Good day everyone, and welcome to the Chipotle Mexican Grill Second Quarter 2014 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, today’s conference is being recorded. I would now like 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 2014. It may also be found on our Web site 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, conference comp sales increases, the impact of menu price increases, trends in food costs, marketing spend and other expense items, effective tax rates, stock purchases 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 these forward-looking statements. We refer you to the Risk Factors in our Annual Report on Form 10-K as updated in our subsequent Form 10-Qs for a discussion of these risks. Our discussion today will also include Non-GAAP financial measures, a reconciliation of which can be found on the presentation page of the Investor Relations section of our Web site. I'd like to remind everyone that we've adopted a self-imposed quiet period, restricting communications with investors during that period. The 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 continues 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 will now turn the call over to Steve.

Thanks, Alex. Well, I am extremely proud the performance our team has delivered during the second quarter. Not only were we able to continue the momentum we saw in the first quarter and late in 2013, we actually accelerated our momentum in the second quarter. Our revenue for the quarter grew to $1.05 billion, an increase of 28.6% and was driven by same store sales increase of 17.3% and the opening of 45 new restaurants. This produced diluted earnings per share of $3.50 for the quarter, an increase 24.1%. Our ability to generate such strong sales growth is the direct result of our restaurant managers and crews providing an exceptional dining experience, which keep the customers coming back and allows us to build such a strong customer loyalty. Ultimately our performance comes down to our continued focus on strengthening our unique food culture and our special people culture. Our food culture starts by finding the very best ingredients we can, with an eye to sustainability and great taste and continues by teaching our teams how to turn these high quality ingredients into delicious food using classic cooking techniques. We are confidently elevating and challenging ourselves to find even better ingredients and better cooking techniques so that the food we serve in the years to come is even better than it is today. Through our people culture, we are developing the future leaders we will need to achieve our vision to change the way people think about any fast food. This starts by hiring teams of all top performers and empowering them to achieve high standards. The strength of our people culture is what allows us to provide such extraordinary customer service and maintain such strong unit economics. During the quarter, we took some important steps to strengthen our food culture…

Thank you, Steve. It makes me proud to see our restaurant teams deliver these spectacular results in the quarter at a time when our customers have more dinning choices than ever before. Yet more and more customers are choosing the Chipotle because the top performing managers and their crews provide an exceptional dining experience that keeps our customers coming back and leads them to tell others about their fondness for visiting in Chipotle. We have amazing people culture and the foundation of that is a group of terrific people who all believe in the same dining principal, that each of us will rewarded based on our ability to make the people around us better. Our people are committed to our mission to change the way people think about meat fast food and they understand that the only way we will accomplish this is to have a special culture, a culture of top performers, who are empowered to achieve high standards. This is the restaurant true culture. It is the focus of every focus of every person in this company, enabling us to create a terrific dining experience and produce outstanding results. The strength of our culture allows us to have exceptional customer service, delicious food and an inviting atmosphere in our restaurants, all of which leads us to a strong unit economic model, while also setting us up for continued success, because these top performers strictly rise into broader leadership positions within the Company. Throughout the quarter we continued to promote new restaurateurs, the elite managers who best demonstrate what our culture is all about. If you include field leaders who have come through The Restaurateur program, those who have been promoted to a prior team leader or team leader even team director positions, we have more than 525 of…

Thanks, Monty. We’re pleased to report another quarter of very strong financial results. In fact our second quarter results represent one of our strongest sales comps as a public company, second only to the first quarter of 2006, our very first quarter as a public company. Back then had under 500 restaurants averaging about $1.5 million in sales and while the 19.7% comp back then was impressive, we’re even more proud of the 17.3% comp this quarter, considering we now have nearly 1700 restaurants, averaging $2.3 million in sales. In fact on an annualized basis a 17.3% comp would result in adding an incremental sales layer that is nearly equal to our entire company sales back in 2005, the year before our IPO. But more importantly than the comp itself is that we achieved this result by continuing to focus on building a special food and people culture and a strong business model, which results in providing exceptional dining experience to our guests and creates shareholder value for our investors. Our comp of 17.3% in the second quarter helped to elevate our average sales volumes for restaurants opened for at least 12 months past $2.3 million for the first time, and the comp also helped push our sales above $1 billion in a quarter for the very first time. Overall sales for the quarter increased 28.6% to $1.05 billion, driven by the comp and from new restaurant openings. Year to date sales were $1.95 billion, an increase of 26.6%, including a comp for the year so far of 15.5%. The quarter comp was primarily driven by an increase in customer traffic, along with an increase in our average check, which includes a 2.5% benefit from our menu price increase rolled out during the quarter. Average check in the quarter was…

Absolutely. (Operator Instructions) We will take our first question from Joseph Buckley with Bank of America Merrill Lynch.

I guess the question about the transaction can increase being so strong, I know a couple of quarters ago you spoke about new diagnostic tools to help the multi-year supervisors analyze restaurants and help the managers become restaurateurs faster. Is that kicking in in a significant way, or are there other factors that you'd point to when you look at the tremendous transaction growth?

Thanks Jo. I’d say it is kicking in, in the sense that when -- if you look at my opening comments, I talked about how a number of things are moving throughput and as we always say that the most powerful thing we’re doing to move throughput along is just having more restaurateur teams and more teams of really top performing teams that were super-super empowered and so that’s kind of number one. I would say that the restaurateur diagnostic tool that we rolled out is one of the very powerful tools that's helping our field leaders connect very directly with managers and helping those managers understand very clearly what they need to do in order to develop those teams with top performers that are very, very empowered. So the teams in our restaurants are getting stronger as a result of that tool and are much more aware of what the opportunities are for them and as they build stronger teams, that's the number one thing adds horsepower to our ability to generate great throughput. But on top of that, we continue also Jo to measure the incidents by which we’re achieving the four pillars of throughput in our restaurants. So we have reports to go out to our field leadership that let them know how their batch of restaurants is doing in terms of achieving the four pillars. And that continuous measurement and awareness on the part of our field leadership has really helped them to continue to move the needle on transactions. So I would say those two things are the things that have helped us the most in continuing to improve and feed up in terms of that very important aspect of our customer service.

Is your peak hour throughput at all-time record levels now?

Yes, it is. We’re the fastest we've ever been at lunch time and at dinner time but the average throughout the entire day are speeding up as well. So we always talk about lunch and dinner because that’s the time that it’s hardest to speed up but the reality is the percentage comp that we’re getting at the other times of day that aren’t peak lunch and aren’t peak dinner are actually better. So during the shoulder hours, after lunch and so forth, we’re actually getting a better comp than our comp during those periods of time, but we’re very pleased that lunch and dinner are still moving on at a clip that's very near our overall comp.

We’ll take our next question John Ivankoe from JPMorgan.

If the question was on advertising and promotion; firstly if you think you have the optimal spend or it might be a potential for you spend more money in the future -- it's hard to imagine but you get an even bigger sales lift than what you’re currently getting. And that's a question not just in terms of the awareness of what makes Chipotle special differentiated to your existing customer but how big of a addressable customer market do you see out there that currently maybe hasn’t experienced Chipotle, which presumably might do so under the influence of marketing. JPMorgan: If the question was on advertising and promotion; firstly if you think you have the optimal spend or it might be a potential for you spend more money in the future -- it's hard to imagine but you get an even bigger sales lift than what you’re currently getting. And that's a question not just in terms of the awareness of what makes Chipotle special differentiated to your existing customer but how big of a addressable customer market do you see out there that currently maybe hasn’t experienced Chipotle, which presumably might do so under the influence of marketing.

John, we have our Chief Marketing and Development Officer, Mark Crumpacker here today who can answer that question directly.

Sure John. With regard to the marketing spend, I think it’s pretty well optimized but our marketing doesn’t rely on typical promotions and new menu items like most fast food restaurants do. So the type of advertising that we do is just top of mind awareness which we do at about 34 of our main markets around the country and that’s done through billboards and radio ads and there's really only still much of that type advertising that’s needed to raise the awareness to the level that we want. The real heart of our advertising lies in the other activities which are our local marketing program which are getting people into the restaurants through fund raisers and our cultivated better world marketing, which is where we’re really connecting with people on a more emotional level that really creates long term brand value. So we really like the balance that we have between those things with regard to the spend. To answer the second part of your question, we think there is a big market of people that have not either been to Chipotle or don’t come to Chipotle regularly. When we do our research, we find -- it always surprises us because the brand enjoys really high general awareness. We're always surprised at how few people really are regular customers and so there is a tremendous amount of upside for us but as I mentioned earlier our strongest marketing is the type that connects with people emotionally and so we're going to continue to invest in the type that we think is going to create word of mouth, so that one customer tells their friends and so on and so forth and that we really think is the best approach.

We will go next to Jeff Farmer from Wells Fargo. Jeff Farmer – Wells Fargo: Just following up on that theme there, I was curious if you guys could share with us how your demographic has changed over the last several years across age and many other relevant metric and just along the same lines, getting to John’s question, I’m just curious if you guys have an accurate read on our frequency trends from some of these core guests? Are they doubling down on their visitation? How should we think about again some of the heart of that traffic increase over the last couple of quarters?

Well, with regards to our demographic, we haven’t seen a large shift. At Chipotle of course, we have a very, very wide range of folks that come in to the restaurant. One thing that I have noticed in the research lately is that we've had an improvement in the team market across all different economic backgrounds. So we have strengthened and are actually according to our Piper Jaffray survey, the most popular brand with male teams, which is up from the same quarter a year ago. So of course we are really happy about that because those young kids become lifelong customers and they bring their kids and their parents and their friends and their parents to the restaurants as well. What was the second part of your question? Jeff Farmer – Wells Fargo: I am sorry, read on frequency in terms of core customer. What that's looked like over the last several years if you're seeing that number increase pretty materially?

Actually we haven’t seen a huge increase in frequency of our core customer. What we have seen is increase in the types of customers that are coming in as I mentioned earlier. We are doing better with the team market. And we think what’s happening is we're actually just expanding our customer base overall and I can’t contribute to significant increase in frequency from a core audience.

We take our next question from Jeffery Bernstein from Barclays.

Just a question as we think about the units and talking about the strong pipeline in ’14, I think you said 70% of those units are going to be proven markets. Just wondering as you think out, now that we're more than halfway through ’14, as you look to ’15, it sounds like that pipeline continues. I’m wondering whether as you look at it, what the limitation might be or if there is none at all? Obviously you want to maintain a steady pace but I’m just wondering whether people or real estate that would be the gating factors just as you consider, the strong acceleration and traffic trends that we have seen?

Well, yes. Those are both the gating factors and we actually talk about it more than you would imagine in terms of which might be the gating factor and I think that we feel really good about that type of real estate we're seeing out there. Like Jack said we were staying at 53% to 54% of our restaurants are now in new construction and that number has been ticking up over the last I would say prior eight to 12 quarters. And that enables us to find more real estate. And that being said, there is more competition for some of those new sites that are coming out and so that's something that we're always watching. But I think another thing that we keep finding is -- and we found this to our A model strategy but we find it now as well, is that Chipotle is welcome more places, in more locations than we ever would have though before and so we are able to take a little bit more risk in going into some trade areas that are a little bit off the beaten path. And so when we look in the outer years, I think we are at a higher confidence level than we have ever been in terms of Chipotle’s ability to be successful in all of the markets throughout the country and beyond, even places where -- that just weren’t on our radar screen a few years ago, some of which I mentioned in my opening comments as some of our new markets for the next year, excuse me, for this year and the next year. So, we are able to go further and further afield, and of course, that brings up the issue about how we're doing on the people pipeline and right…

We will take our next question from Sara Senatore from Sanford.

I just have a couple of follow-ups. The first is on sort of thinking through the comps. You talked about some of the marketing and clearly I think the catering and also obviously throughput. So people are coming because the lines are shorter. But one of the things that I think we heard from Jack is this idea that it's compared to a tougher sales momentum. Adjusted for that we wouldn’t expect transaction comps to be the same. I think we have kind of heard something similar in many of the recent quarters and I'm just trying to understand if it’s kind of natural conservatism or if we should be thinking about a driver that is somehow different in the coming quarters versus what we have seen really accelerate traffic in recent quarters, be it marketing or may be the ability to just improve throughput, maybe it gets somewhat diminished. So, just trying to understand if you could drill down a little bit more into the transactions and how to think about them?

Yes, I will start with the last part of your question where you said -- where you sort of made this assumption that the gains and throughput might diminish over time. I tell you, I don’t accept that as being something that’s going to be true in the near or even medium term, perhaps not even in the long term. And we've been able to continue to improve throughput now consistently and I think that as I said earlier in response to your question, the things that drive throughput the most are more restaurateur teams and better teams in the restaurant and also really measuring and teaching our field leadership about which aspect of the four pillars of throughput they might be missing out on. So, I think there is a lot of room to grow that and one thing that gives me confidence about that is when we measure our 15 minute transaction counts, that which we can achieve in our restaurants during a 15 minute period rather than a whole hour, that number is higher. If you multiply that times four to cover a whole hour it’s much higher than our average throughput number is, which shows that every restaurant basically has a skill to deliver throughput at a much higher level than they are currently doing. And so the fact that our restaurants have that skill and the fact we continue to see those numbers increase makes me confident that throughput is something we can improve on for a long, long, long time but that’s only one aspect of what makes up our comp and certainly an important one but you mentioned other things, catering, marketing. May be Jack can talk about the rest of your question.

So, I think the essence of your question is, is our comp forecast too conservative because we're saying that we would expect the underlying transaction to decline as we go up against tougher comparisons in the next two quarters. The challenge with predicting what our sales are going to be, what are transactions are going to in the future, is as Mark mentioned we don’t have things like limited time only. We don’t have special promotions. We don’t have new products. So we don’t have anything that we say okay, in the third quarter, in the fourth quarter, we're going to do something, some kind of a gimmick or some kind of marketing emphasis to try to get people in. So we would tell you that we'll continue the momentum. And we don’t spend a ton of time, I will tell you, trying to predict what the sales are going to be. We spend most of our time trying to engage with our customers, trying build the strongest teams we can to create empowered cultures in our restaurants, so that when marketing encourages people to come in to restaurant, when a friend say hey, you ought to try Chipotle and when new customers show up at Chipotle, that they have an extraordinary experience and if that happens they are more likely to come back. Now, I hope that we end up talking a quarter or two from now and we look back and say, yes, it turns out it was conservative. But for us to say that we will continue momentum on top of the 6.2% in the third quarter, the 9 point something percent in the fourth quarter would be difficult to do at this time. But it’s more of a math challenge because of the way we do our business than anything.

Okay, and just, what if I could throw in one question about ShopHouse and Pizzeria Locale. Does the fact that your core Chipotle business is so strong and you are working so hard to get the right people in place, does that have any impact on your ability to grow those or if they can all be kind of grown at the appropriate pace at the same time?

It really doesn’t impact our ability to grow the teams at those restaurants. When we opened the first ShopHouse and subsequent ShopHouses, we did initially seed them with some of our very talented restaurateurs and crew from Chipotle. But really most of those people hired as brand new employees to ShopHouse other than a few of the top management people. The same is true with Pizzeria Locale. It’s a group of people who, for the most part have never worked at Chipotle. And so these concepts like Chipotle Europe as well are all seeded initially with a few Chipotle people but really are growing it completely in an organic fashion, all striving towards that restaurateur culture and all trying to hire top performers who they believe can be the future of their restaurants. So, you can look at every single restaurant we opened. Each and every one is a potential sort of people thump to create leadership for the rest of the organization and so growing more restaurants really doesn’t diminish the amount of leaders we have but gives yet another opportunity to increase the amount of leadership we can choose from.

We will take our next question from Brian Bittner from Oppenheimer & Company. Brian Bittner - Oppenheimer & Company: Jack, you talked about the opportunity to accelerate EPS growth as the pricing, the full effect of the price increase rolls in starting in the third quarter. You’ve got a bit less than half of the benefit from your pricing rollout this quarter. Obviously, you start getting the full benefit starting in the third quarter. And you talked a little bit about the food margin dynamic. I think you said 100 basis points or more benefit in the third quarter versus the second quarter. But can you just walk us through the other line items within the four walls? And as we think about the 27% restaurant margin you put up this quarter, maybe you can help us craft and understand how that changes as the full effect takes place starting this quarter?

Yes, it depends Brian on if we see any resistance. So if we see any resistance in fewer customers coming or if we see customers trade down, where they're not buying as many sides, now buying as many drinks, not buying Chips & Guac. So far we're pleased with what we’ve seen. We haven’t seen much trade down. We’ve seen -- in my prepared comments I talked about the fact that we’re seeing some -- a slight shift from stake to chicken. But if that continues, we still have another -- I guess it’s between 3.75% and 4% additional effects of the menu price increase. So if there is no more trade down and let’s say at that 3.75%, you could see another 250 basis points, maybe 275 basis points in additional margin. So if you take all the rest of the line items, you could see some significant additional margin. I mentioned in just the food alone. But the rest of the P&L is leverageable as well as the rest of the menu price increase flows through. Brian Bittner - Oppenheimer & Company: So not to be overly bullish here, but you do see an opportunity in the past to get to 30% restaurant margins, sometime in the second half, possibly by 2015?

If all goes well. Right now our projection is that we’re not going to see much more food inflation that we're not going to see much more in terms of trade down, either loss transactions or trade down because of the price increase. And so if we don’t see anything unusual that happens over the next few quarters, yes, just the pure math of allowing that price increase flow through is going to push us up close to if not at 30%. That’s definitely a distinct possibility.

We will take our next question from David Tarantino from Robert W. Baird.

My question is really about some of the commentary you made earlier on the unit growth and Monty, I think you mentioned that you are finding new places that you never considered going in the past that are working now. So I was wondering if you’ve given any recent thought to what the long-term unit opportunity for the Chipotle in the U.S. is? I now you had stated some goals around the time of the IPO, but it sounds like you might be thinking something higher than that at this stage.

Yeah, David, afraid to bore you with my answer because you've heard it before. It really hasn’t changed much and that is that given the numbers we came up with, just extrapolating from how we view the top 150 metropolitan statistical areas even at the time of the IPO, those numbers get pretty quickly up in that sort of 104,000 sort of restaurants. And we do believe that we can build a lot of restaurants in the market that weren’t on that top 150 metropolitan statistical areas that we started to do so. But we don’t spend a lot of time modelling exactly how many there could be because that number of 4,000 plus restaurants, that’s a number we guided towards this year of 180 to 195. That's sort of 15 to 20 years out. So obviously there is a lot of room for growing at that pace before we’d ever get near that number. But I would tell you that I have a level of confidence without having going out and done a study as to whether that number is another 500 or another 1,000 more than we used to think it was. I think we that we have a lot of confidence that as we approach -- as we get closer and closer to that number that will be a moving target because the acceptance of Chipotle’s brand has exceeded all of our expectations and I would say that in terms of -- if you look at some of the markets that we used to call developing markets and in fact the markets that we even thought were failing markets to be quite honest like California some years ago, California went from a developing market to a never mind we won’t build in California market and then overnight…

We’ll take our next question from Nicole Miller from Piper Jaffray.

I was hoping you could touch on the new formats or format that you have, the opportunity to open some equipment improvement you’re making, lead certifications, things of that that nature. I’m trying to understand if you view those as defensive maintenance like investments or if potentially there's a consumer facing nature to those investments and maybe that’s also helping drive traffic. Can you help us think about that please?

Nicole, this is Jack. So when you say new formats, can you clarify what you mean by that?

For a while now you could have a smaller format, different configurations, upgrades, things of that nature.

You mean like a model?

Yes.

We’re giving a lot of thought to that and I think one thing that’s generated some of those thoughts is some of the higher occupancy costs that we see in Europe and how it may be prudent for us to try to take some much smaller pieces of real estate in France or England where the occupancy cost is super, super high. And we’re looking at some sites right now in the United States as well where these stores would be really, really, really small and where we’d very-very seating and I think that there’s a number of reasons why we think that that is a good idea, one of which is that, whereas we used to be mostly a dine-in restaurant 14 years ago, and I'd say about eight years ago we were 50-50 dine-in, take-out, now we’re about two thirds take out. So I think that the seating component of what we do has become a little less important as more people know who we are and also we’re more comfortable with it now, now that the brand has been more established. So we aren’t as worried about -- we aren’t as concerned about someone coming in and not getting ‘the full Chipotle dining experience’ of being part of the restaurant atmosphere. So, we feel good about the idea of going out and building some really, really small scrappy restaurants and we will continue to experiment with that in the future and see how those might give us yet another way to grow sensibly and quickly in some of our markets where other real estate proves difficult to find.

And then just kind of as a follow up or a part B, maybe just to clarify the other part of my question is do you get credit; for example having a lead certification. I’m just picking out one thing but much like food with integrity, do you see building with integrity as something that’s influencing customers that you could point to and say we see this as something that they care in helping us drive trends. Is it something that shows up yet?

Not really. I think that we do a lot of these things, from food with integrity to the way we think about -- the way we build our buildings and to the way we think about just doing the right thing by way of our people culture and the way we select our leaders for our company. All of these things are things we do because we know that they’re the right thing to do. Food with integrity was something we put a lot of effort, a lot of investment, lot of passion into, way before there was any evidence that anyone cared about it -- or was it a majority of people cared about. And I think that to the extent we got research back from our marketing team, it still shows that there are a whole bunch of people, probably the majority of people who come to Chipotle who, while they might think it’s nice to have, it’s not central to their decision to eat with us. But this is why our marketing team has worked so hard I think to just start to celebrate some of these points of differentiation and start to generate more and more conversations about where Chipotle’s going, and what we’re doing differently than other companies. And so while we don’t get credit on any given -- I don’t think on any given day for all of a sudden, hey they’re doing great with lead certification, they’re building their buildings more carefully and even food with integrity. We think it’s the right thing to do and we think as people get to know us in a deeper and deeper way and our marketing team’s done a great job of accomplishing that, it’ll be something that either causes more word of mouth about Chipotle, which will lead to additional visits or will just delight some of the people who have already loved Chipotle because it tastes good and they think it’s a good deal. As they find out that we’re doing things that are really special, it will just generate even more loyalty from them and even more excitement when they talk to other people who maybe haven’t tried Chipotle before. So I would say we don’t do any of those things because we think it drives immediate benefit to us in terms of sales. I think we do them because they’re the right thing to do and I think we’re getting better and better at having Chipotle and our core values understood more broadly and as that happens I think that we will see more and more people coming to us for that reason.

And we will take our final question from Jason Left with Deutsche Bank.

Just a couple of cost related questions, first with some of the shifting of the beef supply overseas, can you talk about how that may affect your cost structure on the food side and there’s more products that you’re looking at to move to international markets and then secondly on the outlook for incentive comp, if we should be planning for that to be somewhat different next year in a way that’s structured at maybe lot lower costs or is it too early to say on that?

No, I think what we're really doing on the beef side of things just trying to get the right beef into our restaurants that we feel good about from the Food With Integrity standpoint and the move that Steve discussed during his opening remarks with regard to getting an amount of Australian grass-fed beef as they move towards sustaining and increasing our ability to have beef that we’re very, very proud of in light of not being able to enough that meets our protocol domestically. So it is not going to cost more at this point if there is not increase cost from that. So we would not suspect that'd be something that would give us pressure.

And Jason on the comp for the next year, our comp, that’s in hands of our comp committee. They have been meeting to consider the vote from last year and what they would like to do with that. So that’s in their hands. So nothing to report at this time.

All right, thanks everyone. We have exceeded our time for the call but we appreciate and thank you for joining us and we look forward to speaking with you net quarter.

Thanks very much.

This does conclude today’s conference. We thank you for your participation.