Prepared remarks
Good day and welcome to the Chipotle Mexican Grill Second Quarter 2026 Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Michael Johnston, Vice President of Finance. Please go ahead.
Hello, everyone, and welcome to our second quarter fiscal 2026 earnings call. By now, you should have access to our earnings press release. If not, it can be found on our Investor Relations website at ir.chipotle.com. Additionally, supplemental investor information is available on our site as a reference for today's call. I will begin today by reminding you that today's discussion includes forward-looking statements, including projections about our future business, financial and other performance results. 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 today's earnings release and the risk factors contained in our annual report on Form 10-K and in our Form 10-Qs for a discussion of 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 Scott Boatwright, Chief Executive Officer; and Adam Rymer, Chief Financial 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 Scott.
Thank you, Michael, and good afternoon, everyone. We're pleased with the strength of our second quarter results, which were driven by continued positive transaction growth and clear evidence that our Recipe for Growth initiatives launched at the start of the year continued to gain traction. These proof points reinforce our confidence as we strengthen restaurant execution, accelerate innovation and invest in the long-term health of the business. For the second quarter, we delivered revenue growth of 9.3% to $3.3 billion, including positive comparable sales and transactions. Our results reflect the team's disciplined execution of our Recipe for Growth strategy. Over the last several months, we have seen the successful return of Chipotle Honey Chicken, continued strength from our Cilantro Lime Sauce, our revamped Rewards program and marketing initiatives that helped keep Chipotle top of mind, including several culturally relevant activations. Together, these initiatives drove incremental transactions while reinforcing the strength and relevance of the Chipotle brand. At the same time, we continue to make targeted investments to strengthen the guest experience and improve hospitality. Our Recipe for Growth strategy is creating multiple levers to drive transactions, improve execution and reinforce the competitive advantages that differentiate Chipotle. As a reminder, the 5 pillars of our strategy include: protecting and strengthening the core by driving operational and culinary excellence to deliver exceptional value for our guests; modernizing our business model with industry-leading technology, including leveraging AI and relaunching our Rewards program to elevate the experience for our guests and our teams; evolving brand messaging and accelerating menu innovation and new occasions that drive demand; cultivating the best talent in the industry, energized and focused on speed and agility; and expanding our global reach by scaling with intention through proven company-owned and partner-operated markets as well as strategic new regions. The first pillar of our Recipe for Growth strategy is to protect and strengthen the core, and that starts with running great restaurants. For our guests, that means delicious food, generous portions, exceptional throughput and exceptional hospitality. That is what we are focused on every day, and it's why we're making targeted investments to strengthen the execution across our restaurants. Throughput is the cornerstone of great hospitality. And across the first half of 2026, we have seen steady progress across all 4 pillars of execution. The 2 most important pillars to building throughput are linebacker and expo. And in addition to strong expo deployment, we also drove linebacker deployment in over 70% of our restaurants for the first time this quarter. The team's focus on delivering the basics through throughput drove year-over-year max 15 performance to accelerate for the second quarter in a row. In addition to our weekly throughput reviews and consistently high staffing levels, our investments in the back of the house over the last 2 years have been a key enabler of this progress. This includes last year's introduction of produce slices and the ongoing rollout of HEEP, our high-efficiency equipment package. HEEP is designed to make food preparation more delicious, more efficient and more consistent. Because we're reinvesting the labor efficiency back into our restaurants, our crews can spend more time with our guests, strengthening hospitality and delighting them by being properly deployed during their busiest periods. The equipment is now installed in more than 1,000 restaurants, and we still expect to reach approximately 2,000 restaurants by year-end. We are excited by the results we've seen so far, including improvements in food quality, guest satisfaction, and throughput gains are perhaps the most notable where we see HEEP restaurants outperforming the enterprise by 2 to 3 entrees in their peak 15-minute period. These tangible gains are translating into hundreds of basis points of improvement in comparable sales. Beyond HEEP, we're also reinforcing our commitment to exceptional hospitality through enhanced training and greater accountability. While food quality and generous portions bring guests through our doors, it's the experience we deliver that keeps them coming back. To help ensure we're consistently meeting our standards, we're bringing back mystery shoppers to provide more frequent feedback to our teams. These insights will help us identify opportunities for improvement and raise the bar across the enterprise. Additionally, our restaurant leaders held a Hospitality Huddle with their crews in June to help every team member understand their duty to say yes to the guest and emphasize the role they play in delivering a great experience. To carry this message further, we're also empowering our team leaders to identify more moments to surprise and delight our guests. We're also optimizing how general managers and apprentices are deployed throughout the week. Through enhanced training and a strategic reallocation of manager time to support our busiest dayparts, we're seeking to strengthen execution where it matters most. We're starting to see these investments pay off with notable year-over-year increases in overall guest satisfaction scores and digital on-time percentage, alongside a meaningful reduction in refunds. The second pillar is modernizing our business through technology and digital innovation, and I believe we are now even better positioned with the addition of Arlie Sisson, our Chief Digital Officer. She has quickly impacted the culture and direction of her teams and is bringing a new and inspired vision for how we can move faster in implementing technology to better serve our restaurant teams and engage with our guests. We're already starting to see this come to life through the launch of our modernized cook-to-needs tool live in pilot this month. The tool helps to ensure our teams are ready with the right amount of freshly prepared food at the right time. It also automates a cumbersome daily task by eliminating data entry and automatically incorporating AI-based demand forecasts. Early feedback from our crews has been strong, and the tool's utility will only grow as our AI breadth expands, providing dynamic adjustments, intelligent insights and actionable coaching. This is complemented by Chipotle Kitchen, our proprietary crew interface on the digital makeline, which is designed to improve digital order accuracy, speed and consistency. We are currently rolling out this new technology to all restaurants and continue to see encouraging improvements in accuracy, on-time fulfillment and overall guest satisfaction. Within Chipotle Rewards, we relaunched in mid-April with an enhanced experience designed to increase personalization, deepen guest engagement and strengthen our digital ecosystem. The relaunch introduced more personalized offers, simplified onboarding, increased proactive reengagement for lapsed users and expanded redemption options. One of our largest opportunities remains increasing Rewards participation in our in-restaurant business, where only about 20% of the transactions scan for Rewards compared to nearly 90% of owned digital transactions. To help close the gap, we introduced new in-restaurant enrollment tools, including menu panels, QR codes and enhanced team member engagement. These have already driven a nearly 20% step-up in daily enrollments since launch. Encouragingly, in-store loyalty comps have outpaced order-ahead loyalty comps since the relaunch, reinforcing our belief that simplifying the in-restaurant Rewards experience can meaningfully increase engagement over time. We're also preparing to pilot a new frictionless in-restaurant Rewards experience beginning in August that will allow our guests to automatically earn Rewards points while paying, eliminating the need to also scan the Rewards card at checkout. This is an important step to not only creating a more seamless in-restaurant loyalty experience but another component of our relentless focus on throughput, making payments faster and easier for our most loyal guests. Over time, we believe this will lead to a meaningful improvement in both Rewards engagement and speed of service. In June, we brought back our Summer of Extras campaign, building on the momentum of our Rewards relaunch and new offers designed to reward frequency and deepen engagement. Compared to last year, more members have engaged with Summer of Extras with the highest gains coming from our lowest frequency guests, and we have seen overall frequency increase. With 23 million active members in our Rewards program, we continue to see a significant opportunity to strengthen our digital ecosystem by reducing friction, increasing personalization and creating additional opportunities to drive guest frequency over time. Our next strategic pillar is evolving our brand messaging, accelerating menu innovation and expanding on new occasions. At the heart of this pillar is ensuring guests understand what makes Chipotle different, real food made from high-quality ingredients prepared fresh every day using classic culinary techniques. Combined with generous portions, speed and an accessible price point, we believe Chipotle continues to offer one of the strongest value propositions in the industry. This was reinforced by our most recent brand tracker, which showed meaningful improvement in guest perception that they are getting good value at Chipotle. It has been great to welcome Fernando Machado, our Chief Brand Officer, to the team this quarter. In his first 2 months on the job, I've been impressed with the enthusiasm and urgency he has brought to the organization in evolving our brand messaging. He was already an admirer of the brand, and that has only been reinforced as he has taken time to truly understand Chipotle. His vision is to enhance the way we tell our story, and he's quickly moving the team to implement marketing strategies that highlight the differentiated value of our real food, stretch our creative ambition and resonate on a cultural level. Later this quarter, we will begin to see the first elements of this ongoing evolution in our brand messaging. On menu innovation, we kicked off the quarter with the return of Chipotle Honey Chicken, one of our most popular limited-time offerings that delivers a balance of smoky heat from Chipotle peppers and a touch of sweetness from pure honey. Guest response has been strong, outperforming last year's launch and achieving a cumulative attachment rate north of 25%. Our Cilantro Lime Sauce, which is prepared fresh daily in our restaurants, also continues to perform exceptionally well. It has maintained attachment rates above both Red Chimichurri and Adobo Ranch, reinforcing the demand we're seeing for flavor-forward menu innovation. Together, these offerings demonstrate our ability to introduce compelling menu innovation while staying true to the culinary principles that define the Chipotle brand. We also refreshed our high-protein campaign with new athlete and Chipotle superfan orders, reinforcing one of our key points of differentiation, delicious high-quality protein prepared fresh every day. Looking ahead, we have a strong innovation pipeline plan for the second half of the year, including 2 additional limited-time protein options and continued innovation across the menu. These offerings will give our guests more reasons to choose Chipotle and reinforce exactly what makes our food unique. We're also focused on expanding to group occasions where guests choose Chipotle, particularly through catering and Build-Your-Own Chipotle, which we are now positioning more clearly as a family meal solution. This helps guests better understand its convenience and value. And the response has been clearly positive with a notable increase in orders since we implemented the change. The results from our catering pilots in Chicago, Boston and now Phoenix have been very encouraging. The catering guest comes with the highest expectation of flawless execution, and these tests have provided valuable learnings as we prepare to scale our operation and technology across both first- and third-party marketplaces. We are now confident we can grow the business while maintaining the quality, speed and hospitality that defines the Chipotle experience. Together, catering and Build-Your-Own Chipotle represent 2% to 3% of sales today, but they are highly incremental and operationally efficient. We are working through the remaining pilot learnings now positioning ourselves for a national launch in 2027. Finally, our culturally relevant marketing continued to resonate with guests throughout the quarter. Our Tatted Like a Chipotle Bag promotion earlier this year only briefly held the title as our highest sales day ever as it was outdone by the Matchday BOGO, which set a new single day sales record and became the most successful BOGO in our history. These campaigns are an important part of the broader effort to tell the Chipotle story in a more authentic and culture-forward way while giving guests more reasons to choose us. Now shifting our focus to developing world-class people leaders. At Chipotle, our people are our greatest competitive advantage. And when we invest in our teams, they deliver better experiences for our guests, and that drives sustainable growth. A great example is Hamed Harizi, who joined Chipotle as a crew member 13 years ago. He rode his bicycle to work, had no college degree and came to work each day determined to learn and improve. Today, Hamed is the Team Director responsible for developing talent across his market and is nearing completion of his master's degree. His journey reflects what makes Chipotle special, culture that recognizes potential, rewards dedication and creates pathways for advancement fueled by our growth. His story is one of many that demonstrates the impact Chipotle can have on the lives and careers of our team members. Just as importantly, we see the strength of that culture reflected in our results. General manager turnover remains at a multiyear low, and crew turnover has returned to historical norms. We believe Chipotle has become one of the industry's best developer of restaurant operators, and that capability is critical to delivering consistent execution today while supporting our long-term growth. Next, I'm pleased to provide an update on how we are expanding our global reach through disciplined growth across both company-owned and partner-operated markets. We opened 100 company-owned restaurants during the quarter and still expect to open approximately 350 restaurants this year with about 80% including a Chipotlane. We see substantial growth potential in North America, and we're applying the same disciplined operating model that has driven our success here as we expand internationally. In Europe, we saw each country deliver high single-digit comp sales growth during the quarter, as our continued alignment to North American culinary operations and training standards translated into stronger restaurant performance. And just 2 weeks ago, I had the privilege of attending the opening celebration of our first restaurant in Monterrey, Mexico. We believe that real food delivered with excellent culinary will resonate strongly with the Mexican consumer and are entering the market with world-class operational capability and our partner, Alsea. It was a pleasure to see this come to life with incredible energy and enthusiasm for our market entry. We will build on this momentum with additional openings planned in the Monterrey metropolitan area later this year and expansion into Mexico City in 2027. We'll open our first restaurants in Seoul, South Korea this year with Singapore expected to follow shortly thereafter in early 2027 with our partner, SPC Group. Each of these new markets represents an important step toward our vision of building Chipotle into an iconic global brand. Now turning to our partner-operated markets in the Middle East. In late April, we opened a new restaurant in Abu Dhabi, followed by our second location in Qatar last week. Additionally, we plan to enter the Saudi Arabian market in the near future. We're also encouraged to see sales across the region returning to pre-conflict levels. While near-term development remains dependent on geopolitical conditions, our long-term outlook remains unchanged, and we continue to believe that the region has the potential to support hundreds of Chipotle restaurants over time. Consumers around the world are increasingly looking for high-quality food prepared fresh with real ingredients, and we believe Chipotle is well positioned to meet that demand. To close, we're encouraged by the progress we're making as our Recipe for Growth strategy has gained traction in the last 2 quarters. We're strengthening restaurant execution, accelerating innovation, enhancing our digital capabilities, investing in our people and expanding our global reach. What gives me the most confidence is our team, both here in North America and around the globe. They're energized, aligned and focused on delivering exceptional food, throughput, hospitality and value every day. I'm confident we have the right leaders in place, the right strategy and a significant opportunity ahead as we continue building Chipotle into an iconic global brand. And with that, I'll turn it over to Adam.
Thanks, Scott, and good afternoon, everyone. Our strong second quarter performance provides further evidence that our Recipe for Growth strategy is delivering results. Within the quarter, sales grew 9.3% to $3.3 billion, driven by a comparable restaurant sales increase of 2.2%, including a transaction comp of 1%. Digital sales of $1.3 billion were 38.3% of total sales compared to 35.5% in the prior year. Restaurant-level margin was 25.2%, down 220 basis points year-over-year. Adjusted diluted earnings per share was $0.33, flat to last year, and we opened 101 new restaurants, including 80 Chipotlanes and 1 international partner-operated restaurant. These trends were supported by the return of Chipotle Honey Chicken and continued strength from Cilantro Lime Sauce. They were further amplified by the Rewards revamp, Summer of Extras and the targeted investments we are making in our restaurants to strengthen the guest experience. We were pleased to see this momentum carry into early July, but trends have been softer in recent weeks, and they've heightened consumer caution around the broader restaurant industry. As a reminder, comparisons become more difficult in the third quarter as we lap increased promotional activity in the prior year. However, as we navigate both industry and consumer challenges, we are confident that we will continue to build upon this momentum for the rest of the year, and we now expect full year comp sales growth in the low single-digit range. On pricing, the impact in Q2 was around 1.6%, and we anticipate it will increase to the mid-2% range in Q3. For the full year, we expect to land near the high end of the 1% to 2% range we communicated earlier this year. Before I walk through the P&L, I want to take a moment to spotlight new restaurant performance and the trends informing our development strategy in North America and beyond. Over the last 7 years, we have steadily and thoughtfully increased the pace of new restaurant growth in North America and are thoroughly impressed by our team's ability to deliver excellent sites with well-trained crews as we've scaled. New restaurant productivity has remained stable in the 80% range, and year 2 cash-on-cash returns continue to be around 60%, both of which are among the strongest in the industry. Importantly, as our development pace has increased, the net impact from the new openings on our comparable restaurant sales is approximately 100 basis points, which is in line with what we have seen for many years. We are also encouraged to see these results hold even as we add restaurants in our most dense markets, which builds even greater confidence in our ability to operate at least 7,000 restaurants across the region. Opening a Chipotle nearly every day of the year is no small feat, but the results give us confidence that our talent and real estate pipelines can support this level of growth while preserving the strength of our existing restaurant base. In Europe, our results this year reflect our multiyear effort to align the region with our North American standards. This has taken unit economics to a level that warrants additional investment and has given us the confidence to build our pipeline for meaningful growth in the coming years. At the same time, the strength of our company-owned operating model is influencing how we're able to approach partner-operated growth. As we enter new markets, Chipotle is highly attractive to best-in-class local operators because of what I just outlined, our proven brand strength and leading unit economic model. Our unique partnerships allow us to expand access to Chipotle globally while still participating meaningfully in the long-term growth and profitability of each new market. With that, I will now go through the key P&L line items, beginning with cost of sales. Cost of sales in the quarter were 29.7%, an increase of about 80 basis points from last year. The benefits of menu price alongside lower avocado and dairy prices were more than offset by inflation, primarily in beef and freight as well as increased usage of several ingredients, including chicken, steak and produce. For Q3, we anticipate cost of sales to be just under 30% as sequentially higher avocado pricing will be offset with menu pricing. Overall, we anticipate cost of sales inflation to be in the low single-digit range for Q3. Labor costs for the quarter were 25%, an increase of about 30 basis points from last year. The increase was primarily driven by wage inflation and performance bonuses in addition to labor execution in restaurants as we lean into the guest experience, including our Hospitality Huddles held during June. These were partially offset by the impact from menu price increases. For Q3, we expect our labor cost to be in the mid-25% range with wage inflation in the low single-digit range. Other operating costs for the quarter were 14.9%, an increase of about 90 basis points from last year, primarily driven by higher marketing and inflation across several items, most notably insurance, maintenance and utility costs. Marketing costs were 3% of sales, an increase of about 30 basis points from last year. In Q3, we expect marketing costs to remain in the low 3% range and for the full year, also in the low 3% range. For Q3, we anticipate other operating costs to be in the mid-15% range. G&A for the quarter was $190 million on a GAAP basis or $176 million on a non-GAAP basis, excluding $13 million related to certain legal settlements and restructuring costs associated with our Recipe for Growth strategy and $1 million related to retention equity awards granted to key executives in August of 2024. G&A included $148 million of underlying G&A, $25 million of noncash stock compensation, $5 million related to higher bonus accruals and payroll taxes offset by a $2 million benefit related to our All Manager Conference. We expect our G&A to be around $180 million on a non-GAAP basis in Q3, which will include $152 million in underlying G&A, $25 million in noncash stock compensation, although this amount could move up or down based on our actual performance, and $3 million in higher bonus accruals and payroll taxes. As we continue to scale, our G&A growth is predominantly driven by field leadership roles supporting new restaurants. Our disciplined approach to investments in technology and other areas has resulted in efficiencies across the P&L while still delivering meaningful leverage to underlying G&A over the past 5 years. We believe that in the coming years, we can continue to fuel our Recipe for Growth strategy and leverage G&A. Depreciation for the quarter was $98 million or 2.9% of sales. For 2026, we expect it to remain around 3% of sales. Our effective tax rate for Q2 was 24.3% on a GAAP basis and 24.0% on a non-GAAP basis. For fiscal 2026, we estimate our underlying effective tax rate will be in 24% to 26% range, though it may vary based on discrete items. We ended the quarter with $800 million in cash, restricted cash and investments, a decrease of $1.3 billion compared to a year ago as we continue to utilize our balance sheet to opportunistically repurchase stock, including $631 million in the second quarter at an average price of $32.55. This brings our year-to-date total to over $1.3 billion at an average price of $34.35. With access to our $500 million revolver and no debt, we will continue to opportunistically repurchase stock; and during the quarter, the Board authorized an additional $1.3 billion to our repurchase authorization. At the end of the quarter, we had $1.7 billion remaining. To close, I want to thank our nearly 140,000 employees for their hard work and commitment to delivering real hospitality in every restaurant every day. It's exciting to see our Recipe for Growth strategy continue to gain momentum this quarter, and we know there is significant opportunity ahead. With Chipotle's uniquely positioned brand and the leading economic model with our foundation, I'm confident we have the right priorities and teams in place to build on this momentum and drive sustainable growth for years come. And with that, we'll open it up for questions.
Questions and answers
I guess I wanted to ask maybe about — you mentioned the kind of core underpinnings of what is driving your comp: delicious food, generous portions, quality. I have two questions about those two components. One is can you talk about bringing back limited-time offerings from the pantry. In the past, you've said the lift kind of builds every time. Different card data may suggest different things. Is it still the case that as people revisit these LTOs, the lift you get from Honey Chicken, for example, is as good or better than the last time you brought it back? And then on the generous portions, are you seeing any changes in value perception? It has always been very good value for the money, but I think maybe perception hasn't fully reflected that. Anything on that and just the impact of having underpriced the industry for so long?
Sara, thanks for the question. Chipotle Honey Chicken did perform better the second time around as do many of our limited-time offerings. We're excited about the pantry items that we have. I do think there's a point of diminishing returns — I don't know if that's the fifth or sixth time around — but we have ramped up innovation to four times what it was just a couple of years ago. You're going to see new items come on to the calendar in the coming months and us revisit tried-and-true favorites that continue to perform better the second and third time we introduce or reintroduce them to consumers. As it relates to value, our brand tracker showed really solid progress across all income groups and age cohorts on value perception. Our affordability scores were better in Q2 than they've been in probably the past couple of years. So we're making meaningful progress on value at Chipotle. We've learned that value isn't just about discounting and price point. It's about convenience, execution and menu innovation. The introduction of the high-protein menu is playing a part in that as well. There's an emerging trend around protein and who better to capitalize on great protein than Chipotle. We have the best proteins in the world with strong husbandry practices, and we should own that category.
Just want to talk about sort of a pushback that I hear, that it feels like Chipotle is doing a lot and spending a lot to get the 1% to 2% same-store sales growth lately. How do I know that you're really going to pick up momentum into 2027? You have a different view on that, but maybe you could help give a sense of how you feel confident at this moment, meaning you talked about dealing with tough comparisons and some slowdown, but you raised guidance to low single digits. So you clearly feel confident about momentum picking up either in the current business or from initiatives ahead. Maybe you could help give us a sense of where you have that confidence.
David, thank you. The transaction growth we saw in Q2 was really the early days of the Recipe for Growth strategy hard at work, specifically around menu innovation. We're investing in our restaurant execution in the form of the high-efficiency equipment package and better throughput and hospitality. The early proof points in guest satisfaction, food quality and operational consistency tell us we're on the right track. We're also building additional transaction growth drivers through menu innovation, deeper Rewards engagement, stronger brand communication and expanded group occasions. All of these things are starting to show green shoots of positive momentum, and they will continue to build and scale as the year unfolds, adding layers of growth into the second half of 2026 and into 2027. We're early days on what Arlie will do in our digital properties and digital commerce, and her early thinking is innovative and creative. Fernando is stretching the team on creative ambition for brand communication. So, in short, the momentum is already building and we have more levers to pull as 2026 unfolds.
I was wondering if you could provide a little bit more color on the guide for the positive low single digits in 2026 on the comps, including perhaps any insights into the third quarter or early days? I know you talked about the softening in recent weeks. But just anything on that trajectory, maybe where the trend was into some of the challenges for the industry in recent weeks, Scott, and just how you're thinking about cadence from here if anything to share there?
Thanks, Dennis. Traffic in the second quarter really improved throughout the quarter, and we're encouraged by the momentum that is building as we continue to execute on our Recipe for Growth initiatives. That momentum continued into the first half of July. In the second half of July, we did see a softening, roughly about 200 basis points or so, tied to the issue affecting the industry around cyclospora. We took that into account when looking at Q3. Keep in mind Q3 is the toughest comp we have this year. At this point, we anticipate our comps will be somewhere around plus 1% in Q3, which assumes a continuation of that roughly 200 basis point impact because it's difficult to predict how long it will persist. Taking that into account and looking at the full year, we remain excited about the momentum and confident we can continue to build on it, which gave us the confidence to raise guidance to the low single-digit range.
If I could jump in here. I know cyclospora is on everyone's mind. I want to emphasize the health and safety of our guests and team members remains our highest priority, and Chipotle maintains a very robust food safety program. We work closely with various governments and agencies; they monitor issues in the supply chain and conduct investigations and take responsive action as appropriate, including tracebacks and removal of product if necessary. Together, these measures help protect our guests and reinforce our commitment to serve safe, high-quality food every day. To be clear, we are impacted from a sales perspective, but Chipotle is not implicated in the cyclospora conversation today. The products involved in that discussion are not used on our menu, and our lettuces are sourced in California.
My question is about capital allocation and the linkage of that to your stores. Scott, last time you mentioned you were seeing an opportunity to refresh the store base to allow elevated marketing to reflect in the operating system and flow in the store. You identified three levels of investments for about 1,000 to 1,500 stores in North America. Assuming some stores would have been refreshed anyway given they're hitting the 10-year mark, have you been able to size up the incremental CapEx needed and do you have any early indication on expected sales uplift and timing? And on capital allocation, have you considered leveraging partners in other international markets instead of owning and operating your stores?
We're always reinvesting in our restaurants, including our oldest assets. We haven't done an aesthetic remodel in the brand's history, and this year we are staging a remodel-refresh program to test returns. We're in early days and have selected several locations across geographies to make different levels of investment, roughly between $100,000 and $300,000 per restaurant, to see consumer perceptions and returns at each level. I have nothing definitive to report today, but the work is in flight and I'm optimistic; we'll be patient to see how the returns shake out. Regarding partner-operated restaurants, we are building partnerships around the globe in a slow, measured way. We've talked about Alshaya in the Middle East, Alsea in Latin America and SPC in Southeast Asia. Those partnerships may be partner-operated and/or joint ventures, and we will leverage the partner's strength and quality along with our operational capability to secure healthy returns for the Chipotle brand. We will continue to own and operate Western Europe while thinking about the rest of the world as partner-operated opportunities.
My question on digital sales: digital grew 18% including unit growth in the quarter year-over-year, and you really turned that on several quarters ago. Was there a big catalyst that unlocked this? And what are you seeing in digital sales versus non-digital sales, what's driving changes at the register around loyalty and payment ability — are these linked?
It is all linked. The launch of Summer of Extras last year helped us understand where we have the right to win with consumers digitally and taught us what works and what doesn't for our brand. That informed the relaunch around Rewards on Repeat, where we removed friction from the app, gave greater flexibility in earn and redemption and improved onboarding. Building out Summer of Extras has accelerated our digital ability to drive revenue. Arlie is taking a holistic approach to digital, and there's more work to do; we're early days. The innovation she will bring to digital commerce over the next weeks and months should be game changing.
I wanted to ask on the HEEP rollout. Should we expect all of these labor efficiencies to be reinvested into labor back into the production line? Do you think that could help drive positive traffic and customer satisfaction on the front line?
If I understand, you're asking how HEEP impacts restaurant performance and whether labor savings are reinvested. The answer is yes. We see about 2 to 4 hours of efficiency depending on volume, and we redeploy that labor in restaurants to support prep in the morning so teams are deployed during peak and to have labor on the line to boost throughput. We're seeing that translate into transaction lifts in HEEP restaurants, both in max 15-minute throughput and overall total sales. We're also seeing better taste-of-food scores. We're rolling out as aggressively as we can — we'll be in 2,000 restaurants by year-end, hope to complete the portfolio sometime in 2027 — and all new restaurants today come standard with the HEEP package. There's meaningful upside in completing this rollout.
At a conference in May, Scott, you talked about how 350 company-operated openings per year is the right level for Chipotle. Can you talk about why you view that as the right level versus the prior ceiling of 400 stores and what the gating factor is to accelerating above 350?
As I look across the industry, the white space in the U.S. and our ability to develop ready-now leaders, one restaurant per day — roughly 350 a year — is meaningful growth and something we can support. We've historically demonstrated the ability to open successfully, and I don't want to lose that edge. There could be a point of diminishing returns beyond 350 that could fracture the base if we were too aggressive. We like 350; the team feels comfortable with it, and we're developing leaders to support that growth. Incremental growth can come from global expansion — company-owned in Western Europe — and partner-operated development elsewhere. For example, our Middle East partnership with Alshaya started a couple of years ago and is already at 15 restaurants across multiple countries. Partners can accelerate development quickly, and that will factor into our overall growth picture.
You have a new Chief Brand Officer who is relatively new to the brand. I'm curious how you see the brand being positioned in the market. The 'For Real' campaign has been out a long time and may feel stale to some. Where do you see the brand going? Will value and ingredient quality be highlighted more prominently, especially versus limited-service competitors that don't do the food representation you do in stores?
The 'For Real' campaign was extraordinary and served us well for many years. Fernando's work is not a 180-degree pivot but the next evolution of that campaign. You'll see more of how we prepare food fresh in restaurants, more about ingredient usage and our broader purpose of cultivating a better world. Fernando will stretch our creative ambition and do things that break through the sea of sameness in advertising today. The work will highlight our value, but not just price or discounts — the extraordinary value of Chipotle comes from high-quality ingredients prepared fresh daily, generous portions, speed and an approachable price point. That's what we will celebrate.
Two quick clarifications. On the third quarter comp guide, Adam, I think you said about 1%, and you also said the cyclospora impact is about 200 basis points. Is it right to think roughly that the underlying trend is up about 3% but you assumed a 2% headwind sustained for the rest of the quarter — is that the right interpretation of the 1% guide?
Yes, that's correct. Our expense-line guidance was based on that 1% guide, which assumes continuation of the cyclospora impact through the quarter, since it's very difficult to predict how long it could last.
Understood. That's helpful. And then on the HEEP benefits to throughput, can you level-set where max 15-minute throughput is for the system overall, excluding HEEP stores?
The restaurants with HEEP are doing about 2 to 3 entrees more in their max 15-minute period. Overall, we're kind of in the low-20% range in-store for max 15, and that doesn't count digital. Digital is almost 40% of our sales, and digital max 15 tends to be in the mid-teens. Combining both, we're in the low- to mid-30s on our max 15 for each restaurant each day.
On loyalty and efforts to promote the program in-restaurant, can you elaborate on what's working well and what could be improved? Also for clarification, those in-store transactions where 80% don't have loyalty — do those over-index or correlate with lower-income guests?
No, that 80% doesn't correlate only with lower-income guests — it's more broad-based. We believe that 20% adoption in-store could have a meaningful lift if we can get more scans. There are friction points in-restaurant: guests with phones, opening apps and scanning can be clunky. Curt and the team are working to make this more seamless. In August we'll pilot a one-stop pay where once you pay you earn Rewards points and can be enrolled if you choose, creating a more seamless experience that happens behind the scenes and doesn't impact throughput. We still have work to do in educating guests and removing friction, but we think we have a handle on it and more to come.
You mentioned some new items may be coming to the menu in the months ahead. Can you elaborate? Are these center-of-the-plate items or sides? Any detail you can provide would be helpful.
The team is hard at work. We've expanded the culinary team to drive thoughtful menu innovation, including center-of-the-plate items. We also have teams working on beverage, sides and desserts. We've stage-gated some big ideas that have merit and you could see on the calendar in the back half of 2026 but certainly in 2027. We're focused on delivering meaningful, sustained innovation across multiple categories.
You previously said younger and lower-to-middle income guests had been under more pressure. Can you give an update on trends in Q2 by age and income or any calls in Q3-to-date? Are any groups improving relative to higher-income cohorts, or are there meaningful differences in frequency across groups?
Those two cohorts that were under the most pressure — the younger cohort and the lower-income cohort — have improved the most compared to everyone else. From Q1 into Q2 it's been pretty broad-based, but those two groups have seen outsized improvement. This centers around menu innovation like Chipotle Honey Chicken and Cilantro Lime Sauce and promotions such as Matchday BOGO and our Rewards initiatives. We're doing a good job meeting those cohorts and giving them what they want from Chipotle.
I would add that we saw our highest year-over-year gains in wallet share last quarter since 2024, and we have taken share in each month of 2026, which reinforces that we're on the right path across income cohorts and age groups.
Thanks for the Q3 margin detail, Adam. Can you provide an update on how you're thinking about margin outlook beyond the current quarter? Last quarter you spoke about the gap between pricing and inflation narrowing near year-end. Any update would be helpful.
The gap between price and inflation was widest in the first half. That is easing in the second half as we take measured price increases. In Q3 we expect inflation to be closer to about 3%, while pricing will be in the mid-2% range. That dislocation has narrowed meaningfully from the first half when pricing was around 1% and inflation was low-to-mid 3%. From Q4 forward, we expect pricing and inflation to more closely match so the dislocation should not persist on a go-forward basis.
On more recent trends, did you see any regional or market divergences around the World Cup that would indicate a benefit for Chipotle in recent months? And I have a follow-up.
On the World Cup, the impact to the quarter was very small. We have about 300 restaurants within roughly 10 miles of World Cup stadiums, and during the tournament they saw a small benefit, perhaps 50 to 100 basis points in comps for those locations. On the overall quarter, the impact was less than 5 basis points — a nice benefit for those restaurants but immaterial to the quarter as a whole.
On pricing, you've been conservative with rolling out pricing. What have you learned as the year progressed, and what gave you comfort to trend toward the higher end of the initial 1% to 2% guide?
The measured rollout strategy is working well. It allows us to gauge resistance more precisely and adjust as needed while rolling price market by market. As we received reads on resistance and consumer feedback, it allowed us to continue to push forward. The approach gives us flexibility and reduces the risk of mispricing. We plan to continue this strategy, and the earlier dislocation was primarily a timing impact.
Can you give incremental color on LTO contribution to the frequency uplift you're seeing? Any historical benchmarks on LTO contribution to traffic in the quarter would be helpful given the stepped-up cadence this year.
We haven't given specifics on individual LTO lifts, but with Chipotle Honey Chicken this year and Chicken al Pastor earlier, we have seen increases in transactions. Many of the transactions come from our most frequent guests coming in more often because they're excited about innovation, and we're also bringing in new guests. We typically see hundreds of basis points of transaction lift for promotions, most of which sustain during the promotion. We also measure the stickiness after the LTO leaves and see meaningful retention among the customers we attracted. We view this as a multiyear lever to increase AUVs over time rather than a short spike.
Follow-up: Given the emphasis on higher-protein offerings, do guests who gravitate to those tend to be existing Chipotle guests or do they bring in new cohorts? Any sense for converting frequency relative to core menu items?
Higher-protein offerings bring in new customers who try the brand for the first time, and when a guest tries an LTO their lifetime value goes up materially. That gives us confidence in the LTO strategy. We also see current customers coming more frequently because they have new menu options. You'll see a couple more center-of-the-plate items in the back half of the year, plus sides and beverage innovation. There's significant opportunity in beverage and we're pursuing that with the right team and approach. Well, thank you for joining our call today. I'm really proud of the results we delivered in the second quarter as we continue to execute our Recipe for Growth strategy. We're seeing encouraging momentum across the business from improvements in throughput and restaurant execution to the expansion of catering, a strong pipeline of menu innovation, lower turnover, continued deployment of our high-efficiency equipment package and investments that are enhancing our digital capabilities and strengthening the experience for both our guests and team members. At the same time, we're continuing to invest in our people while thoughtfully expanding our global reach. While we're pleased with the progress we've made, we're even more excited about what's ahead for this great brand. I think we have the right team, a strategy that is driving results and an incredibly strong brand. As we continue to execute our strategy, we're working on a plan to gather many of the folks on the call here today and others in the new year where we can showcase what's new in our restaurants and provide an opportunity for you to hear directly from our new leadership team and existing leaders in person. Keep an eye out for that. We're excited to have you see firsthand the progress we're making across the business, experience our operations up close and spend time with the leadership team, including the new executives that have joined. Thank you again for your time, your partnership and continued confidence in Chipotle. We appreciate your support and look forward to updating you on continued progress next quarter.
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