Chris Arnold - Director, Communications Steve Ells - Chairman and Co-CEO Montgomery F. Moran - Co-CEO John R. Hartung - CFO Mark Crumpacker - Chief Marketing and Development Officer.

John Glass - Morgan Stanley David Tarantino - Robert W. Baird Nicole Miller Regan - Piper Jaffray Unidentified Analyst - JP Morgan Jeffrey Bernstein - Barclays Capital Brian Bittner - Oppenheimer & Company Jeff Farmer – Wells Fargo Bryan Elliott - Raymond James Joe Buckley - Bank of America Merrill Lynch.

Good day and welcome to the Chipotle Mexican Grill Third 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, this conference is being recorded. Thank you.

I would now like introduce Chipotle’s Director of Communications, Chris Arnold. You may begin your conference..

Hello everyone and welcome to our call today. By now you should have access to our earnings announcement released this afternoon for the third quarter 2014. 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 statements about our business model and consumer trends and how those may influence our results in the future as well as projections of comp restaurant sales, the number of restaurants we intend to open, the impact of menu price increases, trends in food, labour, and G&A costs, 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 our Annual Report on Form 10-K as updated on our subsequent Form 10-Qs for a discussion of these risks. I would like to remind everyone that we have 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 fourth quarter, it will begin December 1st and continue through our year-end release.

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; and Mark Crumpacker, Chief Marketing and Development Officer. With that, I will now turn the call over to Steve..

Thanks Chris. Well I am extremely pleased with our performance during the third quarter. We have continued the momentum we build through the first half of the year growing revenue to $1.08 billion for the quarter, an increase of 31.1% on same store sales growth of 19.8% and the opening of 43 new restaurants.

This produced diluted earnings per share of $4.15 for the quarter, an increase of 56%. These results would be remarkable for any restaurant company but for Chipotle where we are now more than 21 years old with more than 1700 restaurants and average unit volumes of more than $2.4 million, we think they are extraordinary.

While our performance has been particularly strong this year, our results have been solid throughout our history as a public company even through the depths of the recession and I am often asked how we continue to perform so well. The fact is there is no great mystery to it.

Our ability to generate such strong sales growth is the result of our commitment to serving the best tasting food we can.

Food that is made with ingredients from more sustainable sources and prepared using classic cooking techniques, and our commitment to having teams of top performers in our restaurants who are empowered to provide an extraordinary customer experience.

It is our focus on these two key areas that will allow us to achieve our vision to change the way people think about any fast food. This formula is unique in the world of traditional fast food in some very important ways. The traditional fast food sector has traded food quality and taste for low cost and ease of preparation.

It has aggressively marketed low prices to entice customers to visit more often which has resulted in the need to reduce cost by cheapening ingredients and by compromising the overall dining experience.

We have not made these compromises because our fundamental belief is that in order to provide an extraordinary customer experience you cannot take shortcuts. We have shown that we can spend more on ingredients not less and charge a fair price and at the same time, generate outstanding business results.

That we can prepare food using classic cooking techniques in each and every one of our more than 1700 restaurants and have consistency. That we can provide great service and still be fast. That we can have teams of top performing managers and crews cooking in the restaurants and still maintain an efficient labor model.

Rather than compromise any of the important variables involved in running restaurants, our decision is to deliver all of them and it allows us to create an extraordinary experience that is unique to Chipotle. This formula has worked extremely well for us since the very beginning and others are starting to notice.

A July survey of fast food customers asked more than 32,000 participants who reportedly ate at more than 96,000 fast food meals at 65 chains to rank restaurants based on the quality of the food and the experience.

Chipotle topped the list, while traditional fast food restaurants where ranked near the bottom, with customer citing uninspiring food as the primary reason. Despite offering dollar menus and frequent discounts, many of these chains also scored poorly in terms of value.

The bottom line customer wants delicious food, served quickly and in interactive format and they are increasingly unwilling to compromise. Perhaps not surprisingly this survey found that younger consumers, the millennial, where more inclined to skip traditional fast food in favor of restaurants like Chipotle.

Food industry research indicates that millennial are turning away from traditional fast food in favor of better food and a more enjoyable experience overall.

They are more concerned with how food is raised and prepared than previous generations and are willing to seek out and pay a little more for, something they recognize as better, better tasting, better for the environment and better for their wellbeing. Investment analyst research also shows similar results.

Over the last decade there has been a noticeable shift among consumers away from traditional fast food and casual dining chains, to fast casual restaurants as customers are looking for better quality food, served in a convenient format.

The companies that have lost the most customers over the last decade are traditional fast food chains, while the biggest gains go to fast casual restaurants. Chipotle tops the list of restaurant companies gaining customers during this time period. These trends are validated looking at the performance of Chipotle and other restaurant companies.

Our business is thriving posting the same-store sales increase of 19.8% for the quarter and 17% year-to-date. At the same time, traditional fast food companies are struggling to produce positive same-store sales growth at all.

The gimmicks that have driven the fast food sectors for years, dollar menus, limited time offers, and merchandizing partnership are not producing results like they used to as consumers simply want better tasty nutritious food at a more compelling experience not gimmicks.

In some cases, these other companies are looking to revamp their branding efforts to change their customer's perception but not the food. Fundamentally these are short sighted reactions that seem out of touch with what customers want, better food and a more compelling dining experience.

This is exactly what we offer at Chipotle and we think its replicable with other kinds of cuisines. We are in the early stages of developing two new fantastic restaurants, what we call our growth feed concepts, ShopHouse Southeast Asian Kitchen and Pizzeria Locale.

Using the exact same model that has driven Chipotle's success, each of these concepts shares our commitment to using only the very best ingredients, the classical cooking techniques, and to building cultures of top performers who are empowered to achieve high standards.

During the quarter we opened another ShopHouse, the eighth one in the Washington DC area. ShopHouse very much reminds me of Chipotle when I opened the first one of the restaurants.

It is food that is new to many of our customers but they love it and are thrilled to enjoy a meal that is flavorable, skillfully prepared, and served in a way that is accessible and affordable. At the beginning of this month we also opened a second Pizzeria Locale in Denver.

Pizzeria Locale was developed by two extraordinary restaurateurs', Executive Chef Lachlan Patterson and Master Sommelier Bobby Stuckey and we have partnered with them to bring the Pizzeria Locale experience to more customers using the same format that has worked so well for Chipotle. More than ever I believe this is the new fast food model.

Increasingly consumers want what Chipotle is doing and they seem to be turning away from traditional fast food in favor of better food and a more compelling experience. That is what drives our business and continues to provide outstanding results for our shareholders and will continue to be our primary focus.

I will now turn over -- turn the call over to Monty. .

Thanks Steve. Now that our vision of changing the way people think about eating fast food, no other results we are producing would be possible without our teams top performers who are empowered to achieve high standards.

We have totally changed the traditional fast food formula which depends on constantly lowering costs and simplifying the tasks in the restaurant to the point where they are essentially fool proof. Instead we are creating rewarding environments with skilled teams who do work that they are proud of.

We ask more of our people, not less and reward them with greater opportunities when they step up to meet the challenge.

This is one of the many areas where Chipotle is unique within the industry and we are performing well because we have so many sharp performers who are committed to achieving our vision and to providing an extraordinary restaurant experience. At the end of the quarter we had our All Managers Conference in Las Vegas.

This conference which we hold every two years is a powerful way for us to teach and inspire our restaurant managers and the teams that they are building to raise the bar and to share more of our vision, changing the way people think about eating fast food. The conference also allows us to introduce new tools that helps our managers up for success.

This year's conference focused on our vision and the importance of our food culture, people culture and unit economic model. Presentations to our managers highlighted many of our accomplishments. We discussed the importance of ingredients that are raised with respect to the environment, animals, and the farmers who produce them.

We emphasize the importance of developing extraordinary leaders and how that is critical for our business. And we explained our strong unit economic model and why it is so important for our managers to remain focused and disciplined in protecting it and how they run their restaurants.

We also use the conference to introduce new tools that help better set our managers up for success. One promising development in this area is a new tablet based training system that we are just starting to roll out in our restaurants.

This new tool allows us to compile all of our training materials including text and video in a single place that can be quickly and easily updated and accessed immediately in many of our restaurants or offices.

We introduced this new system at our Managers conference and are just beginning to roll it out to restaurants now but are optimistic that this new system will improve upon our already successful training programs. Ultimately better training programs help us improve how we develop people and teach specific skills.

In turn this will help us deliver a more consistent restaurant experience. Finally we also used the conference as an opportunity to introduce our concepts, ShopHouse and Pizzeria Locale to our employees. Each of the new concepts had exhibits at the conference that were designed to resemble the actual restaurants.

The people running each concept first provided a thorough overview of each restaurant to all of our managers and guests and then served food allowing everyone to see and taste for themselves just how delicious these restaurants are. This was the first time most of our employees had tried either of these restaurants and they were very excited.

While most of our growth will continue to be driven by opening and improving our Chipotle Restaurants, we felt it was a great time to introduce the opportunities that these concepts will provide to our teams as our operations teams will ultimately play the most important role in helping them expand.

While we believe the conference is enormously valuable to our managers, it is also incredibly inspiring and powerful to us. The conference provides a clear and strong picture of the movement we are creating.

There were nearly 3000 inspired top performing employees as well as valued suppliers at the conference, each committed to helping us achieve our vision. Being part of that is a powerful experience for all of us. During the quarter, our efforts to build and strengthen our cultures continue with the addition of 41 new restaurateurs.

We also promoted 27 of our existing restaurateurs into our plus positions, and 15 restaurateurs into more senior field leadership positions including four new team directors.

Because of the success that these extraordinary leaders have had developing the people around them we paid out nearly $700,000 in the quarter in people development offices and nearly $2 million year-to-date. These bonuses are paid specifically when restaurateurs develop crew in the management positions.

As the rank of restaurateurs continue to grow, so does their reach. These extraordinary leaders now oversee more than 70% of all of our restaurants. This is important and the restaurateurs and their crews delivered a compelling dining experience that keeps our customers coming back.

Our unique people culture is an area where Chipotle excels and that has contributed significantly to our overall performance. One area in particular where we have seen tangible benefits in these special cultures is in the area of our throughput.

Our teams are continuing to increase the speed of service we provide and by doing so are providing a better customer experience. During the quarter, throughput remained strong and actually got stronger with an increase of six transactions during the peak lunch hour and six transaction during the peak dinner hour compared to the same time last year.

We would not be able to achieve such extraordinary same store sales increases without these continued improvements in throughput during our busiest hours. The improvements we are seeing in our throughput is a result of having more top performing managers and teams that can make sure that we have the four pillars of throughput in place.

Using a line linebacker during our peak hours, having proper mise en place, ensuring there are only aces in their places and using a dedicated expedited during peak hours. We have proven that we focus on these four pillars, we can serve more customers and provide a better experience.

So for this reason we measure our effectiveness in this key area as well as provide bonuses to our field teams in part based upon their ability to execute these four pillars. Finally I would like to provide an update on development.

While we expect to end this year with total new restaurants openings at the high end of our guidance at 180 to 195 new restaurants. For the year about 70% of these locations will be in proven markets with 15% new markets and 15% in established or developing markets.

Going forward we believe that we are well positioned to continue to find excellent real estate. While the market overall has become more competitive for the kind of sites we are looking for, Chipotle remains very desirable tenant with strong financials.

Given the strength of our position, we expect to open between 190 to 205 new restaurants in 2015, which will include a small number of grocery (ph) restaurants. We expect to see some pressure on rents in major markets, but think that we can offset some of that, with a strong supply of new smaller retail strip centers.

In many cases, we are able to find developers who are willing to build 2 or 3 tenant strip for our use and believe that there continues to be great opportunities ahead in some of the smaller, more remote markets that are bit underserved, places such as Corpus Christi, Texas or Greenville, North Carolina where you recently opened restaurants.

We have the right pieces in place, the right food culture, people culture and unit economic model to continue on our path to change food culture and we believe that our success in doing that, will allow us to generate outstanding returns for our shareholders. I will now turn the call over to Jack Hartung..

Thanks, Monty. Our teams top performers continue to provide an incredible dining experience to our customers and our ongoing commitment to using the very best ingredients for our food has continued to bring more customers through our doors. We are very happy to announce another great quarter with strong financial results.

Last quarter we reported our second strongest sales comp as a public company and this quarter after 21 years in business we are delighted to report an even higher third quarter sales comp of 19.8% making it the strongest sales comp since becoming a public company in 2006.

It's really quite an achievement and we are proud of these results, proud of our results, which are driven by our unique food, our unique people, and our strong business cultures.

Our third quarter same store sales comp of 19.8% has helped to drive average sales volume for the restaurants that have been open for at least 12 months to an all-time high of $2.4 million.

Overall sales for the quarter increased 31.1% to $1.08 billion driven by the comp of 19.8% which includes the full impact of the menu price increase along with new restaurant openings. Year-to-date sales were just over $3 billion, an increase of 28.2%.

The quarter and year-to-date comps sales increases are driven by increased customer visits along with a higher average check. Our average check in the quarter is up about 8.5%, driven primarily by an effective price increase of about 6.3% as well as from catering and a slightly larger group size.

Although our menu prices increased, we continue to see very strong transaction growth and we are experiencing very little price resistance, just under 1% so far with very little menu trade down.

We are delighted to see that the price increase we had to take after 3 years of absorbing food inflation had little or no effect on the strong customer loyalty we have worked so hard to build.

It confirmed our belief that our customers understand and appreciate our focus on sourcing high quality ingredients and that they see tremendous value in the dining experience, they enjoy at Chipotle.

We will continue our focus on developing teams of top performers who are empowered to achieve high standards as we know these strong comps are not possible without them.

Our teams freshly inspired by the themes presented at our All Managers Conference will help continue our success and achieve our mission of changing the way people think about and eat fast food.

Though we will finish this year comparing to a higher comp of 9.3% in the fourth quarter of last year, we continue to expect comps for the full year of 2014 will be in the mid-teens. Of course 2015 will bring even tougher comparisons especially in the second half of the year.

We expect full year comps in 2015 will be in the low to mid-single digit range and will decline beginning in the second quarter as the menu price increase begins to cycle off. Our new restaurants continue to perform very well and we still expect strong opening sales volumes in the $1.7 million to $1.8 million range or higher.

What we are most pleased with regarding our new restaurants is that we continue to staff them with terrific leaders and teams of empowered top performers delivering the same incredible dining experience that our customers have come to expect.

This allows us to continue to grow while delivering industry leading unit economics and returns for both our existing and new restaurants. Diluted earnings per share for the quarter was $4.15, an increase of 56% from last year.

We were able to grow EPS and nearly double our sales growth rate despite higher food costs as we delivered sales leverage on the labor and occupancy lines. Our operating margins were up 250 basis points to 19.1%.

Our restaurant level margins were up 200 basis points compared to last year to 28.8% due to our strong transaction trends and the benefit of the recent menu price increase. Year-to-date diluted earnings per share was $10.29, an increase of 29.8% over last year.

Restaurant level margins year-to-date was 27.4%, an increase of 50 basis points due to higher comps offset by higher food costs. Food costs are 34.3% in the quarter down only 30 basis points sequentially from Q2 and food costs were up 70 basis points over last year despite having the full benefit of the price increase in the quarter.

Without the menu price impact, the food cost would have been around 200 basis points higher and this means underlying food inflation was around 8% over last year so our 6.3% price increase did not fully cover all of this inflation.

While expected food costs have stabilized in the second half of the year we saw costs for beef and avocados continue to rise in the quarter.

Had ingredient cost primarily for beef and avocados stabilized as expected at the level we saw in Q2, our food costs would have been around 80 to 90 basis points lower and our restaurant level margins would have been approaching 30%.

We expect these elevated food costs as a percentage of revenue to continue and even increase slightly in Q4 as continued inflation in beef and dairy is expected and will be offset by lower expected avocado costs.

As we look to 2015 we hope our costs will stabilize but we expect food cost inflation will be in the low single digits from where food costs were in Q3. Beef prices are expected to remain elevated through 2015 due to strong demand and the tight supply of livestock producers continue to rebuild their herds after two years of drought conditions.

Avocado cost increased significantly this year due to light California crop though anticipate avocado cost will decline in Q4 as we source from Chile and Mexico. We don’t expect much of any benefit from avocado prices next year due to rising demand and supply shortages caused by drought conditions in California and Chile.

We saw prices for cheese and sour cream increase to record highs in the quarter and we expect that dairy cost will remain high through the end of this year. But we do anticipate dairy price will come down in 2015 from these 2014 highs.

Labor costs was 21.2% of sales in the quarter, decrease of 160 basis points from last year and year-to-date labor cost were down 100 basis points. Labor leverages driven by higher sales volumes partially offset by higher management, increased staffing ratios which contributed to slightly higher labor cost per store and by normal wage inflation.

We expect labor cost as a percentage of sales to move higher in the fourth quarter due to seasonally lower sales. While we have always offered a basic low cost health insurance plan to all of our hourly employees in the past, effective January 1, 2015 we will be offering coverage that qualifies under a portable caveat to eligible hourly employees.

Currently we estimate over 10,000 of our hourly employees will have the opportunity to sign up for health insurance and while we can't predict how many will choose to enroll in this new plan we estimate that total cost will not exceed 1% of sales.

We also will see minimal wage increases in a number of states and cities which we expect to have only a modest inflationary impact on labor because we pay above minimum wage. Occupancy cost declined 70 basis points from last year for the quarter due to favorable sales leverage.

Other operating costs were 10.2% in the quarter, decrease of 60 basis points versus last year and year-to-date they were 10.6% unchanged from last year. In the quarter other operating costs moved lower due to lower marketing and utility cost.

Marketing was 1.3% in the quarter down 20 basis points from last year and is expected to increase to around 1.5% in the fourth quarter. G&A 6.6% in the quarter, 20 basis points higher than last year and the increase was primarily driven by our Biannual Managers Conference held in September.

The conference cost just over $10 million with nearly 3000 Chipotle employees and suppliers in attendance including all of our GMs and restaurateurs. In 2015 we will hold our Biannual Field Leadership Conference in the third quarter, which we expect will cost around $1 million.

Non-cash stock comp was about $20 million in the quarter and year-to-date non-cash stock comp was about $83 million with a small portion of that in the labor line.

We continue to expect non-cash stock comp for the full year will be around $98 million which is about $33 million higher than in 2013 due to this year options being issued at a much higher share price and as a result of much of the senior management team qualifying for retirement which accelerates the non-cash charges.

As a perspective, G&A without the non-cash stock comp expense and without the cost on the All Manger Conference, G&A would have been down about 60 basis points compared to last year.

G&A in the fourth quarter will be lower as a result of the reduce stock comp charge and not having the cost of the All Manger Conference which will be offset somewhat by a $1 million donation related to our annual burrito promotion and fund raising event benefitting Chipotle Cultivate Foundation along with normal G&A additions to support our growth.

In 2015, we expect underlying G&A as a percentage of sales before non-cash stock comp charges will grow at a lesser rate than our sales growth. Effective tax rate for the third quarter was 37.2% which includes adjustments related to filing the 2013 tax return.

We now expect our effective tax rate for 2014 to be around 38.5% and 2015 we expect the effective tax rate will be around 39.1%. The work opportunity tax credit and the R&D rate have not been renewed by Congress for 2014 or for 2015. If these credits are renewed, the state tax rate would benefit by about 50 basis points for each year.

During the quarter we repurchased about $13 million of our stock or over 20,000 shares and the average annual share -- average share price was about $654. At the end of the third quarter we had about $127 million left on our share buyback program, previously approved by our Board.

Overall we have invested $673 million to purchase nearly 4.2 million shares at an average price of $161 per share. We finished the third quarter with over $1.2 billion in cash and cash equivalents and short and long-term interest bearing investment and no debt on our balance sheet.

Although, we continue to believe the best use of our cash to invest in our high returning domestic restaurants, we plan to carefully nature groceries ShopHouse, Pizzeria Locale and Chipotle outside of the U.S. as we expect they will provide attractive value enhancing growth investments in the future.

In the meantime we’ll optimistically repurchase our stock to enhance shareholder value. Thanks for your time today and at this time we’ll be happy to answer any questions you may have. Operator, please open the lines..

Thank you. (Operator Instructions) And the first question comes from John Glass with Morgan Stanley..

Thanks very much.

First, Monty I just wanted to ask you about your thoughts on unit growth, are you beginning to hit a maximum number of stores you can open in a year given the real estate availability or own ability, human capital is this 200 plus or minus about where things level off, or how do you see it over the next I guess two to three years as you think about that?.

Yeah John, thanks. Well, we don't really think in terms of maximums, in terms of maximizing our growth.

What we do is, we continue to try to strike a balance and open restaurants when we -- at the speed with which we can find great real estate that we think will be performed well, plus the speed with which we can create or develop managers to really run those restaurants really effectively.

So this month, we said, we will open 190 to 205 till next year. We talked to our real estate teams, that is where we struck the balance, that we believe we have got really strong people development throughout the country and certain markets being stronger than others.

And our teams in the field feel very optimistic about this type of real estate they are finding and the prospects for those sites to do well. So, it's just a balancing act and we do think that this 190 to 205 is really a sensible growth rate.

We are not talking yet about what we are going to do in 2016, 2017 but we suspect it will continue to strike that balance based on people and on how well our real estate performs.

But if you look at our opening volume so far, like Jack said, our new stores opening about $1.7 million to $1.8 million on average and any other was trying not too far back where those were volumes that we hoped we would reach as a system.

And now our brand new stores are opening at those volumes despite the fact that we are opening fewer tier one locations. So we are opening a lot more locations that in the past we might have walked by. Also operations are the strongest they have ever been.

Our throughput is the fastest it has ever been and there is a lot of reasons to believe that we can feel good about asking our field teams to pickup and run new restaurants and to be able to do it tremendously effectively. .

That's helpful and Jack just a clarification, the ACA cost you are talking about for 2015, you said not to exceed 1% of sales, what does that mean, is that an incremental 100 basis points of pressure versus 2014 or what do you mean by that 1%?.

Yeah, it would be an incremental cost but we think it will not even reach 1%. We just don’t know how to estimate it and so we just put kind of an upper range on it that we don’t expect no matter how many.

Even if more -- way more people than we think or that we estimate will elect for the new insurance that we are offering that it will still not be more than 1%. We think it is likely to be less than that. We just won't know until our people begin to enroll and that will happen here between now and the end of the year. .

Okay, thank you..

And next question comes from David Tarantino with Robert W. Baird. .

Hi, good afternoon and congratulations on great results.

Jack, I wanted to ask a question about the comps momentum that you are having and could you talk specifically about potentially the trends exiting the quarter and entering Q4 and then maybe how would you frame up the outlook for Q4 given that the comparison does look maybe 300 basis points more difficult?.

Yeah, David I would say that the trends through September and then into October so far have been very consistent. We are now comparing to a tougher quarter so last year we in the fourth quarter our comp was about 9.3% and it was like 6.1% or 6 point something percent in the third quarter.

So a 300 basis point tougher comparison so I would expect for that you will see our comps decline by that tougher comparison. So from a dollar and transaction standpoint, the trends are holding well as we move from September to October. Yeah but the tougher comparison is going to have an impact for sure. .

Great, very helpful and then maybe one on the cost side, the commodity environment seems to be getting worse and worse, so I was just wondering on what your thoughts were on if we can see continued pressure there, what your thoughts were on sort of another round of price increases, maybe not right away but as you move through 2015?.

Yeah, David probably too early for us to consider a price increase. The way we think about the commodities right now, we are seeing pressure from three main areas from beef, from dairy, and from avocados. Avocados we think is more cyclical. It is caused by weather, it was caused by this year there was a shortage relative to the demand.

While we think that is going to continue somewhat next year and so we won't get the break, and one time we thought we would get a break next year, we don’t think we will get the break.

We do expect that avocado cost will be relatively stable next year and we are hoping that this is going to be more of kind of upper limit for avocados but time will tell. Beef is going to take a couple of years to grow out for to replenish the herd is going to take a couple of years.

So we think that beef is probably going to remain at this elevated level, probably have additional pressure, hopefully not too severe a pressure going forward. Dairy we think will come back.

We think that dairy has hit peaks and in fact just in last couple of weeks we have seen butter costs come down pretty dramatically, just in the last two weeks that effects the cost of our sour cream. And so if that holds we think that dairy is already starting to come back to where maybe a normal, kind of a normal sustained price could be.

So we knit it all together. It doesn’t feel like extreme pressure David so it is too early for us to be even thinking about another price increase, so hopefully things will stay stable and we won't have to think about it until sometime after 2015..

Makes sense, thank you. .

Thanks David..

Our next question comes from Nicole Miller with Piper Jaffray..

Thank you and good afternoon.

Great comps, I am wondering if you have some of your latest survey where it is talking about usage patterns, so if this more frequency from you mostly are gas or are there some new users in the next change of the course anything you can share on that front?.

Hi, Nicole, this is Mark Crumpacker, the Chief Marketing Officer. We don't right now have data that shows us which -- whether it's increased frequency from customers or new customers. It's our belief that it's a combination of both.

We do have some feedbacks and research back on the advertising campaign we have done and we have seen increased awareness and increased purchase intent with all of our existing customers.

So, that's leading us to believe that certainly a major factor, but given the level of the comps, we suspects there's got to be a large number of new customers in there as well..

Okay.

And you do want -- I don't know, if you do have your core guest, how many times they come and your most loyal, do you have anything on that as of late, how often they use you, on weekly basis, monthly or anything of that nature, probably?.

Well, that's actually not something that we track on a quarterly basis. We do that research regularly, we are doing it now, so we will have some feedback on that in the future but right now we don't. I can't tell you the increased frequency of the existing customers..

Okay, great and then just back on the comp I think Jack last quarter you said, it was 2.5 price because there was only partial price, 2.5 mix and the rest was traffic, when you said 100 basis points of resistance I am not clear is that trade down in mix like the beef, the chicken conversation or is that meant to be a traffic resistant comment?.

Nicole, it looks like it's mostly traffic. We started to see some trade downs from steak to chicken like when we reported earnings in July, and we thought maybe that would increase but it really didn't. So the trade down effect, there is some from steak down to chicken was very modest.

It didn't really continue to get worse and it levelled off quite a bit. So from what we can tell, it looks like maybe our comp but there is no resistance, should have been just a little over 20%, maybe 20.5% something like that. So we are looking at something less than 1% and it looks like it's driven on the transactions..

Fantastic, thank you very much.

Thanks Nicole..

And our next question comes from John Ivankoe, JP Morgan..

Hi thanks, it is Gavin (ph) filling in. The first question is based on our estimates it appears you had a pretty extraordinary increase in year-over-year in unit volume and I know there were some concern back in 2012 when you might have been lapping over some very strong results in 2011.

So, can you just help us maybe with, where you are opening units next year in terms of approving versus emerging new markets and how that compares to this year, if it is materially different in any way?.

Yeah, it's not going to be materially different. Next year we will -- I mean, this year we opened about 70% of our restaurants in proven markets, 15% in developing markets and 15% in new markets and next year will not be substantially different. It's a very similar strategy and just to carry over what we have done this year..

Okay and then with the recent announcement of some restaurant partnerships with Apple Pay, can you just tell us maybe where you stand on mobile payment and whether the infrastructure is in place to roll that out now or you have to maybe make some additional technology investment behind POS or something else at the restaurant level?.

Right now, we don't have imminent plants to roll out Apple Pay support. It's something that we are considering for 2015. There are considerable technological constraints implementing it, just based on the way payments are processed with our system.

We are in the process of readying the launch of our new online app in November and when we do revel of that in the middle of next year, as our anticipated time, we might include Apple Pay. It's just a little bit too early for us to tell just given we haven't sorted out all of the backend issues..

Okay. Thank you..

And next will be Jeffrey Bernstein with Barclays..

Great, thank you very much. Just two questions, one on the comp side, as you now lap, as you look to 2015, it looks you are lapping what will be mid-teens comp growth in 2014.

I mean wondering how you even think about what the right number should be, it looks like you guide low single digit to mid-single digit, just lapping such strong results, how do you even arrive at something like that, what kind of history do you use, how do you even comp with that on such a heroic lap that you have and then I had a follow up..

Well Jeff it's a great question and so we don't spend a lot of time trying to predict how we are going to over, to leap over that number. What we do is, we take our current sales trends and we literally just push them out over the next 14 months for the rest of this year and then for all of 2015.

And if we don’t increase our sales trends or if we don’t decrease our sales trends we think we will be in this low to mid single digit comp range. This way we have always predicted the comps.

As you know we had 10 years of double digit comps before the recession that was interrupted during the recession, then we had almost two full years of double digit comps again after that. And so we really don’t have a magic approach or a crystal ball to predict how you are going to exceed like a 19% comp for example.

We are constantly working on improving our customer experience, we are constantly working on improving our people culture, we are constantly looking to upgrade the quality of our ingredients. Throughput, we are constantly working on throughput.

So we are constantly working on the things that will enhance the dining experience and over the years it has paid off that when we do a good job, when we have great teams, when they do a good job of providing a great dining experience customers want to come back to Chipotle more often and hopefully it will happen again.

And hopefully we will -- the comp guidance we have today will come back and say boy it looked conservative at the time. But there is no other way for us to predict it other than to take our current sales trend and then assume they don’t change and then we back into a number which falls into that low to mid single digit range. .

Understood and just a follow-up on the food inflation side, Jack I think in your remarks you said 2015 we should expect a low single digit basket increase but I know often times I think you said you were talking about relatively to 3Q, so I am just wondering you taking the 34.3% in the third quarter and we should assume low single digit off of that prior to pricing or may be if you could just tell us what the outlook is for 2015 either for the line item or what the overall basket is versus the full year 2014 or if there is any other way to look at it just to make sure we understand it correctly, the comparison you are making again?.

What I would -- the way I would think about it Jeff is, we just finished a quarter with food cost in 34.3% range. Based on what we see today, we see hopefully relative stability with avocados. We won't get a break but hopefully it will be relatively stable. Dairy just hit a peak, just hit high, hopefully that will stabilize and maybe even come back.

But beef there is going to be more pressure there and so when you net those three together and we assume everything else in what we buy is going to be relatively stable, we think there will slight pressure to next year from the 34.3%. We don’t know exactly what the pressure is going to be.

We think it looks like it will be relatively modest barring unusual things like weather or supply shortages or things that we can't predict today. And so we think there is likely to be some modest pressure on the 34.3% that we are seeing in the third quarter today. .

And that is even with the six plus percent pricing at least for the first part of next year but then assuming it is down for the rest of next year?.

That is right. In my assumption about food cost pressure, I am assuming no price increase. .

Got it, thank you. .

Okay. .

And next will be Brian Bittner with Oppenheimer & Company. .

Great, thank you. Another question on the 2015 comp guidance, I mean it seems like you are shifting off of the course or historically how you initially project the comps going into the next year.

But the mathematics behind it that you just explained obviously, it seems like you are getting a lot of respect due to tougher comparison and just viably so, but it does seem like you build this time particularly this year be it throughput in a sustainable way and you really raised the base of the business and so when I think about 2015 can you talk through it a little bit more about what last could you on the throughput side of the world that has helped your comp so much this year and why maybe this time next year we could be surprised sitting here saying well that was a mid single digit comp projection was conservative?.

Yeah, this is kind of two pieces to it, the throughput piece and then I will let Jack answer the balance of it. But when we look at throughput I mean, you can kind of look at two different directions. I mean, it is very hard to raise throughput without additional people wanting to eat at Chipotle.

But we can, even if additional people don’t want to -- we get the same amount of traffic. There still are opportunities to increase throughput just by moving our lines quickly especially at the peak lunch and peak dinner hours which we were able to do once again this quarter.

But by the same token when you have a lot more people coming to us as has been the case recently, then throughput becomes even more important especially because of those peak lunch and peak dinner hour bottlenecks and our teams in the field are very focused on this and has been working really, really hard to drill the four pillars and to have everything going that are going to increase our throughput.

And we have been measuring at the field entry level and all of our field leaders are aware of it and they know, where they stand versus their colleagues throughout the country in terms of their group of restaurants and their ability to deliver exclusively on the four pillars of throughput.

So, we have an opportunity we think to get much, much faster, because still our very fastest restaurants in the country at peak lunch hour are doing service 350 transactions an hour and sometimes even more than that on a very regular basis. So, we know it's possible to go very, very fast.

Our average restaurant does something about one-third of that speed at peak lunch hours. So our ability to achieve higher throughput is enormous, but it depends on few things, obviously it depends on having plenty of customers coming through our doors, and it also depends on the type of customer and also depends whether its lunch or dinner.

Because dinner people, there are going to be more children and more group orders which take longer to put through. And larger size transactions as well, which take longer to ring in. So we have a huge amount of ability to increase throughput particularly if we keep seeing these increases in traffic.

And so that increase in the throughput will help to drive the comp but also an increased comp can help to drive throughput.

So it kind of goes both directions and now we feel really, really good about throughput because of having six more transactions coming through at lunch, six more transaction coming through at dinner than happened third quarter a year ago.

Plus we put through an additional five transactions about, approximately five transactions for every single hour of business during the day. So there is not one time of the day, where we haven't managed to speed up and deliver better on the four pillars of throughput.

So that gives us plenty of confidence that we can answer the call of any additional transaction that comes through the door. But that being said, I will let Jack answer the part about how we measure the comp..

And I think your question about what else can happen, such that a year from now we look back and say boy that comp was conservative, is that the essence of the question?.

I mean, I am just trying to think about how much respect you are giving the comparisons and really just build a bigger base, I guess more the question to Monty is like is there a percentage of the store base for instance, that doesn't have all four pillars, I am just trying to think about the run rate for comp growth from throughput even as you face tougher comparisons like this year?.

So, I think maybe the way to answer that, I think maybe the cause and effect and this is what I think the point Monty was making is, the cause and effect maybe different than what you are thinking.

You are thinking that if we have great throughput that's what driving the comp, well we are getting our comp throughout every hour of the day and we need to be as fast as we possibly can during lunch and during dinner because we already have a heavy concentration of customer coming through at those times.

We need to get faster because as more customers want to come to Chipotle if we don't get faster, we are going to be repelling them.

We are not -- they are going to be walking off the back of our line, so the demand is happening and then throughput is necessary, absolute necessary to allow the demand that come in to our doors, go through the line and be satisfied customers.

So, in terms of what's driving the comp, I think you have to back to Steve's comments that there is something going on in the industry. People are rejecting the traditional fast food model, they are, the Chipotle approach is resonating.

I think what the marketing team have been doing is causing greater curiosity, especially with millenials where things like the Scarecrow and back to the start and Farmed and Dangerous, these are resonating with people that care about, where their food comes, how its raised, what's the impact on the environment, on their health, things like that.

So there is a movement going on that is resonating. Chipotle is the only one that's doing what we are doing with food, with the people culture, where you feel like you are being treated to an authentic dining experience although it's affordable and it doesn’t take that much time. And so, it's likely that these trends will continue.

It's not likely that all the sudden people are going to stop worrying about where their food comes from. And stop appreciating the wonderful experience that they get by joining Chipotle. So it's likely that, that will continue.

It is incumbent upon us and teams then to make sure throughput is there ready for the customers as they come in, so that we can expect them into our line..

Okay that makes sense and as far as the GMO free menu goes, are we any closer to an announcement date on that?.

Well, we don't have a specific announcement date, but we can tell you that, we are largely serving only ingredients that are free of GMOs. And so we have made a ton of progress on that, we recently rolled out all of our tortillas being GMO free and there is just no announcement date yet. .

Okay, thank you..

And next will be Jeff Farmer with Wells Fargo..

Thanks, Jack can you share with us where chicken, beef, dairy, avocado, and whatever else matters where they stand as a percent of COGS and how should we think about the relationship between spot prices and what you are paying for lot of those higher quality inputs?.

Yes Jeff, we don’t talk about the individual ingredients and the percentage because that changes overtime like steak this year would be higher than last year but if you take beef, chicken, avocados, cheese, and beans those are our top five ingredients and those account for right around half of everything that we buy.

Okay, so any one of those when you have a significant impact on COGS here up or down it is going to have a meaningful impact on our cost of goods sales. .

And then in terms of looking at spot as a proxy for any of those, is that still a directional sort of proxy?.

It is directional, you just have to be careful of the source. Like for example if the source is the same beef that we would be using there is going to be an impact. Right now the pressure that is affecting beef is that there were these droughts and the drought affected all these naturally raised and commodity beef as well.

So that is something that when you look at the source of why there is a shortage, something like weather is likely to affect both naturally raised as well as commodity. Years ago there were world factors that were affecting chicken, that were affecting like bird flu and things like that, they didn’t affect us at all.

So, Jeff you got to look to the source.

Generally, when it is drought conditions, when it is general supply and demand, generally those things are at least directionally kind of impact commodity and actually raise ingredients as well and may not be on the exact same timing, may not be the exact same magnitude but everything I am telling you about dairy, about beef as well as with avocados you are seeing similar trends in the commodity markets as well.

.

Okay, and then you touched on it but as your brand awareness and unit volumes continue to grow, what's been the resulting impact on restaurants and the comparable store base.

So are they entering sort of neutral tail end headwind and where does it sort of stand relative to where you were few years ago?.

No, the new stores still out comp existing stores. The five year old existing stores still comp like in the double digits while in the double digits. So, when we do, when we see these kind of comps it is very broad based in terms of the layer of store openings, it is broad based in terms of markets.

And when our new stores, even though our new restaurants are opening out way higher volumes than they ever had before, they still out comp the stores that are two years old or three years old, really every other stores. So, they come in stronger and then they comp stronger than every other layer as well. .

Thank you. .

Thanks Jeff. .

And moving on to Bryan Elliott with Raymond James. .

Good afternoon gentlemen.

First couple of things, one maybe a little nit to pick, couldn’t you have done something to push the comp over 20% for the quarter?.

It is too organized. .

We will work on that for the next quarter..

No, seriously my question, I guess the clarification of that question, Jack just clarifying again this 1% traffic pressure or response to pricing that you mentioned.

So, you are as I heard you, you said you were kind of looking at the traffic growth rate prior to the price increase and then subsequent to the price increase there was a 1% decline or point decline in the rate of traffic growth, is that what you were saying?.

That's right Bryan. .

Okay. .

Now just with that in mind when you have 1% or something less than 1% there is a lot of noise in there too until we are going to continue to watch that..

Sure, I just wanted to make sure I understood what exactly the message was. My question, I would like to if I could drill down a little more into ACA commentary and understand I guess you have sorted some of the details.

You talked about after an ACA compliance plan to all the eligible hourly, there may be 10,000 of them and can you help us with what exactly ACA compliance means with respect to the income.

And so I think to the ACA compliance if I recall correctly and it has kind of dropped out of the news and all but the portion of the premium that you can ask the employee to cover has to be I believe at something like 9% or less of their total income and so A) is that right and B) I guess in thinking about that there is going to be -- it is going to be impossible to know until after the fact how many people at certain pay grades are going to be buying into the insurance and how much your portion is going to be versus their portion, I mean if you could flush out a little of that…?.

Bryan what you are talking about is to comply, you need to have a plan that's credible. Okay, so it meets the requirements, so it has got to be real insurance and there are guidelines for that, and our plan does meet that, and it has got to be affordable.

And affordable, you are roughly right that it has got to be, what's tough about it, it has got to be based on household income. So we don’t know whether there is other income earners in the family so we had to use some estimates. We feel pretty good though about the fact that everyone will be able to afford this plan.

We have gone through a lot of different assumptions, a lot of different calculations. We know what our folks are making, what we don’t know is how much are there other wage earners in the house are making. So we think that our plan is going to be affordable by most if not all the employees that are going to be offered insurance.

It is more than 10,000 people Bryan, we don’t have an exact number but I said a number more than 10. So it is for sure more than that, that are going to be eligible. And eligible means that you have worked here for a year and during this time you have averaged 30 hours or more.

And what we are going to be doing throughout the year is each month as people hit their anniversary date, we are going to identify whether they qualify.

So it is an estimate because each month we are going to be roughly calculating and kind of having reenrollment throughout the year to see if people, to see if our employees are eligible and if they choose to go ahead and enter the insurance roles. .

And are we talking just about hourly because I assume that the management staff is already on a corporate type insurance program?.

Salary of management and we have typically at least two salaried* managers, a GM and Restaurateur and then an apprentice in each restaurant. They already qualify for health insurance today. So you are talking about our hourly crew and our hourly managers in a restaurant that will not qualify. .

And of the total premium cost roughly what is the split between the employee and the employer?.

We are paying the majority of it and we have to, to make it affordable. .

Sure, I am just wondering is it like something that you are going to pay 75% or 80% of it or is it more like a little north of 50%?.

No, it depends on whether it is family or not but it is for example, it will cost an average employee a couple of hundred bucks or so a month. And in terms of the premium that doesn’t count deductibles and things like that. You know in the company on average we think it is going to cost us around $3000 a year.

So we are paying more than half of it for sure. And we are doing everything we can to make it affordable, as affordable as possible. I have also read about some very, very high deductible. You know these high deductible plans are reasonable deductions. You know deductible plans kind of which is considered to be normal.

I was reading the other day about deductible plans that have like a $5000 and $6000 deductible. So, it is what you consider to be a normal deductible, kind of a normal monthly premium, couple of hundred bucks principally and then Chipotle is paying over what we estimate to be over $3000 per employee per year..

Very helpful, thank you..

Thanks Bryan..

And next will be Joe Buckley with Bank of America Merrill Lynch..

Thank you.

You mentioned catering contributing to the check, can you just give us an update on what percent of sales is catering and how big a portion are you making this holiday season on that business?.

Joe, the catering we have mentioned, our catering was like 1.6% in the second quarter but seasonally with graduations we saw that as being seasonally our highest quarter. This quarter we are right around 1% catering so we did pull back a bit and I don’t know if we do have anything special plan Monty. .

We will be doing holiday promotions for it. It starts out as we put one of the things we have learned about Chipotle Catering is it actually is slightly more appealing to folks that are doing parties at home than it is to people that are doing things in the office.

So we tend to put our marketing around events that happened at home like graduations, Super Bowl that sort of thing. I am sorry, just like we call it the big game. But keep in mind with catering too, right now we are just rolling out catering and we don’t have online ordering for it.

It is really just in its infancy so it has a -- there is a long way to go as we roll this out..

Okay, thank you.

And Monty just quickly because you mentioned online ordering, is that becoming a more significant part of your store business, I mean away from catering?.

Joe if you take all of the online, like the iPhone, fax, online ordering and catering together it is somewhere around 5.5% to 6%. It was like 6% last quarter so it is caught between 5.5% and 6%. So it figure, I mean three to four years ago, five years ago it was 3.5% to 4%, so it has definitely moved up.

But we know that there are companies out there that are doing 7%, 8% 9%, 10% of their sales. So we think there is still lot of room to move..

Okay, thank you. .

Thanks Joe. .

And that does conclude the question-and-answer session. I will now turn the conference back over to you for any additional or closing remarks. .

Thank you all for joining us this afternoon and we will look forward to speaking again next quarter..

Thank you. That does conclude today's conference. We do thank you for your participation today..