if we are going into markets that our brand is not very well known and it will take a little bit of time for us to get customers to come in the try Chipotle and then they become loyal customers. So generally, those five markets opened up pretty representative. Overall on average, they opened up above what a typical new market would open up at.

Great, thank you. And then secondly, I believe that if I do the math right in '08 given about $150 million in CapEx, you should be able to meet those cash needs with cash flow from operations. You do have over $170 million of cash in the balance sheet. I guess a two part question, would you consider doing like a stock split or so to increase your flow and then perhaps at some point, you are buying back some stock, is that in the thought process in the foreseeable future?

On the stock buyback, we do have certain restrictions, its really related to the A versus B question that was asked before, that we are prohibited from taking certain actions that might change our capital structure and so buying back stock for sure in a short medium term, we would not be able to do. Generally that's high in our list. Even if we are allowed to do it, even once we get past this contractual restriction later this year. Just because we are a growing company, we've got a lot more growth ahead of us than we have behind us. We are only at 700 restaurants right now, we've got potential 4,000, we are going to enter Canada later this month. And so we think we've got --

Later this year.

Later this year, sorry. We've got lots of market growth ahead of us and so we don't have any specific plans to get capital back. We know if we can take that capital and invest it in the very, very high cash and cash returns, which are in the 40% range. That would be the best way to add to shareholder value, rather than just give it back to shareholders. In terms of a stock split, no, we're not considering a stock split either. We don't think that really does anything to add to shareholder value. We think that the way to add to shareholder value is focused on running great restaurants, serving great food, developing our people, so that we can constantly improve the experience and that's where most of our focus is.

Thank you.

Thank you. We'll go next to Bryan Elliott with Raymond James.

Good afternoon. Jack, I wanted to circle back to make sure I understood what you were trying to convey. You talked about the 50 bits of food cost margin pressure, let me find my notes here, and then you said, I think, if we can get 3% pricing, we can hold our margins, where you hold most, if not all of our current margins on price. Were you referring to the food cost line or were you referring to restaurant or were you referring to the EBIT line when you talked about margins in that statement?

Mostly restaurant levels, Bryan, which when you hold it at the restaurant level and as long as we manage our G&A, which we did say that there will be a little bit of negative leverage in G&A, but that's all because of non-cash stock options. We ought to be able to come close to holding our margins at the op income level as well.

Okay. And so, you are basically saying food cost will be up 50 bips even with pricing, but with the pricing impact and the leverage on the other line items that even with the 50 bip headwind after pricing, essentially I guess this is my question. You are indicating if commodity stays current, you think you will have 50 bips of pressure even after 3% pricing, but you can offset that at the restaurant line? Is that what you were -- did I get that right?

No. Let me clarify. If we do no additional pricing, we will see 50 basis points of higher food costs and that's because of higher cheese and higher tortilla prices. For us to completely offset that at the food cost line and then more than offset that at the restaurant level line, we would need to raise prices sometime throughout the year to give us like an effective 1.5% menu price increase throughout the year. Now the 3% came in, Bryan, where we are already running at a rate such that just the menu price increases we took in 2007, just letting those roll out, that will have an effect of about 1.5%. Menu price increase next year. So layer on another 1.5 that I just talked about that covers 50 basis points and then we have our margins covered. And we feel good about that. Now we don't know what commodities are going to do, but we feel like 3% is a really modest menu price increase in today's environment. Many restaurant companies are increasing a lot faster than that and keep in mind our increases are associated with a significant increase in the quality of our food.

Sure. So I am sorry, because I am a little confused. So if we do assume a 3%, we will see a little bit of food cost pressure less than 50 bips, will make that up or more at the other line items at the restaurant. So we will be flattish restaurant and then we have down cash G&A but we've got the non-cash stock pressure that you referenced earlier, did I get it right now?

No. The 3%, if you build in 3%, 1.5% you're growing off from last year, 1.5 incremental, we have covered the 50 basis points of pressure.

Okay, okay.

Food costs will be the same.

But then we'll have up margins at the restaurant then, right?

That's right.

Okay, so we won't cover, our margin will improve our margin.

If no other commodity surprises, and my point is we're not specifically 1.5%, but 1.5% is very reasonable, I'm very confident that that's a reasonable incremental price increase due to expect. That will cover it at the food cost line and more than cover it at the restaurant level line, that's right.

Got it. Okay, thanks very much.

Okay. Thanks Bryan.

Thank you, we'll go next to Nicole Miller with Piper Jaffray.

Good afternoon.

Hi, Nicole.

Hi, Nicole.

Hi. Congrats on a great quarter.

Thanks Nicole.

Monty, can you give some example of that POS results? Like, I mean, walk us through a couple of stores and what you saw and why you're so confident moving forward and some kinks you've worked out?

Yeah, well Nicole, you are talking about the handheld POS, right?

Yeah.

Yeah, keep in mind this is something we've only been experimenting with half dozen stores so far. But basically, what this allows us to do is send one of our employees out into the line and bring up transactions and give them a receipt in the line. So that the process of paying for the meal is totally over with. So they then just go through the line, order their food and when they are done getting their food, present the receipt to the cashier and walk away without having to ring up the order. In our restaurants, that have very, very busy lunch time and very long lines, this is a really neat thing that we can do to really improve customer service by having someone talk to someone in the deep line and perhaps assure them that the thing moves quickly, especially with new customers. And our customers really like it. So number one, first and foremost, it's a way of improving customer service. And our customers really are saying that they like it. But in terms of pure throughput we have seen in some of our experimentation that this speeds up as many as four transactions per 15 minutes. But that I just want to caution you that four transactions per 15 minutes and then extrapolate that in any real way, because that would be at the very-very busiest restaurants, during the busiest lunch times with the optimal use of this device. So it will help the throughput we believe. It will only help with throughout at our restaurants that generate really long lines during lunch, but it's worth going in to the line to ring up the transaction. But we look at it as just a nice positive way to improve the experience for your customers.

And what percentage of the base that we considered a really busy restaurant that could benefit somewhere close to this four transaction per 15 minute?

Yeah, it's kind of too early to say what that is, Nicole. Right now, what we have done is we have looked at the 50 restaurants that we think have the greatest opportunity to benefit and we are going to roll it out over the next eight weeks or so, in to those 50 restaurants, and once we get that -- we are going to learn a lot from that obviously and that will give us a much better idea, so that we can let you know how deep we would like to go beyond that 50 restaurants. We think the handheld will be relevant, will be useful and will be an advantage in significantly more than those 50 restaurants, but we are going to go ahead and do that first and learn and find out what we learned before rolling it further.

Okay. Great. What should be we expect from the new ad agency, what is going to change? What might be new?

Yeah, Nicole far too early to tell. As you, we have engaged DeVito/Verdi, and in fact they are in the offices today, they have been here this week. And basically, we are just getting to know each other. They are going to really do deep dive, travel around with us, understand our culture, what makes Chipotle tick understand from the customer perspective what Chipotle is all about. And then we will go into the process of talking about what kinds of advertising things, what kind of creative we might be going after. But we are just in the very, very early exploring stages right now with DeVito/Verdi.

Okay. Thank you. Jack, what should we expect on a development new units on a quarterly basis, what's kind of a fair cut in each quarter?

Yes Nicole, the first quarter will be a little lighter than perfect level loading. So, to be close to what we opened last year, last year I think we opened 28 in the quarter. So, it will kind of in that ballpark. The remaining three quarters, Q2, Q3 and Q4 will be heavier and reasonably level loaded between those three quarters.

And how many have opened quarter to date please?

We haven’t disclosed that yet.

Okay. I think that’s -- one last question on the guidance. I am sorry being jumping aroung on some calls tonight. I saw the guidance in the press release, but are you also basically still reaffirming your long-term 25% earnings growth goal?

Yes.

Okay. Thank you so much.

Thanks, Nicole.

Thank you. We have time for one final question, and we will take that question from Paul Westra with Cowen.

Great, thanks. How are you guys today?

Good.

Most of the questions answered, but just back to Brian's question on 3% pricing, just I have a little bit more into the labor line, particular in line would be below the food cost line. How would expect to get some leverage there, assuming mid single-digit comps, which would be modest traffic gains. How would you expect to getting labor leverage in particular?

Just very little bit, Paul. We got so much leverage, really much more leverage than either even we internally expect last year. We discuss the labor chart so fast, so I think with kind of normal wage inflation and because most of our comp growth we expect to be transaction driven at lease partially transaction driven we have to add labor to deal with the additional transactions. So I think the combination of wage inflation and adding some labor for the additional transactions and within our comp range, I would expect not to see labor leverage, not to see much if any labor leverage, the way I would describe it.

And what is the wage inflation rate looking like in the trending….

Well, in the past, year or so, it’s been, it’s picked up, its been more in kind of that 3.5% range. So if we get wage inflation kind of 3.5% range and if you have got comp that are just a little bit higher than that. And you need to add some labor to handle the additional transactions. You can see whereas its not going to be much room for leverage. Not much you can do higher comp than what our guidance is.

And then I had a follow-up question on your, you really averaging the volume distribution, I think you talked about the left side of the bulk curve is open out 15% below averaging. Just trying to see if anything stalling out on the rate side of the bulk curve, are you seeing stores start to clamp when they hit $1.9 million to $2 million from a age standpoint or you are seeing, as you mentioned some are just going through?

No. Just the opposite. We do not see these high volume stores are leveling off and so we have restaurants that are well beyond $3 million. We have entire market that are well beyond $2 million and still comping at company average comps, sometimes higher. So, no, we are not seeing any thing in terms of these high volume restaurants saying that’s it. Once we are inviting more customers into our restaurants, our restaurants can handle lots and lots of volume.

Do you see stores opening this year at $1.5 million, 15% below your $1.7 million that you don't – may be not down the road as far as body count, you don't see -- you could envision $2 million stores you're opening today.

Yeah, yeah, absolutely, because you probably heard us say the ballpark, we have entire markets that are doing $2.5 million in volume and they are comping really, really well. So, yeah, there is nothing to tell us that there is kind of a leveling off point where okay, that's it. You hit $1.08 and you're done. So it's really a matter of bringing more customers in and we still feel like lot of people either don’t know about Chipotle or don't know about our Food With Integrity and we have an opportunity to convert lot of people that just don't know much about us into a more loyal customers. So we think we've got lots of opportunities.

Okay. Then last question on $5 share cash. You mentioned you might be in the balance sheet for a while, why not chase them better yield than its going to be on there and I think you have all the short-term investments?

Well, Paul, the best feel that we can get is investing one of our restaurants, which is not going to be about 40% yields or so. In the meantime, we really are going to play it very, very safe. We were thinking that way even before this whole credit problem, since this credit problem were being even more diligent to make sure that we've got out money invested in very, very, very safe instrument. And so we're not going to move the money around to try and chase not a 50 or 10 basis points for sure. We really want to put the money to use, but we want to make sure we opened the right amount of restaurants based on finding great real estate and having great managers to run those restaurants. The best thing we can do to better utilize our capital, frankly is to really accelerate this restaurant to a program as Monty talked about, because the extent that we have more great managers available will dial it up in terms of real estate, they go get more real estate and then we'll put this capital use and we know that the best way add to shareholder value.

Great. Thank you.

Thanks Paul.

Thank you. At this lime I'd like to turn the call back over to presenters.

Well, that concludes our call for this quarter. Thanks all for tuning in.

Thank everybody, everyone.

That does conclude today's conference. You may disconnect your lines at this time.