Chipotle Mexican Grill, Inc. (CMG) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Chipotle Mexican Grill Second Quarter 2023 Results Call. [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Cindy Olsen, Head of Investor Relations and Strategy. Please go ahead.

Hello, everyone, and welcome to our second quarter fiscal 2023 earnings call. By now, you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.chipotle.com. I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements. These statements are based on management's current business and market expectations, and our actual results could differ materially from those projected in the forward-looking statements. Please see the risk factors contained in our annual report on Form 10-K and in our Form 10-Qs for a discussion of the risks that may cause our actual results to vary from these forward-looking statements. Our discussion today will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the presentation page within the Investor Relations section of our website. We will start today's call with prepared remarks from Brian Niccol, Chairman and Chief Executive Officer and Jack Hartung, Chief Financial and Administrative Officer, after which we will take your questions. Our entire executive leadership team is available during the Q&A session. And with that, I will turn the call over to Brian.

Thanks, Cindy, and good afternoon, everyone. The strength in our business continued into the second quarter, driven by our focus on exceptional food and exceptional people as well as the success of Chicken Al Pastor. For the quarter, sales grew 14% to reach $2.5 billion driven by a 7.4% comp. In restaurant sales increased 16%, digital sales represented 38% of sales, restaurant-level margin was 27.5%, an increase of 230 basis points year-over-year. Adjusted diluted EPS was $12.65 representing 36% growth over last year, and we opened 47 new restaurants, including 40 Chipotlanes. For the third quarter, we anticipate comps in the low to mid-single-digit range driven by transaction growth as we are rolling off of pricing. For the full year, we continue to anticipate mid- to high single-digit comps. Before reviewing our strategic priorities, I want to share a few organizational updates. As a way of maintaining a healthy growth mindset, we proactively conducted an in-depth review of our business needs and organizational structure to ensure we can deliver on our aggressive growth goals for future growth. This resulted in investments in areas like development, digital marketing and international expansion. At the same time, we also identified areas where we could better optimize our organizational structure, such as putting our end-to-end digital experience, including product design, analytics and the customer journey under Curt Garner, our Chief Customer and Technology Officer. Additionally, we streamlined our strategic project management process to focus on key projects and to enable faster and more efficient decision-making. These changes will further support our 5 key strategies that will position us to win today while we grow our future which include: number one, running successful restaurants with a people accountable culture that provides great food with integrity while delivering exceptional in-restaurant and digital experiences; number two, sustaining world-class people leadership by developing and retaining diverse talent at every level; number three, making the brand visible relevant and loved to improve overall guest engagement; number four, amplifying technology and innovation to drive growth and productivity at our restaurants and support centers; and number five, expanding access and convenience by accelerating new restaurant openings and laying the foundation for an international expansion. Starting with our restaurants. While Project Square One is wrapping up, we have made the decision to permanently embed the program within our training DNA. On a quarterly basis, our crew members will be retrained on key components ensuring we are always focused on being brilliant at the basics and that we never lose sight of training and developing exceptional people and preparing and serving exceptional food. Next quarter, we will reemphasize throughput and elevate our focus on proper deployment standards during peak periods, where we often only have 3 crew members on the front make-line versus our minimum deployment of 4. The fourth person, which is often the expeditor may leave the front line to help the digital make-line. Our focus will be on coaching the expeditor to stay on the front line and to bring together the items in an order and communicate them to the cashier as alleviating this bottleneck is critical for delivering great throughput. Additionally, we believe we have an opportunity to better optimize our smarter pickup times and deployment of labor on the digital make-line during peak periods. As you may remember, we began testing changes to the cadence of orders on the digital make-line in several markets to see if we could improve throughput by eliminating the need to pull a crew member from frontline to help the digital make-line. The good news is that in these restaurants, we are seeing an improvement in throughput on the front line and an improvement in on-time on the digital make-line. We will continue to test adjusting the cadence of orders on the digital make-line at certain restaurants and roll out where we see the opportunity to improve the overall experience. We remain confident that balancing the deployment between the front and digital make-lines along with continuous training and reps will further drive improvements in throughput. In fact, we have seen evidence of this in certain restaurants. I was recently in New York at our Chipotle on 50th & Park, and it was a great experience with delicious food and fast throughput on the front line compared to my experience at the same restaurant exactly a year ago. The improvement in throughput was certainly noticeable as deployment of labor between the front make-line and the digital make-line was more balanced. Over the last year, the field leader responsible for this patch of restaurants in New York City worked with the GMs and crew members shoulder to shoulder on throughput fundamentals. During his regular restaurant visits, he also followed up with consistent feedback like reminding his restaurants to have an EXPO in position during peak periods. By having the proper deployment with an EXPO in place and the right balance between the front make-line and the digital make-line, throughput in his patch of restaurants improved by nearly 5 entrees in the peak 15 minutes as compared to the prior year. His restaurants are also outcomping his region and the company average, demonstrating throughput drives performance. This is the type of leader we want to develop, one that builds a strong team, runs world-class restaurants, ensures we serve exceptional food every day and inspires our teams to achieve great results. And this brings me to our world-class people leadership. As part of our focus on developing our teams, we relaunched Cultivate University for our newly promoted field leaders, which is a 3-day training program on the skills they need to truly excel in managing their patch of restaurants. This includes developing future leaders, the foundations of exceptional throughput and culinary, why it's critical to protect our economic model and a culture of accountability. One of the most challenging transitions is from General Manager, managing 1 restaurant to field leader and managing around 8 restaurants. Cultivate University is a program that will be offered each year to support our new field leaders as they make this transition to managing a $20 million business. We remain committed to hiring and developing the best people to work at Chipotle through our competitive wages, industry-leading benefits and tremendous growth opportunity. In fact, we are on track to surpass our 22,000 promotions from last year and create over 7,000 new jobs with our restaurants anticipated to open in 2023. We are also relaunching our successful and long-running Behind the Foil ad campaign. This campaign provides unfiltered and emotional testimonials from our team members about the impact Chipotle has had on their lives as well as a glimpse into our daily preparation using our real ingredients and classic culinary techniques, a key differentiator for Chipotle. What better way to make the brand more visible, more relevant and more loved than to feature our talented restaurant team members preparing exceptional food. And speaking of exceptional food, our menu innovation has been outstanding this year. Chicken Al Pastor has proven to be a popular LTO with 1 in 5 transactions, including the new protein. It is boosting transactions with a strong repeat and is attracting new customers to Chipotle and also delivered the highest positive social sentiment of any new menu introduction and importantly, was simple for our teams to execute, which resulted in a win all around. As Chicken Al Pastor wraps up in late August, we have a planned new menu item for later in the quarter. Our rewards program is another way we aim to drive frequency within our existing customer base as our reward members come more often and spend more than nonrewards members. We launched Freepotle earlier this year, which was designed to deliver a strong value proposition and attract new members with 10 free rewards dropped into our members' accounts throughout the year. Freepotle has been successful in driving enrollments in the first half of the year as we surpassed 35 million reward members. With each strategic Freepotle drop, we are learning more about our customers' behaviors and utilizing those learnings to personalize future offers. We will continue to look for creative ways to drive enrollment and improve engagement in our rewards program. In traditional media, we remain top of mind at sporting events as we leverage the basketball playoffs as a high-profile opportunity to spotlight the Chipotle brand and through our NHL partnership, our Chipotle logo was featured on the ice during the Stanley Cup playoffs. Additionally, the return of the popular Chipotle Hockey Jersey BOGO day had the highest participation in the history of the program. Chipotle's ingredients continue to power many of the top male and female athletes on and off the field. Through our real food for real athletes campaign, we have showcased the inspiring journeys of athletes across all levels of sports and how Chipotle can help them perform their best by providing proper nutrition. Partnering with athletes and teams, along with traditional media around big sporting events has been an authentic and successful way to connect the brand to some of our biggest fans. Shifting to technology and innovation in our restaurants. First, I wanted to provide an update on the benefits we have seen from the dual-sided Grill, which we discussed last quarter. The new grill can cook the chicken in under 4 minutes versus 12 minutes on the plancha and can cook the steak in under 1 minute versus 4 minutes on the plancha. This allows for a faster recovery of freshly grilled chicken and steak resulting in more opportunities to remain in stock during peak periods as well as the ability to cook smaller batches, ensuring superior culinary. Additionally, the grill allows for more consistent execution with the same sear and char and maintains better moisture resulting in juicier chicken and steak with less waste. Finally, it takes one of the most complex positions in our restaurants and significantly improved learning curve, making it a more desirable role for our teams. The feedback from our guests and our teams continues to be very positive and we recently completed the rollout of the dual-sided grill into 10 high-volume locations as the next step in the stage gate process. We also began to do a broader rollout of our new third pan rice cookers, which eliminates our large rice pots and cooks the rice in our third pans that you see on the line. This streamlines the rice cooking process while delivering fresh, high-quality rice that scooped perfectly to our standards. It can also make single batches allowing for a faster recovery time, less waste during nonpeak periods and the ability to make white and brown rice at the same time. We have rolled this out to our new restaurants with plans to add it to another 200 existing restaurants this year. And as part of our Cultivate Next Fund, we recently invested in Webull, and together, we are exploring collaborative robotics that will drive efficiencies and ease pain points for our employees. One device that we are in the process of developing cuts, cores and peels an avocado. It's called the Autocado. This cobotic prototype saves time and eliminates a less favorable task, but still allows our teams to hand mash our signature block. As you can see, all of these initiatives have a common goal, which is to improve the in-restaurant experience for our teams and our guests while maintaining or improving upon our high culinary standards. I'm really proud of the work the teams are doing to leverage automation, technology and artificial intelligence, and it was nice to be recognized as one of Time Magazine's most innovative companies last month. Our final key strategy is to expand access and convenience. I'm thrilled to share the addition of Stephen Piacentini, as our new Chief Development Officer. Stephen has extensive experience at some of the largest restaurant brands and will lead our very talented and tenured development team as we look to reach 7,000 restaurants over time in North America. This year, we continue to target 255 to 285 new restaurants with over 80%, including a Chipotlane. And in fact, this quarter, we opened our 600th Chipotlane. In Canada, performance remains strong with 34 locations and we are on track to add about 10 new restaurants this year. We had our highest opening day ever in Canada this past quarter, which is a testament to the increasing excitement around the brand and our growth opportunity in the country. We also believe there's even more opportunity beyond the 7,000 restaurants we are targeting longer term in North America and we are laying the foundation for further international growth. Through our recent reorganization, we added resources to our European operations, including bringing over one of our top U.S. operators to Europe to drive productivity and better align our operations with the U.S. We look forward to continued progress in Europe over the coming quarters as we aim to set up the region for long-term growth. And finally, we recently announced our first ever development agreement with the Alshaya Group, to open restaurants in the Middle East, which will further accelerate our international efforts. The Alshaya Group has successfully expanded many of the largest global brands into the Middle East, North Africa and Europe, and they plan to open our first restaurants in Kuwait and United Arab Emirates in 2024. We're excited to offer guests in Middle East are responsibly sourced, classically cooked real food and look forward to furthering our purpose to cultivate a better world in this new territory. In closing, I want to thank our 114,000 employees for all their hard work to reestablish Chipotle standards of excellence and culture of accountability. Earlier this month, Chipotle celebrated its 30th anniversary of the opening of the first Chipotle restaurant in Denver, Colorado. What makes Chipotle special and has driven our success over the last 30 years is our people, our purpose of cultivating a better world and our focus on delivering exceptional food. Our culinary using the highest quality ingredients and classic cooking techniques makes our food delicious. Our customization, convenience and speed are differentiators and our value is simply tremendous. This has resulted in an industry-leading brand with industry-leading economics, and we still have a long runway for growth. We are well positioned to win today while we grow our future over the next 30 years. And with that, I will turn it over to Jack.

Thanks, Brian, and good afternoon, everyone. Sales in the second quarter grew 14% year-over-year to reach $2.5 billion as comp sales grew 7.4% with over 4% transaction growth, for the third quarter, we anticipate comps in the low to mid-single-digit range, driven by transaction growth as we roll off nearly 500 basis points of pricing in early August. We continue to forecast full year comps in the mid- to high single-digit range. Restaurant-level margin of 27.5% increased about 230 basis points compared to last year, and earnings per share adjusted for unusual items was $12.65, representing 36% year-over-year growth. The second quarter had unusual expenses related to corporate restructuring and corporate and restaurant asset impairments, including the closure of Pizzeria Locale. I'll now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 29.4%, a decrease of about 100 basis points from last year. The benefit from last year's menu price increases and lower avocado prices were partially offset by elevated costs across the board, most notably in beef, tortillas, dairy, salsa beans and rice. For Q3, we expect our cost of sales to be around 30% due to higher beef and avocado prices. Our supply chain team has done a fantastic job of diversifying our avocado exposure. And in the third quarter, the majority of our avocados will come from Peru. While prices are higher than the very favorable levels in the second quarter, we are less impacted from the volatility in the Mexican avocado market. Labor costs for the quarter were 24.3%, a decrease of about 50 basis points from last year. The benefit from sales leverage was partially offset by wage inflation. And for Q3, we expect our labor costs to be around 25%, reflecting continued labor inflation and seasonally lower sales. Other operating costs for the quarter were 13.9%, a decrease about 40 basis points from last year. This decrease was driven by sales leverage. Marketing and promo costs for the quarter were 2.4%, and in Q3, we expect marketing costs to step down to the low 2% range before stepping up in Q4 with the full year to come in right around 3%. In Q3, other operating costs are expected to be in the mid-14% range. G&A for the quarter was $157 million on a GAAP basis or $153 million on a non-GAAP basis, excluding $3.5 million related to corporate restructuring expenses. As Brian mentioned, we recently went through a review of our organization needs to ensure we're well positioned to meet our long-term growth goals. G&A also includes $119 million in underlying G&A. $29 million related to noncash stock compensation and $5 million related to higher bonus accruals and payroll taxes and equity vesting and exercises. For Q3, we expect our underlying G&A to be around $125 million and to grow slightly thereafter as we make investments in technology and people to support ongoing growth. We anticipate stock comp will be around $31 million in Q3, although this amount could move up or down based on our performance. We also expect to recognize about $4 million related to performance-based bonus accruals and payroll taxes and equity vesting exercises, bringing our anticipated total G&A in Q3 to around $160 million. Depreciation for the quarter was $79 million or 3.1% of sales, and we expect depreciation to increase slightly each quarter as we continue to open more restaurants. Asset retirement stepped up to $16.2 million, which includes $8.5 million related to corporate and restaurant asset impairments, including the closure of Pizzeria Locale. In the near term, we expect asset retirement to be around $8 million per quarter as we continue to prioritize the guest experience and focus on great ops. Our effective tax rate for Q2 was 23.8% due to an increase in tax benefits related to option exercises and equity vesting. We continue to estimate our underlying effective tax rate will be in the 25% to 27% range, though it may vary each quarter based on discrete items. Our balance sheet remains strong as we ended the quarter with over $1.8 billion in cash, restricted cash and investments with no debt. During the second quarter, we repurchased $88 million of our stock at an average price of $1,937. At the end of the quarter, we had $295 million remaining under our share authorization program. We opened 47 new restaurants in the second quarter of which 40 had a Chipotlane. And we remain on track to open between 255 and 285 new restaurants this year with at least 80%, including a Chipotlane. Our development time line remains extended, but our pipeline remains strong and we expect to move toward the high end of the 8% to 10% openings range once these time line challenges subside. In closing, when I joined Chipotle, we were approaching our 10th anniversary with just over 200 restaurants. We were determined to change the way people think about and eat fast food by preparing delicious fresh food using classic cooking techniques, sustainably raised wholesome ingredients and serving it quickly. Brian mentioned Chipotle celebrated its 30th anniversary earlier this month, and those fundamental values that made Chipotle successful are still deeply ingrained in our brand. Along the way, we've invested in food and integrity, expanded access and convenience through our digital channel. Chipotlanes and international expansion and continue to innovate within our restaurants to improve the overall experience. We still have a long growth runway ahead and a talented team excited to continue to build expand and evolve our brand and our purpose of cultivating a better world over the next 30 years. With that, we're happy to take your questions.

[Operator Instructions] And our first question comes from Andrew Charles from TD Cowen.

I wanted to talk about pricing plans in the second half, just given inflation in the beef and avocado categories. And what I'm looking to better understand is that is the price increase on the table for December when you historically took price in 2018 through '21? Or does the resumption of student payments on September 1, that could weigh on restaurant industry spending, I believe you want to bear -- potentially wait on that and see how that plays out?

Andrew, this is Brian. Our approach on pricing has been obviously -- it's a lever that we will pull as kind of the last thing we like to pull. But I think we've proven time and time again that the brand is very strong and the value proposition is very strong, and we have that pricing power to use. Obviously, I think you heard in Jack's comments, we're seeing some inflationary pressure both on the labor line and in some of the food areas when you pull out avocados. So it's something that we're looking hard at. And as we get closer to that fourth quarter, we'll make a decision on exactly what we want to do on the pricing front. I don't know if you want to add anything there, Jack.

No. Just I think Brian summarized it well, but we've had underlying inflation in the last 2 quarters but we've had benefits from lower cost avocados that's offset that. And then also, we got a benefit because chicken Al Pastor has really shifted to some of our customers from the more expensive beef into the less expensive chicken that's been a benefit as well. As those benefits subside, that's when the inflation will flow through, and that's where we'll have a clear view of the inflation impact. We will, as you suggested, look at our customer demand transaction patterns as well before we make any final decisions on price.

Okay. That's helpful. And then just on the 3Q guidance, I know that you guys called out that you're seeing about 500 basis points of price that rolls off in August. Can you just comment as well about the lowering consumer? I know last quarter, you guys were talking about sequentially, you're seeing some strength in that consumer. I just wanted to know what you guys have seen in recent months related to that consumer?

Yes. I mean this is one of the elements of, I guess, the consumer demonstrating how resilient they are. Both the lower-income consumer and kind of our higher-income consumers are showing really good strength. I think that's why we had such a strong traffic performance in the quarter, and we continued to exit that quarter with really healthy traffic or transaction trends. So we're not seeing any weakness in the lower-income consumer. If anything, they've continued to improve, and we're feeling really good about the value proposition we're providing all income levels.

Next question comes from David Tarantino from Baird.

First question, I just want to clarify how you're thinking about the third quarter from a comps perspective. And maybe, Jack, if you can just talk about the underlying traffic trend you're assuming in the third quarter relative to what you saw in the second quarter and whether that would imply any slowdown versus what you've been running?

Yes, David, the components of our guidance just give kind of general ranges and the menu price increase remaining after the August from last year rolls off, will be call it that 2.5%, 2.6% range. We're still expecting positive transactions throughout the quarter. In fact, we expect the transactions will probably be in the plus 3% to plus 3.5% range, somewhere in that range. We're still seeing a little bit of a mix impact. Our group size continues to normalize as people are returning to work. And so there's less of a channel shift between digital and in-restaurant ordering, but we are seeing that the group size is lowering. So this is the hardest part to predict, but we're assuming that somewhere in that 2-ish range. We'll see a negative mix because of group size somewhere in that 2% range. So those are the general components we're thinking about.

And Jack, when you seasonally adjust the trends, would it imply a slowdown? Or is this more of the same of what you delivered in the second quarter? I just want to make sure I understand whether you're seeing a slowdown in traffic.

Yes. So we're -- there is a subtle seasonality shift that we're seeing, David. We saw in early June as schools were letting out and as people started traveling more, we saw a little bit of an inflection point in transactions. We also -- when we stratified our restaurants, we did see that our restaurants in more touristy areas were benefiting. Restaurants in non-touristy areas were a little bit softer. And just recently, with the last 1.5 weeks or so, we're starting to see some normalization of that. So we're still reading through that. We assume there's not going to be a full bounce back in the fourth quarter, but we did assume the normal end of the rest of the third quarter. But we did assume that the normalization that we're seeing last week or so that some of that will continue. So we're still trying to do a read through, but it looks like there was maybe a little early vacations taking this year that didn't necessarily happen last year.

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

I just wanted to talk about throughput in the context of -- it sounds like the traffic is fairly stable. You talked about new equipment. I understand that cook times are down pretty dramatically. Could you translate that into some sort of throughput measure and kind of what you're seeing both presently and then what the opportunity is. I guess, as we think about throughput, the capacity is one side, but then making sure that you have enough demand there to move the customers through. And I'm trying to sort of understand the dynamics there. So anything you can tell us about throughput now and what you're seeing with the new equipment? And then I'll just have a quick follow-up.

Yes, sure. So we've made some really good progress on the throughput side, but we're not all the way to where we want to be. I think I've mentioned this earlier, where the good news is we now consistently probably have 3 people in the front line. But really what that needs to be is 4 people in order for us to achieve kind of our pillars of great throughput. And best part of reason why we're retrenching again on throughput kind of going forward here. But as I mentioned in my comments earlier, in the places where we've seen restaurants or patches adopt I would call it, great throughput execution. You're definitely seeing a move to the tune of 3 to 5 transactions in their best 15 minutes. So we know it's out there. We just need to do it as an entire enterprise, and we're focused on that piece going forward. As it relates to equipment and other tools to help us become even, I'd say, more efficient and faster. The double-sided grills are now in 10 restaurants. So not obviously across the system by any means but rather just moving to our stage gate process. That just enables cooking times to dramatically decrease. So checking goes from 12 minutes to 3 to 4 minutes then it goes from 3 to 4 minutes to 1 minute. It makes a position a lot easier, makes the culinary much more consistent. And then obviously, it gives us much more capacity on the plancha. So that's where we are with that. And then things like Autocado and Hyphen very much still in the pilot phase, meaning like prototype phase. But we're pretty optimistic about what both of those can do for us, but we're not in any restaurants yet with either one of those items.

Okay. And then just to sort of clarify, I guess a follow-up is you've been sort of working on throughput, and we've seen some really nice improvement over the last couple of quarters in transaction or traffic growth. It sounds like the anticipation is that it will be fairly stable. I understand the comparisons play into this. But like would you expect kind of another step change in traffic as some of what you're talking about best practices sort of disseminate across the system. Again, just trying to understand how to translate throughput.

Yes. No, absolutely. I mean I think there's a real opportunity for not only the continued strength in traffic, but a step up in traffic. As we get better at executing the pillars of throughput. And that's why I wanted to give that example of the one restaurant in New York. That restaurant is outperforming a region that's doing a really nice job. And the reason is because they're executing every element of our throughput pillars with excellence. And so as that happens more consistently across more patches or more restaurants, we anticipate we're going to see increases both in traffic and total comps. So Obviously, that comes with time. We're dealing with 110,000 employees that need to learn what great throughput is and what it looks like. But the team is making great progress. We're focused on it and I'm confident we're going to get a culture of throughput built in this organization.

The next question comes from Danilo Gargiulo from Bernstein.

So with the low to mid-single-digit expected comps in 3Q, what is giving you the confidence to meaningfully accelerate the trajectory in 4Q to meet the full year guidance? Especially as we think about the 4Q comparable sales potentially becoming more from traffic versus from pricing actions. What actions are you contemplating to sustain the momentum?

Yes. I mean, obviously, we're going to stay first and foremost, on enhancing our operational performance as it relates to throughput. So that will be a piece of the puzzle. We've got a new menu item that we'll be bringing out after we finish the run on Chicken Al Pastor. And then obviously, we'll evaluate what component of pricing it has in the fourth quarter as well, given some of the inflationary pressures we're seeing. So you line those things up, plus the strength of the trend that we already have. We feel really good about our full year guidance.

And maybe beyond this year, thinking a bit more on a multiyear basis. Historically, you have executed a more cautious international rollout across Canada and Europe. What drove you to undertake franchising? And specifically, why are you starting with the Middle East? So can we expect the combination of co-op and franchise mix in international markets? Or is this more an [indiscernible] step to fine-tune your international expansion plans going forward?

Yes. So you can probably anticipate more of a mix. We still believe company ownership in Western Europe makes a lot of sense. We just had the opportunity to visit with the team there in the last week or so. And they're making great progress in London, Frankfurt and obviously, Paris. I mean as we mentioned in the call too, Canada continues to really perform. So we're going to build 10 new restaurants on a base of 34. So you can see how we're stepping up the development there and the team continues to do a great job. As it relates to the Middle East and the partnership with Alshaya, as we looked around the world, we see there are certain regions where it's like, hey, this makes a lot of sense for us to partner as opposed to try and go at it on our own. The Middle East is that region. Chipotle as a concept based on the work we've done, we believe it will resonate and perform really well. And then when we had the opportunity to part with Alshaya, which we believe is one of the best operators in the region, we thought this is a great opportunity for us to experience what it's like to work with a great operator in more of a franchise environment. So we're optimistic. We're excited about getting those restaurants opened in Dubai and Kuwait. And we look forward to a really successful partnership with them. But we're really excited about where international can go both from a standpoint of partnerships and then company ownership.

The next question comes from David Palmer from Evercore ISI.

First, I wanted to follow up on the double-sided grills question and then touch on the personalized marketing. On the double-sided grills, you mentioned you're in 10 stores now and that it's maybe 1/3 of the cook times, what is the pace that you anticipate on rolling that out? And as far as the metrics that we would focus on, what do you think ultimately would be the benefit to sales and profit from those grills?

Yes. So look, we're obviously really excited about what we're already seeing just in the 10 restaurants, both from a standpoint of yield, quality of culinary and then the team's ability to execute over and over again. So the excitement around the new cooking equipment is terrific to see because that means we're going to get the execution that we would want. To roll this out, it's probably 1 year plus project. And the good news is the manufacturers have the capability to scale to what we need once we give them the green light. So we're pretty excited about this because obviously, the bigger the volumes get with the amount of transactions that we're doing, the fact that we now have even more capacity on the plancha is a terrific outcome. And then it turns one of the harder jobs to train into one of the easiest jobs to train. And when the culinary is consistent, people get great chicken or steak, we know they love Chipotle and they come back. So we're still dialing through all the components of the puts and calls on this, but it looks very promising based on where we are in the first 10 stores.

And then on personalized marketing, I think you recently launched that. There seems to be something that would have a long runway to it, where you could have different iterations and ultimately having AI be a component to it. Are we already seeing anything different from personalized marketing? Where do you see this going? And maybe give us a sense of how this could be impacting your business going forward?

Yes, sure. So I mean, look, probably the most visible spot is just in the app would be suggestive sell. You'll see already some personalization on what we're offering as far as recommendations go to add to your order based on your history with the brand. And then obviously, this goes all the way into the cohorts and the journeys that then we create. And we believe you do this across our 35 million rewards customers. It now has meaningful scale where the customization results in loyalty that results in, obviously, additional sales. So the most visible space, probably you'll see it in the app or the web, and then it's probably more nuanced in how we communicate and how often we communicate with you and what exactly we save you. But all the experiments we're running, we're continuing to see nice positive outcomes with every iteration that we do. The next big step for us is to roll this out in a way where it covers a lot more people at a much more meaningful scale so that you feel it on the entire enterprise.

The next question comes from John Ivankoe from JPMorgan.

I actually want to meet with the comment about excess capacity on the plancha. It's actually an interesting point. Do you think that it significantly broadens additional product opportunities that Chipotle can do? I mean the double-sided grill takes care of that you have the chicken and the stake and presumably, maybe the plancha can be used for something different than what you're already selling? How big of an opportunity is that in your mind?

I mean, look, we always want to make sure we execute the menu with excellence. And we like the cadence that we're doing as far as new menu items go right now. But yes, it definitely frees up the capacity, which then allows us to evaluate how we do new menu items and maybe how long we want to keep certain menu items on. And so that is a big unlock for us. I'd say the biggest benefit, though, is and when the restaurant opens at 10:30, you don't have to start cooking chicken at 8:00 in the morning because now we can be ready for that lunch business closer to the timing of lunch because it just takes a lot less time to cook all the chicken to be prepared. It also allows us to recover a lot faster. So in the event you have a really big launch push at 11, you have the ability to recover for that lunch push that might be coming at 12. And so these are the things that I think, are going to be really powerful for us going forward. And then also the simplicity of which the cooking creates for the team members is a big unlock too because then the culinary is just that much better every single time.

Yes, I got it. And I agree and experience. Let me pivot to another question. You've been alluding to, including on this call upward bias to the 7,000 North American store target. I mean, I guess, are you prepared to start thinking about numbers? And is it thousand, is it thousands and I want to ask it in the question. Some years ago, I remember, I don't remember exactly when it was. It used to be discussed that Chipotle would be a $10 billion brand. Well, here we are in '23 and all likelihood it will be a $10 billion brand. Sorry for that. If you were to just look at the overall North American opportunity today and I guess, to some extent, free the economy, how big of a brand do you think Chipotle could be just based on what you know about the North American consumer market today in terms of how big we can expand from here?

Yes, sure. I mean, look, we're not ready to change the number yet. But the good news is the economics of every new restaurant that we open continue to be just terrific economics where hopefully, we'll get closer to the higher end of that 8% to 10% once kind of we work through a little bit of the bottleneck that we have on development. But I believe we're going to continue to grow the 4-wall revenue and then obviously, the economics that come with it. So we're not even moving the 7,000 store count, if you all of a sudden find yourself at 3 million, 4 million average unit volumes, you're in that $20 billion to $28 billion range. So lots of growth in front of us. And that's without having to be really all that aggressive. That is just executing the plan we've been talking about. And I think as long as Chipotle stays focused on great culinary, great throughput, developing team members, so we're ready to go when we open new restaurants, the number will grow. I think Jack told me when the company first went public what was the number, Jack?