Please standby, we are about to begin. Good afternoon and welcome to the Chipotle Mexican Grill Second Quarter 2013 Earnings Conference Call. All participants are now in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded. Thank you. I would now like to introduce Chipotle's Director of Investor Relations, Alex Spong. You may begin your conference.

Thank you. Hello, everyone, and welcome to our call today. By now, you should have access to our earnings announcement released this afternoon for the second quarter 2013. 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 today will include forward-looking statements as defined in the securities laws. These forward-looking statements will include projections of the number of restaurants we intend to open, comp restaurant sales increases, timing and impact of menu price increases, trends in food costs, marketing spend and other expense items, effective tax rates, stock repurchases and shareholder returns, as well as other statements of our expectations and plans. These statements are based on information available to us today and we are not assuming any obligation to update them. Forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We refer you to the Risk Factors in the annual report on Form 10-K, as updated in our subsequent Form 10-Qs for a discussion of these risks. I'd like to remind everyone that we've adopted a self-imposed quiet period restricting communications with investors during that period. That quiet period begins on the first day of the last month of each fiscal quarter and continues until the next earnings conference call. For the third quarter, it will begin September 1st and continue through our third quarter release in October. On the call with us today are Steve Ells, our Chairman and Co-Chief Executive Officer; Monty Moran, Co-Chief Executive Officer; and Jack Hartung, Chief Financial Officer. With that, I'll now turn the call over to Steve.

Thanks, Alex. Well, 20 years ago this month I opened the first Chipotle in a little space near the University of Denver. And I had no idea that this little restaurant would someday become one of over 1500 restaurants. And that together with over 42,000 team members we would be changing food culture in this country. When I opened that first restaurant, I wanted to show that just because food is served fast didn’t mean it had to be a typical fast food experience. So I stressed over ingredient and the team I worked very hard every day to make sure that we served delicious burritos to every customer who visited. And today as a team we welcome each and every customer as if we were inviting them into our own home. Proud to serve the food that we have been working on so hard to prepare. And as I reflect on this journey we have been on for the last 20 years, it occurs to me that while we are bigger today with a much larger team serving many more customers in many more ways, we are doing just what we did when we opened the first restaurant 20 years ago. We still stress over ingredient. That we have raised our expectations to expect not only fresh ingredients, but ingredients that are responsibly raised. And our empowered teams, the top performers in our restaurants today care just as much as we did back then about making sure every customer feels welcome and are treated to a delicious meal every time they visit. I’m proud of what we’ve accomplished together over the last 20 years, but are even more optimistic about our potential over the next 20. We’re pleased with our performance for the second quarter of 2013, which includes…

Thank you, Steve. One of the most significant changes we have made to our business since Steve opened the first restaurant 20 years ago was to build a people culture that is as unique and compelling as the food culture. By bringing our people culture in line with our food culture, we have been able to improve the overall experience we provide, developed exceptional leaders, strengthened our economic model, and created more opportunity for our people than ever before. The cornerstone of our people culture is our restauranteurs program. These elite managers are continuing to set new standards for the quality of the experience we provide and for our financial performance. And they are also filling our pipeline with the future leaders we will need to keep pace with our growth. During the quarter we promoted 46 new restauranteurs out of 56 candidates we interviewed, a selection rate of 82%. While this is off a little bit from our highs, but it's still a clear indication that the overall caliber of restauranteur candidates is very strong and that our field leaders have a growing understanding of what it takes to become a restauranteur. Through the first half of the year we promoted 91 new restauranteurs and 36 of our existing restauranteurs were promoted to R2 and R4 positions. This group of extraordinary leaders continues to expand their leadership influence as they move in to fill leadership positions. During the quarter we promoted 10 new apprentice team leaders, four new team leaders and one new team director, nearly all of these coming from restaurateurs. With the continued advancement of managers to restaurateurs and restaurateurs to field leaders, 70% of our restaurants are now overseen directly or indirectly by leaders who have come through the program. The strength of our restaurant teams…

Thanks, Monty. We are pleased to report another quarter of strong operating and financial results. Our focus on building a special food culture, a unique people culture, and a strong unit economic model continued to deliver these strong results and we believe they also provide a compelling advantage in a very competitive industry. We know that have empowered teams of top performers, serving great tasting food made from high quality, sustainably raised ingredients, will result in an exceptional dining experience for our guests and lead to even more loyal customers visiting Chipotle. Our same store sales in the quarter were up 5.5% and our average sales for restaurants that have been open for at least 12 months is over $2.1 million. Overall sales for the quarter increased 18.2% to $816.8 million driven by new restaurant openings and the 5.5% comp. [Delay] sales were $1.54 billion, an increase of 15.9%. So quarter comp was primarily driven by an increase in customer traffic along with the benefit of one additional trading day compared to the second quarter of last year. Year-to-date comps were 3.4% driven by the increased traffic. So far in July we are seeing underlying comp trends similar to the trends in Q2 after adjusting for the extra day in the quarter. Without the extra day in the quarter, the underlying comp trend was about 4.5%, which is an acceleration from the underlying 3% comp we saw in Q1. This higher sales comp trend became apparent in the second half of April when more normal spring weather arrived in most of the country and continued into May and June. In light of this higher comp trend, we are raising our full year sales comp guidance to low to mid-single digits. We opened 44 new restaurants in the quarter and 92…

(Operator Instructions) We’ll take our first question from David Tarantino with Robert W. Baird.

Congratulations on a good first half of the year. Jack, just a question on your pricing philosophy and strategy. I know you mentioned you don't have plans to raise prices for the rest of the year, yet the food/cost ratio you mentioned also was going to creep up or stay similar to where it was in the first half which is above the historical norm. So, I’m just wondering how you’re thinking about that. Is this another delay in your price increase? Or are you thinking that you don't need it at this point. Maybe if you could just kind of layout your thoughts there.

Yeah, David, I’d call it a delay, but I think it's a delay right now that based on what we see for the rest of this year. We don’t feel compelled to increase prices in the next two quarters. Certainly, that may change, but based on our current margins, based on what appears to be a tamer food inflation environment generally, based on the fact that even the pressure I talked about mostly coming from avocados on our food cost line in the next couple of quarters, those are more cyclical than inflationary. I would argue that’s based on just what we’re seeing in California and Mexico in avocados this year. So they don't feel like a permanent inflationary item. And then another consideration is -- Steve had mentioned, we want to remove GMOs and that’s a significant challenge. There is going to be some cost associated with that as well. So we like to be patient with that as well. And so when we do raise prices, we may be able to time that when we’re doing Food With Integrity items like removing the rest of the GMOs in some of our ingredients. We also had some of our supply of naturally raised meat such as steak this year will be a real challenge. We’re working to get that back up 100%. So there are things like that that we think will add to the quality of our food, but may add to the cost as well, and so we think that it’s wise to wait until we understand what those costs are going to be and maybe time it around some of those items, and so right now we don’t think we need to do anything in the next two quarters.

Great. And, Jack, just to clarify some of the items you just mentioned, are those items you expect to happen early in 2014 and is that way your rating is just maybe a couple of quarters out from where you expect it or?

We hope so, David, but it’s hard to pin it down because when we’re changing ingredients like this, there are so many things to consider. Of course, cost is really just one of them. The most important is what's the impact on the recipes, what's the impact on the taste of our food, the quality of our food. We want to be very careful before we're switching out ingredients that we don't have unintended consequences or we don't have customers that feel like, gee, I don't really like the taste. So we don't think that will happen, but we have to be very careful as we do this. So, it's not unreasonable to think that we can get a lot of this done, maybe all of it done in the next two quarters, but it's hard to say that with certainty.

And we will take our next question from Michael Kelter from Goldman Sachs.

I just want to ask, after your restaurant margins have gone up year after year after year for so many years, they have stabilized now in this 26%, 27% range for the past three or four years. Is there any reason to believe it's some sort of natural ceiling about what the concept will be able to achieve? Or do you think maybe this is just a pause and you have a vision that it can move higher?

Well, Michael, it can move higher, I don't think it's a natural ceiling. I think it depends on what our ultimate volumes are, and that depends on what our comps are. We've always talked about that food cost aside, and food cost by the way the margin pressure we've seen in the quarter and for the year can be easily remedied by increasing prices. We think we've got that pricing power, we think our food cost is higher than it normally would be and so that part we think we can solve. So then beyond that, we think we still have leverage. If we can deliver a comp that's at or above a mid-single digit comp that is driven by transaction, we think we still can maintain or even add to our margins. And in fact, we think that if we were able to drive a higher than mid-single digit comp we can increase our margins at a similar level to any other concept that's at a much lower level. So, we don't think our ability to raise margins has been diminished at all, but it all will depend on what the comps and what our ultimate average volumes end up being.

And then do you have maybe any research that suggests the majority of your customers want to pay more for GMO free foods or is that a decision that you make more based on feel?

Customers don't fully understand GMOs. There is a small number of people and we've seen this when we recently put information about GMOs on our website that are really into it, really understand it and are really excited about us removing GMOs. I would say the vast majority of our customers are largely unaware of which of their foods that they eat everyday contain GMOs, what the impact of GMOs might be. There is a lot of debate and uncertainty around the real impact of GMOs. So, we don't necessarily think that customers are going to want to pay more or going to visit more often. But all along the way on our food integrity journey we've always done things that we thought were the right things to increase the quality of the food, that was going to be more wholesome, more helpful and more respectful to the environment, and we think GMOs follow along that same thinking. And we think over time as our customers and as customers in general, as they discover more about where their food comes from and as they discover more about what Chipotle is doing to source these higher quality ingredients, we think that does build customer loyalty. So, we think it's going to be good for our business, Michael, but it's hard to say that there is a direct correlation between removing GMOs and people paying more or people visiting more.

And if I could sneak in one last one. Since the employer mandate in the Affordable Care Act is delayed by a year to Jan 15, do you plan to hold-off on offering insurance to your employees until then?

We are still studying that. That is a very possible outcome. The one challenge we're dealing with, Michael, is we've been offering for a number of years now a streamlined version that our crew have had the option to elect and then pay for this coverage themselves. It's called the Starbridge program. We're trying to figure out whether we will be allowed to continue to offer that. Right now, it's possible that we won't be able to, that we'll have to remove that. And so, we don't know how exactly to deal with our few thousand employees that are reelecting that. We'd like to not have to take something like that away from them. So we're still studying that. Right now, it's likely that we will delay it, but this is the one issue that we want to get our arms around before we make a final decision.

We’ll take our next question from Keith Siegner with Credit Suisse.

Just to dig into the traffic trends and the throughput issues, very, very encouraging obviously at 5.5 in terms of the traffic mix benefit. If you think through that Friday scenario you gave Monty, and how much of this might have come from expanding throughput initiatives, maybe breaking that down a little bit more, if you think, how much of the increase in sales on the same-store basis is coming maybe outside lunch? Are you seeing changing patterns in willingness outside this peak hours? Is it broadening out in appeal on that front? Maybe anything you can give us on comps at peak hour, how much of throughput and then comps outside peak hour as well. Thanks.

Yeah, great question. We really focus on throughput during peak hours just because that's where there is the most sand in hourglass, so to speak, and where we have the most opportunity to put people through faster and thereby avoid people walking away from the end of the line. So one of the things we're very encouraged by in the last couple of years is our ability to drive a better comp during the peak lunch and peak dinner times than we did during even the rest of the day. This last quarter that wasn't the case. The comp that we drove during peak lunch was slower than the all-day comp, although the comp that we drove at the peak dinner hour was slightly better than the all-day comp. So we're still achieving some really nice gains there. But the amount of additional transactions we've put through during the rest of the day were higher. So the -- what we call shoulder hours between lunch and dinner we did very, very well. We had unusually high comps during those hours. Now that can be caused by the fact that people choose to avoid the long lines and simply reschedule their lunch for a later time or it can be just be caused by the fact that we have a lot more transactions coming through the restaurants generally. This quarter -- second quarter of 2013 versus the second quarter of 2012, we actually had 25 transactions more per day coming through in each of our restaurants on average. Like I said, only two of those occurred -- only two incremental occurred during the peak lunch hour. So we're still proud to eke out those two because it's difficult during lunch to put through -- that's the name of the game is to put through more people during that busiest time. But like I mentioned, we're still little disappointed just because we think we can do much, much better. We know we can do better because our very fastest restaurants are way, way faster than our average restaurant. And as the lines build, we really want to continue to teach and encourage our teams to focus on these four pillars of throughput, which not only enable us to put people through the line more quickly, but also to just increase the quality of the customer experience a great deal as well. So we're very pleased in our ability to drive additional transactions to our restaurants. We're very pleased to be able to do it without adding a substantial amount of labor or any additional equipment. But we know we can do a heck of a lot better as well with the knowledge we've already accumulated about how to drive throughput. So we're excited to continue to work on achieving those gains as we get our teams more and more focused on this very important advantage of ours.

We’ll hear next from Bank of America and Joe Buckley.

Just a couple of follow up questions. Questions on the Sofritas sales mix you mentioned. Do you have any sense of how much of that is incremental of those California stores comping up better than the system?

Joe, we think very little if any of it is incremental. We've only done a little bit of advertising. A lot of that is done through tasting as customers come in. So we don't see any evidence that it’s incremental. So we think it’s all trade up. I think what's encouraging is that only half of the trade-off is coming from vegetarian. The other half is coming from some of our meat entrees. A lot of that's coming from chicken. So we are pleased by that. That's got a broad appeal. So we’re hopeful that over time that as people want to visit Chipotle more often and they’re looking for a little change in what they’re ordering, that they will order the Sofritas and it will add to our comp over time. But I would say right now we’re not really seeing anything that's obvious that it's incremental right now.

And then just a question on the marketing. Some of those statistics, Steve, that you shared were very impressive. Can you tell us a little bit more? Have you done different forms of marketing in different regions? Are there any other learnings you can share with us and do you have a sense that it is -- you are driving some of that nice traffic increase?

Well, we don't know exactly how much of the comp the marketing is affecting. But the numbers I shared with you I think are significant to us because we want to make sure that what has traditionally been a more difficult message for us around food with integrity, and things and marketing messages that are not typical fast food marketing messages. These different kind of messages were tough for us and we feel that we've been getting better at them over the last couple of last two to three years or so. I think we're feeling really good about skillfully made. And what we think is really important is over the long-term continuing to form a close bond with our customers, getting them not only interested in things that they haven't thought about before. There was a question about, are people asking for non-GMO foods, are they willing to pay for it? Well, it's a great question. But when I think about food with integrity in general, customers weren't asking for that. This is something that was very important to us and really was around conducting our business in a way that we think is open and honest and ultimately best for customers and the environment, and animal welfares and farmers and things like this. Customers aren't directly asking for that but when you help them understand the importance of these things, I think it develops a stronger relationship. So, that's why these numbers are significant to us because they're finding this marketing as increasingly relevant to them. And I think that's especially important as we go into new territory and start talking about things like GMOs. So, I'm very bullish. Again, how much of that, how much of the marketing contributes to the comp, we're not exactly sure. But we've always taken a longer term view in our market approach and rather than put out campaigns that will spike up sales or contribute to a quick comp, we would rather ensure that we're building the business consistently and long-term. We think that's ultimately better for our shareholders and for the business.

And then maybe just one more real quick on the, same-store sales increase was it all transaction, was there any deviation in the [check]?

No, it was all transactions, Joe, except for the one extra day. So the 5.5%, 1% of that came from one extra day, but the 4.5% underneath that was all transactions.

We will hear our next question from Jeff Bernstein with Barclays.

Just two follow ups. First off on the marketing line of question. It seems like you're very happy with the skillfully made efforts here and it looks like this quarter was a big spike in terms of what you spent. I think, Jack, you said 1.6% for all of '13. I'm just wondering, first, if you can just layout the biggest buckets within that. I guess in some way it is cultivate versus the coupons versus more traditional radio and billboard. Just wondering how you break out that bucket and then how should we think about '14 in terms of as a percentage of sales, if you're pleased where you are at this point. Like is there a feeling as to how high you would go or how much you'd be comfortable to increase it for next year?

Yeah, Jeff, 2014, it's too early to tell. We haven't really done our budgeting, but I would expect that we would be in the same ballpark, kind of this 1.6%, 1.7%ish kind of range. There is nothing that we've seen or talked about so far where we've talked about, yeah, let's really ramp it up. And in terms of the split, you know it varies by quarter, it varies by year, but I would say generally it's a reasonable split between what I’d call traditional advertising, the billboards, the radio and things like that. We’re probably putting more money into that this year than we have in the past and we've had one flight already. We’re going to do more of it beginning in August. So we’re probably going to spend a little more than we have in the past. Cultivate, we’ve added Cultivate. And so those are nice local, really having some close contact with people in not a marketing way, but in experiential way. So we’ve added one and so we’re spending a lesser amount on that because it’s only in three markets. And then we’ve got some other things coming up in the fall that Steve has talked about that are more similar to our back to the future video that we had last year -- I’m sorry back to start, not back to the future, the movie. But more in that entertainment where we’ll have a video series where it’s entertaining and there is also a message, a message about food and that's coming up as well. So it’s split up between a number of things like that. They’re very, very different. Some of experiential, some are traditional and some are very non-traditional. And as the year comes to an end and we look at how things went, we’ll revisit and then decide what we do in 2014. But I would expect the overall marketing expense to be in the similar ballpark.

And then a follow-up. I think you mentioned from a commodity -- I don't know if you gave us the basket per se. I think you had said that it’s going to be similar to slightly higher. I think you meant versus the 33%, so we should be assuming 33% plus in the back half of the year. Can you share how much what the basket inflation is at this point and how much is locked kind of thing?

Very little is locked, Jeff. We have beans locked. We have our corn for salsas locked just through the end of this quarter, the third quarter. And then we have re-up there. We have a few other -- I think we have rice locked and that’s about it. That’s the majority of what we buy. We have no locks in the meats. We have no locks on the avocados. That just not possible with what we’re behind there. So, really for the most part most of our ingredients are floating according to the market.

And lastly, you said the 4.5% underlying comps, it sounds like after the start of April it was very steady through the quarter at that 4.5%. And it sounds like you’re saying that’s where it's running in July. If that’s true the compares -- is there anything unusual about the compares? I know some of your peers talked about June and July last year, things really slowed down. So just wondering if you see it as very stable on a two year basis or how you read that month to month.

I would say the trends that we’re seeing are pretty stable. Nothing is stable when you go day by day or week by week. But when I look at the entire quarter and I look at once weather -- return to normal weather because in the first half of April with the Easter moving from one year to the next and then with the weather it took a while for spring to arrive. It was hard to get a read until the second half of April. Once second half of April appeared, when I look at the entire period all the way to July, it looks like a pretty stable 4.5% underlying run rate. I would say the compares are largely meaningless and the reason I say that is because the trends from last year was I would call it the third year of a trend that started three years ago with the recession and as you add up all the quarters for the last three years ending in 2012, we added about 27% to 28% in each quarter to our sales. And that was done since the recession. And now this is a brand new trend. The brand new trend was an underlying three in the first quarter and now it's a 4.5. It continues to feel like 4.5 as we're into this third quarter. So I think looking at comparisons to last year I think will not help you got diagnose the transit at all.

We’ll take our next question from Mitch Speiser with Buckingham Research.

Just a follow-up on Jeff's question. It does -- the trend of 4.5% traffic you're seeing that right now, but do the traffic comparisons -- do they get more difficult in August and September and you just feel that it's meaningless, but does it get more difficult for the balance of the quarter?

Well, if you went back to last year you would see that our comps actually were lower in the back half of the year. And I think if you were going to draw the conclusion, that, oh, lower comps in the back half of the year that means the compares are easier, I think that's where you would be misled. This trend that we're seeing right now is a couple of months old, still very young. It feels like a 4.5% trend right now and that's I think the best way to think about it. I think any kind of compares to last year, if you try to draw anything out of it at all, you might conclude that they're easier compares, but that's not the way to look at it. Those compares are really, it's the completion of a three-year trend that started three years ago. And so we kind of started with a clean sheet of paper with this trend, we're starting a brand new trend is the way I would think about it.

And a question on the non-GMO products. As a base the food costs were 33.1% in this quarter. If you were to implement this program of non-GMO products and assuming no pricing, what type of food cost percent should we think about modeling?

We don't know, to be honest, that's why we want to kind of hold off. We have to discover things like make sure that we get the right oil, that the oil performs the way that we want it to, that the taste is delicious. Ideally that would improve the taste of the food. We need to study things like yield and waste and holding times and things like that. There is a whole host of factors, and so we really don't know what the cost is going to be. So, we are going to take a very diligent, very thoughtful approach in this and make sure that we do it right in every single way. And the idea of holding on to any price increase until we understand all that and then try to find those, we think makes quite a bit of sense.

And if I can slip one more question in. It looks like Sofritas is on its way to go national perhaps. When we think about the kitchen and your ability to add new products, you've always focused on improving the existing products, Sofritas is new. Are there any physical capacity constraints in the back of the house if you want to add just say one new product per year? Is there a point where you may have to do a more meaningful reconfiguration in the kitchen?

In terms of the production capability back of the house, not only is there a lot more room for more volume production but there would also be room for different items. It's never been our thought that we want to hold back on new items because they are in some way difficult to produce. If you look at our kitchen, it's interesting. Lots of fast food restaurants employ very specific equipment to do specific tasks. We have things like pots and pans, knives and cutting boards and the grills and thing. So, you can prepare a wide variety of foods, all different kinds of foods with these basic kitchen tools. So, we are very, very well prepared, well suited to take on new tasks. The reason we choose not to, I think is twofold. One is that our very simple ordering system allows for great throughput. It’s as you know one of our competitive advantages. But I don’t know that we necessarily need to continue to add or we need to add things in order to keep customers coming. I remember 20 years ago people said, Steve, a menu with burritos and tacos, I mean, you are going to have to add new stuffs pretty soon. But it’s the combinations of things that people can make, not only for taste but for diet. And people can vary over the years during their visits that really keeps Chipotle fresh. So, I think it’s really, really important that we keep a simple streamlined, very efficient front line. That being said, the addition of Sofritas is really not something that we’ve noticed has any negative impact on throughput or the frontline operations. And it’s my hope, we haven’t seen this yet, but it’s my hope that we'll get more people who might not have thought about eating in fast food restaurants who might be vegan or vegetarian or just health conscious in general to maybe come and try us and learn that this is a new fast food. So Sofritas is a very special menu addition in that it really not only respects our Food With Integrity mission in the use of this non-GMO organic artisanally-made tofu, but it also has an appeal to those who are health-conscious.

We’ll move on to our next caller which is Paul Westra with Stifel Nicholas.

Just a couple of questions. One was a follow up on catering. Would you expect any roll-out costs impacting the second half as you ramp up the national rollout? And then a related question is, is the breakeven volume low enough where also as it begins to build and a little bit maybe --

Paul, I’m starting to lose what you’re saying. Can you speak a little louder?

My apologies. The question was on catering. Should we expect some rollout costs associated with the national rollout ramp later in the year? And a related question was the breakeven level you expect with catering. You’re about 1% now you said in existing stores. Would you suggest it's a breakeven level now or not?

Well, the cost of rolling it out is very insubstantial. There is a pallet of equipment that's delivered to the restaurant when we roll it out to a new restaurant. And once that equipment is stored and everything we're ready to go and the margins on catering are favorable so that we can comfortably begin serving it right away. In terms of a breakeven cost, no issue at all. There is zero cost on that. I think from the get-go, from our very first catering order served, we are achieving the margin that we would expect from it just like we would with any -- we’re serving a Burrito Bowl or anything else that we would serve. The packaging for catering has a cost to it, but most of the cost to that -- nearly all of the cost to that is rolled into the prices we charge for the catering spread. And we do ask for them to come back with -- we do ask folks to bring back some parts of the packaging in exchange which will give them a free burrito, but that's more just because we want to be responsible and we use those aluminum parts that don't wear out. So even if they didn’t bring that back, we'd be just fine from a margin standpoint. So really it is something that is profitable from the very first order and there is no -- really there is no roll out cost to speak of at all or very, very slight.

And when you think about that maybe being obviously a national mix by the end of this year, Sofritas may be coming national even later, I want to tie that into maybe your commentary or thoughts on the marketing spend. I can tell your brain is perfectly aligned with current trends and marketing toward digital and local and customizable. But those are two initiatives that seem perfect for maybe some national ad spend because I wanted to line that with what you’re thinking about the same market spend next year. And maybe do you have a thought about dialing up marketing around catering?

Well, in terms of the catering marketing, that doesn't really -- I don't think require anything different or an additional spend than we already have. That can easily be added to what we’re already doing. I would say the same for Sofritas. In our current advertising campaigns like skillfully made, we can easily replace that with pieces that would promote Sofritas. But there is a lot of local store marketing that we can employ to promote both catering and Sofritas, and I think we're getting better and better at our local store marketing tactics. And I think those are the ones that are really powerful, especially when there’s a deeper message behind something like Sofritas.

And then just one last question. We've seen some very good commodity cost declines at least in the base commodities corn and wheat, soybeans now. Is there anything -- it usually takes some time, 12 months maybe to show up later in the meat products, but there is nothing we should expect. I mean, obviously with these coming down and looking out for 2014 and I know you don't want to show your cards too much, but there is nothing that shouldn't be translated into your relatively benign cost for '14?

No, Paul. We think the same thing that generally there is a stable environment. I would say the one thing that could potentially be different is we've had real challenges from a supply standpoint with our meats, steak in particular. We're falling below 100%, chicken we fell below 100% actually [waited] for a while, we're back up to 100% now. So, there is a different supply and demand formula that's going on right now that supply just seems to be tight right now. So, it's possible that we might not see the same kind of deflation that commodity meats might provide but we don't see the kind of inflation pressure that we saw like at the end of last year. It does seem like there is stable pricing at least or stable cost at least, but we might not get all the advantage that the commodity everyday ingredients might bring.

Our final question will come from Andrew Barish with Jefferies.

Two quick things, on the mix that had been running negative, it sounds like it's turned to kind of flattish. Was that a little bit of catering and maybe some of the upgrades on the margarita side? And then secondly -- or just different consumer behavior maybe -- and then secondly on stock-based comp, that it come down in the first quarter and for the year, was there some more favorability here in the 2Q or not really?

On the stock comp, our dollar cost this year was higher than last year, what you saw in the first quarter was kind of a one-time thing. We had $6 million, I think it was a $6 million catch up adjustment in the first quarter of last year, and that was for some performance shares where it became apparent more likely than not that we would meet the performance criteria. And so we had a catch up adjustment for I think it was roughly a year and a half or so worth of expense if you will, once it became apparent in the first quarter of last year that we would reach their performance criteria. So that's why stock comp was lower Q1 this year versus last year. In the second quarter we were up a little bit. I don't have the numbers offhand, but it was up about 10%-15% something like that, Andy. So the growth was a little bit less than sales. Then overall for the year, most importantly we're going to be at about $66 million in total, which is about the same as last year. And then your other question is on mix, we continue to see that there is a slight degradation in drinks and that's what we're seeing before. But it's very modest, so it did lessen a little bit, and then we saw some offsets and a few other things, particularly like guacamole for example. And so, those two things just offset. And you'll remember in the past the mix that we were seeing was very, very modest, but we pointed out only because there was a slight difference between our transactions and the comps that we're seeing, but in this quarter the transactions just about exactly mirror the sales. So, no net mix of that whatsoever.

Great. Thanks everyone. Looks like we've exceeded our time, so thanks for joining us and we look forward to speaking with you next quarter.

Thanks, everyone.

Thanks, everyone.

Thank you.

Once again this does conclude today's conference. We thank you all for your participation.