Chipotle Mexican Grill Inc. (CMG) Q1 2022 Earnings Call Transcript

Chipotle Mexican Grill Inc.  (NYSE: CMG) Q1 2022 earnings call dated Apr. 26, 2022

Corporate Participants:

Adam Rymer — Vice President of Finance

Brian Niccol — Chairman and Chief Executive Officer

John R. Hartung — Chief Financial Officer

Analysts:

Nicole Miller Regan — Piper Sandler — Analyst

David Tarantino — Baird — Analyst

Andrew Charles — Cowen — Analyst

Jared Garber — Goldman Sachs — Analyst

John Glass — Morgan Stanley — Analyst

David Palmer — Evercore ISI — Analyst

Jon Tower — Citi — Analyst

John Ivankoe — JPMorgan — Analyst

Dennis Geiger — UBS — Analyst

Lauren Silberman — Credit Suisse — Analyst

Brian Vaccaro — Raymond James — Analyst

Presentation:

Operator

Good day, and welcome to the Chipotle Mexican Grill First Quarter 2022 Results Conference Call. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Adam Rymer, VP of Finance. Please go ahead.

Adam Rymer — Vice President of Finance

Hello, everyone, and welcome to our first quarter fiscal 2022 earnings call. By now, you should have access to our earnings press release. If not, it may be found on our Investor Relations website at ir.chipotle.com. I will begin by reminding you that certain statements and projections made in this presentation about our future business and financial results constitute forward-looking statements. These statements are based on management’s current business and market expectations, and our actual results could differ materially from those projected in the forward-looking statements.

Please see the risk factors contained in our Annual Report on Form 10-K and our Form 10-Qs for a discussion of risks that may cause our actual results to vary from the forward-looking statements. Our discussion today will include non-GAAP financial measures. A reconciliation to GAAP measures can be found via the link included on the presentation page within the Investor Relations section of our website. We will start today’s call with prepared remarks from Brian Niccol, Chairman and Chief Executive Officer; and Jack Hartung, Chief Financial Officer, after which, we will take your questions. Our entire executive leadership team is available during the Q&A session.

And with that, I will turn the call over to Brian.

Brian Niccol — Chairman and Chief Executive Officer

Thanks, Adam, and good afternoon, everyone. Before I share our first quarter results, I want to express my gratitude for the 3,200 outstanding general managers and field leaders that attended our All Managers’ Conference in Las Vegas last month. It was our first time together in nearly four years, allowing us to celebrate our general managers, as well as inspire and learn from one another as we codified our 2022 strategic priorities. It truly was great to be back together again.

Chipotle’s performance in the first quarter was strong despite challenges from the Omicron variant. For the quarter, sales grew 16% to reach $2 billion, driven by a 9% comp, in-store sales grew by 33% over last year, digital represented 42% of sales, restaurant-level margin was 20.7%, a decrease of 160 basis points year-over-year, adjusted diluted EPS was $5.70, representing 6.3% growth over last year, and we opened 51 new restaurants, including 42 Chipotlanes. Although our restaurant margins remain bumpy due to inflation, we have the ability to be patient while costs are volatile, and the growth in pricing power to recover our margins over time.

And I’m pleased to report that Q2 is also off to a strong start, fueled by Pollo Asado, our most popular new protein to-date. Our five key strategies continue to position us to win today while we create the future. These include number one, running successful restaurants with a people accountable culture that provides great food with integrity, while delivering exceptional in-restaurant and digital experiences. Number two, sustaining world-class people leadership by developing and retaining diverse talent at every level. Number three, making the brand visible, relevant, and love to improve overall guest engagement. Number four, amplifying technology and innovation to drive growth and productivity at our restaurants and support centers. And number five, expanding access and convenience by accelerating new restaurant openings.

Let me provide a brief update on each of these strategies, starting with restaurant operations. Our people are our greatest asset and well-trained and supported employees preparing delicious food served quickly equates to an excellent guest experience. We are currently focused on improving our throughput as our sales continue to increase throughout the spring, and our in-restaurant business continues to grow. Recently, I was in Denver at our 6th & Broadway location, which opened in March of 2000, and I met two employees who have been with this restaurant since the day it opened, so that’s 22 years. They were training our new team members on the line, demonstrating how to execute with excellence and speed. It was incredible to see our Teach and Taste Chipotle value being brought to life.

We know throughput, a foundational element of convenience that our guests value is an opportunity for us. And we are committed to teaching, training and validating the five pillars of throughput every day during every shift to ensure we meet our high standards and provide a great guest experience. We have daily goals in place for the number of entrees per 15-minute period on the front make-line and promised time execution on the digital make-line. These goals are now included in the restaurant manager and crew bonuses to better drive performance and accountability, and both measures improved during the quarter. We are also in the process of rolling out a new scheduling tool, which will help ensure the right people are in the right positions at the right time.

I believe that we are finally getting back to pre-pandemic operations and I couldn’t be more excited. We have been intentional in our recruiting efforts and we have made investments in our people. We offer a world-class employee value proposition that includes industry-leading benefits, attractive wages, specialized training and development, access to education and a transparent pathway to significant career advancement opportunities. We believe these efforts are helping to attract and retain great employees as our staffing levels are better today than they were in late 2019. We are constantly looking for ways to be better at training and development.

With that in mind, we have enhanced our training and development programs, recently rolling out in AI-based learning management system, the Spice Up [Phonetic], which offers immersive learning and development opportunities and upskilling for future roles for all employees. We believe our team members of today will be our leaders tomorrow and we are looking for them to grow with us. Opening 8% to 10% new restaurants per year means we need more crew, more GMs, more field leadership. In fact, team members can advance to restauranteur, the highest general manager position in as little as 3.5 years with average compensation of $100,000, while leading a multi-million dollar growing business, and it doesn’t stop there. The GM can become a certified training manager, a field leader, a Team Director and a Regional Vice President.

In fact, we just recently promoted an individual to Regional Vice President, who started as a crew member, and he is the second one of our Regional Vice Presidents to share this incredible career trajectory. Our marketing team continues to do a tremendous job of keeping Chipotle relevant in culture, driving difference, as well as transactions. We continue to leverage both traditional and non-traditional media to increase awareness and amplify the brand. You may have seen our Knowing Tastes Better television campaign, which highlights Chipotle’s real ingredients like antibiotic-free chicken, freshly prepared food like our hand-mashed guac and features our real team members. Additionally, we remain a leader in the digital space with our latest Chipotle Metaverse experience that launched on National Burrito Day garnering more than 4 million gameplays in the first week.

From a product innovation standpoint, we generally introduce two to three new menu items per year using a disciplined stage-gate approach to innovation. These new product introductions are extremely effective as they bring in additional customers, drive frequency with existing users and increase check while giving us an opportunity to create buzz around the brand. Pollo Asado was our first chicken innovation in 29 years and the reaction has been outstanding. In addition to adding new variations to our health-oriented Lifestyle Bowls in January, we also attracted new guests with our Plant-Based Chorizo limited time offering, which prove that you don’t have to sacrifice flavor or food with integrity to enjoy a vegan or vegetarian protein. And we’re far from being done. We’ve got an exciting new menu item that we’ll start testing in the coming weeks, which I think guests are going to love. And we have a robust product pipeline for the remainder of 2022 and beyond.

A key part of guest engagement is our Chipotle Rewards Program, which now has nearly 28 million members. We recently celebrated the three-year anniversary of the program by relaunching Guac Mode, an exclusive benefit for Chipotle Rewards members that unlocks access to surprise free guac rewards throughout the year, which resulted in our highest social engagement of all time and loyalty enrollments up 35% week-over-week. We continue to leverage our CRM sophistication by focusing more on personalization and using predictive modeling to trigger journeys that can influence guest behaviors, as well as make their experience with Chipotle more relevant for them. This approach uses personalized messaging to learn more about an item the guest has previously ordered, view their ordering preferences or to see their cumulative Real Foodprint, which is a guest potential environmental impact based on their order history.

We are constantly learning, evolving and optimizing to drive more frequency with Rewards members. We are pleased with the progress to-date, but believe we will get even better over time. Our ability to share relevant personalized communications with our guests will ultimately deepen the relationship between Rewards members and the brand. Our digital sales remain a big part of our business due to it being a convenient frictionless experience that has been enhanced by continuous technology investments to improve operational execution. On average, it only takes about 10 minutes from the time a guest places an order until it’s ready for pickup, which is simply outstanding.

Chipotlanes also continue to outperform non-Chipotle locations due to the convenience, which is encouraging since digital order pickup is our highest margin transaction. We continue to look for ways to increase access and convenience through alternate restaurant formats, digital-only menu offerings and leveraging our large and growing loyalty program. As a people-first Company, we are investing in human capital technology to enhance the team member experience in our restaurants, creating a more efficient, consistent and compliant environment. We recently rolled out a new labor scheduling program, as well as began testing radio frequency identification technology to enhance traceability and inventory systems.

Also in test is an autonomous kitchen assistant, Chippy, that integrates culinary traditions with artificial intelligence to make tortilla chips in our Cultivate Center innovation hub. Our goal is to drive efficiencies through collaborative robotics that will enable Chipotle’s team members to focus on other culinary tasks in the restaurant. We will not sacrifice quality and deliciousness. We are going to place Chippy in a Southern California restaurant soon, so we can leverage our stage-gate process to listen, test and learn from our crew and guest feedback before deciding on our implementation strategy.

To accelerate our strategic priorities, we recently announced that we created a new venture fund called Cultivate Next to make early-stage investments into strategically aligned companies that further our mission. As a digital disruptor, we are looking to support early-stage companies that are forward-thinking and will enhance our employee or guest experience, advance our food with integrity mission and perhaps revolutionize the restaurant industry.

Our last strategic pillar is to expand access and convenience, which today is still a top request from consumers. In less than 30 years, we reached 3,000 restaurants with over half in the last 10 years. We are relentless in our pursuit of bringing food with integrity to more communities. We’re not even halfway to our goal of reaching 7,000 restaurants in North America and are building a real estate pipeline that will accelerate new unit growth in the range of 8% to 10% per year with more than 80% of new restaurants featuring a Chipotle. Our digital order drive-through pickup lane continues to be a favorite among guests, giving customers more easy ways to access Chipotle.

Last week, we issued Chipotle’s 2021 Sustainability Report Update, which highlights our commitment to people, food and animals and the environment. We even tied a portion of our executive compensation to achieving various goals to ensure we held ourselves accountable for making business decisions that cultivate a better world. The report talks about how we invested in our people, supported our communities and worked to reduce our environmental impact. I’m proud of the strides that we have made to showcase real meaningful action and measurable change.

In closing, none of the results that I’ve shared with you today would be possible without our world-class teams. I want to thank our employees in the restaurants, field teams and support center staff for constantly pushing the boundaries of what’s possible. As I mentioned at the start, we just brought together 3,200 of our general managers and field leaders and hearing their ideas, passion and enthusiasm for this Company convince me more than ever that we have the right people and the right strategies in place to position Chipotle for accelerated growth in the years ahead.

With that, here’s Jack to walk you through the financials.

John R. Hartung — Chief Financial Officer

Thanks, Brian, and good afternoon, everyone. Sales in the first quarter grew 16% year-over-year to reach $2 billion as comp sales grew 9%. Restaurant level margin of 20.7%, decreased 160 basis points compared to last year. And earnings per share adjusted for unusual items was $5.70, representing 6.3% year-over-year growth. The first quarter had unusual expenses related to our previously disclosed 2018 performance share modification, transformation costs, as well as restaurant asset impairment and closure costs, slightly offset by a reduction of legal expenses, which negatively impacted our earnings per share by $0.11, leading to GAAP EPS of $5.59.

As we look to the remainder of 2022, there remains uncertainty from macroeconomic impacts, as well as COVID and make it difficult to provide full-year comp guidance. Comps in April so far continued right around the same 9% we saw in Q1. And while it’s difficult to predict the comp in Q2 due to these factors, assuming current sales trends continue, we expect it to be in the 10% to 12% range as we expect the comp to increase throughout the quarter. Our restaurant level margins continue to be impacted by unprecedented levels of inflation. Our Q1 margin was impacted by a higher level of commodity inflation than we expected, primarily from avocados, tortillas and dairy, resulting in our Q1 margin falling below the nearly 22% guidance we provided on our last earnings call. To offset these rising costs, we increased menu prices over 4% at the end of the quarter.

And looking ahead to Q2, we expect our restaurant level margin to be around 25%, which will benefit from a full quarter of the new menu prices and assuming we don’t see additional inflation above our current estimates. I’ll now go through the key P&L line items beginning with cost of sales. Cost of sales in the quarter were at 31%, an increase of about 100 basis points from last year. Costs were higher across the board, but most notably beef, avocados and paper and more than offset the leverage from our menu price increases. Additionally, cost for avocados, tortillas and dairy increased during the quarter. And in Q2, we expect our cost of sales to remain near 31% as the benefit from our menu price increase will be offset by a full quarter of these elevated costs.

Labor costs for the quarter were 26.3%, an increase of about 140 basis points from last year. This increase was driven by our decision to increase average wages to $15 per hour in May of last year, which was partially offset by menu price increases. In Q2, we expect our labor cost to be in the mid 24% range due to leverage from our menu price increase, as well as seasonally higher sales. Other operating costs for the quarter were 16.4%, a decrease of about 50 basis points from last year. This decrease was driven by menu price increases, as well as a decline in delivery expenses, partially offset by higher costs across several expenses, most notably utilities, including natural gas. Marketing and promo costs for the quarter were 3.5%, the same level we spent last year to support Plant-Based Chorizo, as well as the launch of Pollo Asado. In Q2, we expect marketing costs to step down to the mid to high 2% range with the full year to remain around 3%. In Q2, other operating costs are expected to be in the mid 14% range.

G&A for the quarter was $147 million on a GAAP basis or $144 million on a non-GAAP basis, excluding $3 million related to the previously disclosed modification through 2018 performance shares and $1 million related to transformation expenses, offset by a $1 million reduction related to legal settlements. G&A also includes $101 million in underlying G&A, $20 million related to non-cash stock compensation, $6 million related to higher performance-based bonus accruals and payroll taxes and equity vesting and exercises and $17 million related to our All Manager Conference. We expect our G&A — underlying G&A to be around $104 million in Q2 and continue to grow slightly thereafter as we make investments in technology and people to support ongoing growth.

We anticipate stock comp will likely be around $27 million in Q2, although this amount could move up or down based on our performance. We also expect to recognize about $5 million related to performance-based bonus accruals and payroll taxes and equity vesting and exercises bringing total G&A in Q2 to around $136 million. Depreciation stepped up in the quarter to $72 million as we accelerate depreciation for several in-store tech items we plan to upgrade this year. For example, adding contactless payment for our in-restaurant guests, as well as for remodels and relocations that will expand our Chipotlane footprint. We expect depreciation to remain at an elevated level for the next few quarters. Our effective tax rate for Q1 was 16.7% for both GAAP and non-GAAP, and both rates benefited from option exercises and share vesting at stock prices above their brand value. For fiscal 2022, we estimate our underlying effective tax rate will be in the 25% to 27% range, though it may vary based on discrete items.

Our balance sheet remains healthy as we ended the quarter with $1.2 billion in cash, restricted cash and investments with no debt, along with a $500 million untapped revolver. During the first quarter, we repurchased $260 million of our stock at an average price of $1,490. We increased our level of stock repurchases during the quarter when our share price fell with the — with the market overall, and we’ll continue to opportunistically repurchase our stock. We opened 51 new restaurants in the first quarter, of which 42 had a Chipotlane. The performance of our Chipotlanes continue to be strong, driving our new store productivity to record levels.

The development team continues to do a tremendous job delivering new restaurants despite the many issues we’re facing, including construction labor shortages, permitting delays and raw material and equipment shortages. Although these issues have lengthened the time line of our new restaurants, our pipeline continue to be strong, and we expect to open between 235 and 250 new restaurants in 2022 with at least 80%, including a Chipotlane.

Let me end by expressing my appreciation to our over 100,000 team members in our restaurants and field leadership teams and in our restaurant support centers for their efforts to serve and delight our guests. I was thrilled to see our general managers and field leaders at our All Manager Conference last month and personally thank them for their dedication and hard work over the past several years and share with them the opportunity that they all have as we grow from 3,000 restaurants to 7,000 restaurants in the years to come.

With that, we’re happy to take your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will be from Nicole Miller with Piper Sandler. Please go ahead.

Nicole Miller Regan — Piper Sandler — Analyst

Good afternoon, and thanks for the update. If I could just ask two quick ones. I guess, both really centered first on the top-line. If the comp is set to improve through the quarter, is it basically saying you haven’t seen any pushback on price? And if I’m looking back in a year ago in 2Q, it looks like traffic comparisons ease like as you exit the quarter. Is there anything else — is that what’s going on? And is there anything else we have to take into consideration in terms of a digital influence or a party-size influence around mix shift?

Brian Niccol — Chairman and Chief Executive Officer

Yeah. I mean, obviously, what we’ve seen is very little resistance to the pricing so far. And in regard to kind of entrees per ticket, as our in-store business goes up, I think it was up like 30-some-odd percent this quarter and kind of digital is held as a percentage. You’ll see some shifting number of entrees per ticket just because the in-store occasion is more of an individual occasion than the digital occasion.

Nicole Miller Regan — Piper Sandler — Analyst

All right. So you — that’s where you see a little give back in the mix shift, right, is around an individual order essentially versus a big party order?

John R. Hartung — Chief Financial Officer

That’s right, Nicole, because our transactions actually are up even though we had pricing that was in that about 10% range, our transactions are up 5%, but our check is down 6%. That’s partly because of group size, which is the shift from digital to in-store that Brian talked about. And then also with digital, you tend to have attachment rates that are a little bit higher with things like queso, avocados, extra meat. And then we’re also comparing against cauliflower rice from last year as well. So those are all the things that drove the check down. But underlying transactions are healthy and the price increase is sticking just as expected, we don’t see any resistance.

Nicole Miller Regan — Piper Sandler — Analyst

Okay. And so just a second and last question, I mean that’s exactly what we’d be looking for, any weakness you would observe in the consumer on price or other behavior, and it’s really just a reconciliation of the in-store. I could see one of the criticisms down the road if the consumer does weaken or the macro, whichever way you want to take it, I’d be curious if your underlying assumption with the development going to be a record-setting year, you don’t have franchisees that slow you down, you don’t have landlords or lenders that slow you down. So if you feel the pressure on the consumer, will you slow that development purposely to lower end of the range or will you just keep pushing through?

Brian Niccol — Chairman and Chief Executive Officer

No, I mean our plan is to grow. And we think the strategies that we have and the results that we’re getting give us a lot of confidence to stay the course on our growth plans.

John R. Hartung — Chief Financial Officer

Yeah. And Nicole, I would just add, I literally just had a conversation with Tabassum [Phonetic], who heads up our real estate, we had a leadership meeting, and she’s out in the field with her teams. And we had that conversation saying, listen, there’s a lot of noise going out there, the market is under stress, interest rates are going up. And so — but no matter what happens out there, we have a strong balance sheet. We know we have strong economics and we’re in this for the long haul. So make sure your teams realize we’re not slowing down. And if anything, there’s opportunities because others do pull back, let’s take that as an opportunity to go faster, not slower.

Nicole Miller Regan — Piper Sandler — Analyst

Thank you.

Operator

Thank you. And the next question will come from David Tarantino with Baird. Please go ahead.

David Tarantino — Baird — Analyst

Hi, good afternoon. Jack, I just want to come back to the Q2 guidance for my first part of my question. Could you just explain why the comp you expect to get better as the quarter goes on? Is it strictly related to comparisons or is it something else that you think?

John R. Hartung — Chief Financial Officer

Yeah, there’s a lot going on, David, comparisons a lot of it. Easter shifted. We see a nice seasonally shift right after Easter, and we saw the nice shift this past week. Easter last year was in the first week, it was like the third or fourth. So it was two weeks later. So we definitely saw that step up, which gives us confidence that now we’re in kind of a normal post-Easter phase. In the last week or so, since Easter is behind us, we are seeing that step up, we’re seeing the full flow through of the menu price increase. And we take those sales trends and then project them through the rest of the quarter, it gives us confidence that we’re going to step up from the approximately 9% that we’ve seen so far month to-date in April, up to that 10% to 12% guidance range that we gave.

David Tarantino — Baird — Analyst

Got it. Okay, that’s helpful. And then I wanted to come back, Brian, to your comments about throughput. I guess this is one of the first calls, you’ve highlighted that as a big opportunity in a while. Could you maybe give us a framework for where you are on the metrics you’re tracking versus where you used to be I guess prior to the pandemic, I guess to frame up how much opportunity there is to really drive better throughput and potentially better sales through that attribute?

Brian Niccol — Chairman and Chief Executive Officer

Yeah, sure. So if you kind of go back just to kind of set kind of like a range for you, in our best time period, we were kind of in the low-30s per 15 minutes peak. And then I think you heard me talking about this before the pandemic, we’re targeting to get back to the mid-20s, high-20s and we’re making a lot of great progress where we were closing on the kind of mid-20s. And now where we are is we’re closing back in to get back to those mid-20s. So still a lot of headroom for where we can grow from here.

But the thing that’s been really nice is as we’ve gotten stability in the teams, the restaurants are staffed, and we’re seeing performance in throughput and we’re also seeing great performance in our digital make-line of being on time and accurate. So lots of opportunities on both of those, but to kind of give you the gauge, we’re kind of in the mid-20s on throughput and we’d like to get closer to 30 [Phonetic] sooner rather than later. So lots of work to do, lots of opportunity though with it.

David Tarantino — Baird — Analyst

Right. Thank you.

Operator

And the next question will come from Andrew Charles with Cowen. Please go ahead.

Andrew Charles — Cowen — Analyst

Great, thank you. Jack, if we look out past the commodity and labor inflation that’s weighing on the industry in 2022, you guys have previously talked about 27% plus margins when $3 million volumes are reached. Is this still realistic? Is this still a realistic level that could be reached without having taken outsized level of pricing?

John R. Hartung — Chief Financial Officer

Yeah. Andrew, listen, we still can get to that level. I mean the question is when and how bumpy is it going to be between here and there. I mean, this really has been the most difficult period I’ve ever seen in terms of commodity month-to-month, quarter-to-quarter, but we know that. We told in our guidance, we shared that we expect to get back to the mid-20% range. And based on that volume to go from the current volumes in the $2.7 million range up to $3 million, most of the flow through, most of the gap from the mid-20s to get up to 27% will happen from flow-through. And I think there’s going to be other efficiencies that we find along the way, again, in a normal operating environment. So I still think that 27% is in play at that kind of volume.

Andrew Charles — Cowen — Analyst

Super. That’s very helpful. Then Brian, I know we’re talking a lot on this call as dine-in rebounds about priorities in place before the pandemic were — such as throughput. One question I have for you, just on catering. Can you talk about the opportunity there? And how Chipotle is positioned, sees on that as gatherings are happening? I know May is obviously a high volume month for you guys for catering given Cinco de Mayo, given graduation parties, how is Chipotle set up to capitalize on this opportunity?

Brian Niccol — Chairman and Chief Executive Officer

Yeah, look, it’s a great question and I think it’s a great opportunity for us. The good news is we’re already seeing catering interest come back. And you mentioned you kind of got kind of the key events for group gatherings coming up with graduation season. And the team has done a great job, I think of making our digital process a much easier process for people to do the catering. And then we’ve got a team focused on how we continue to drive those group occasions going forward. So we think there’s upside for sure in it. It’s nice to see the consumer coming back to the occasion, and I think we’re well positioned to continue to grow in that space.

Andrew Charles — Cowen — Analyst

Very helpful. Thanks guys.

Operator

And the next question will come from Jared Garber with Goldman Sachs. Please go ahead.

Jared Garber — Goldman Sachs — Analyst

Hi, thanks for taking the question. My question is related to the labor line. I wanted to get an update on where you are, I guess on staffing levels? And maybe I don’t know if the best way to frame that is versus pre-COVID or maybe more appropriate is where those staffing levels are versus how you’re expecting them to run right now given the level of volume in the business? And then a follow-up on that. We saw last week in one of your releases that turnover was high. I mean, I’m sure it wasn’t you, it’s the entire industry, but just wondering if there’s any way to frame maybe how much incremental labor costs flow through the system last year and are still are flowing through the system given some of the incremental training costs and maybe some lower productivity from new employees?

Brian Niccol — Chairman and Chief Executive Officer

Yeah. So the first part of your question, I would say the good news is we’re in the, call it, 85%, 90% of restaurants being staffed at model, which is really tremendous. We’ll always want to strive for 100%. But being in that 85%, 90% range is really something that I would say is better than we were pre-pandemic, just to kind of give you a gauge. Pre-pandemic, we’re probably more in the 80% range. Going forward, one of the things that we’re really happy to see actually is at the manager level and above. We’re seeing more stability. So we’re seeing less turnover take place there. Usually, how that works then as that cascades into the crew.

You are coming up on kind of a season where you’ve got some transition just with kids coming out of college and the end of the school year for people, it’s just a shift in people’s working habits. So we do see some bumps in kind of turnover at that timeframe. But I really think we’ve got a lot of strength in our management leadership. And when you have strength in the management leadership, that cascades into the crew. So we’re liking how we’re set up for kind of coming into the spring/summer season.

Jared Garber — Goldman Sachs — Analyst

Great. Thanks. And then Jack, I’m not sure if there’s anything on just thinking through labor productivity in the stores as we think about the margins for the balance of the year and go forward?

John R. Hartung — Chief Financial Officer

Yeah. Jared, I would say we’re in like I’d say a normal operating environment, meaning our turnover is normal at the crew level. It’s better than normal for the past few years at the manager level. So that means we always have hours built into our P&L for training. And that works as long as you have a few people a month that you’re bringing on in terms of new crew to train. Now during a time like last year at about this time, when we were losing more people, our turnover was up and it was harder to rehire, that would put a lot of stress on the system, put a lot of stress in terms of training, put a lot of stress in terms of overtime. So there are stresses not just from how the teams are performing, the customer experience, but also the stress on the P&L. And I would say we’re back to business as usual right now. So I think other than the inflation that we’ve already taken on the labor line, I think going forward in terms of the training, the turnover, exclusions, knock on wood seem to be largely behind us with Omicron, it’s business as usual with our hiring, training and leading our crew.

Jared Garber — Goldman Sachs — Analyst

Very helpful. Thank you.

Operator

Thank you. And our next question will come from John Glass with Morgan Stanley. Please go ahead.

John Glass — Morgan Stanley — Analyst

Thanks very much. First, just a follow-up, where did wage inflation fall in the first quarter? Some of your competitors are starting to talk about some stabilization of wage growth. So it’s not that it’s getting better, but the rate of inflation is starting to go up. Are you experiencing that or is it still an inflationary, meaning accelerating quarter-over-quarter or month-over-month?

Brian Niccol — Chairman and Chief Executive Officer

No, it was normal, John. It was more in kind of that mid single-digit kind of range. I mean, remember, we took that big step up, that 15% raise back in the second quarter. And so it’s been more in the normal range, but it’s not top of the 15% we already took.

John Glass — Morgan Stanley — Analyst

Thank you. And Brian, you mentioned automation and this Chippy Robot or whatever it is that makes chips, how big an opportunity do you see this? I understand these are longer-term bets. But is there — how big an automation opportunity is there within Chipotle? Is this something that could have a meaningful impact over time on store margins? Are there more tasks you’re looking at to automate or is this sort of a one-off and kind of an interesting thing to test?

Brian Niccol — Chairman and Chief Executive Officer

No, look, I think there is a real opportunity frankly, to make the restaurant be much more efficient. Obviously, Chippy is our first attempt. And we’ve worked with a lot of our employees to identify what are the tasks that they would love to see us bring automation to or AI, so that hopefully, the role can become less complicated. And then I think there’s just other places in the back of the restaurant where we have the ability to automate, whether it’s on the digital make-line or other tasks, I think there’s just tremendous opportunity for us to become even more efficient where it results in a better employee experience and also a better customer experience, and that’s really the lens we’re using on this.

John Glass — Morgan Stanley — Analyst

And do you think that’s years away or quarters away? And what’s the time — as you look at where the technology is today, what’s the time horizon which this starts to really materialize?

Brian Niccol — Chairman and Chief Executive Officer

Look, I think the technology is very close in, the ability then to scale it and get it installed, that’s what we have to learn. And we’re getting ready to put Chippy into a restaurant, and then we’ve got a lot of other initiatives in works at our Cultivate Center. So the technology is actually close in, the prototypes are close in, it’s then putting it through the stage-gate process and really understanding people’s ability to scale up and then actually install, assuming it performs the way we think it’s going to perform.

John Glass — Morgan Stanley — Analyst

Okay, thank you.

Operator

The next question is from David Palmer with Evercore ISI. Please go ahead.

David Palmer — Evercore ISI — Analyst

Thanks. A quick follow-up on the throughput opportunity you mentioned, where do you often see the bottleneck if there is one or that maybe on the other side lead you to an initiative or an area of focus for you? Obviously, you’re measuring people against this in terms of speed, but maybe there’s a certain area in that, whether it’s a kitchen or other? And I’m wondering also is your labor scheduling tool a part of this solution?

Brian Niccol — Chairman and Chief Executive Officer

Yeah. So it’s two-fold. It is having better deployment, which obviously, the labor scheduling tool will help us with that. It also better informs our forecasting as well versus moving from just looking back over prior four weeks and trying to project up prior four weeks, it’s now using real-time information to project what’s going to happen in the coming week. So what we see is a better forecast, which results in a better schedule. And then what it also helps us do is deploy correctly. And the reason why the deployment is important is we need people to be in their positions, right? And the most — probably most pressing spot is that expediter role, which is really in between kind of the last phase of making your bowl or burrito and getting to cash.

And if the team isn’t deployed correctly, but sometimes that’s the spot that doesn’t get the right support, and as a result, it kind of slows the line down. But obviously, it all has to work in concert, right? You need to have people that have had a lot of reps, they need to be trained to be able to move people down the line and make the bowls and burritos correctly. But it’s the combination of those two things, having people in the right positions and arguably one of the most important positions is that expediter position, the way you get there is to make sure you got a right forecast.

David Palmer — Evercore ISI — Analyst

And then I just — one about just insights. As we get into a little bit more of a mobile consumer environment and maybe people getting back to work, are there any sort of emerging realities that are surprising to you about perhaps your dinner staying were at higher levels, your lunch not coming back as quickly as you’d like, maybe competition taking share as they’re reopening in certain trade areas, any insights there about the reopen?

Brian Niccol — Chairman and Chief Executive Officer

No, the biggest thing I would tell you is the more we see people have mobility, the more we see our lunch business come back. And the nice thing is we’ve seen these new occasions, whether it’s a dinner occasion or a group occasion, remain pretty sticky in the business. So I think the thing that is playing out is what people that have had experience with us for new occasions love the culinary and they’re using us for these other occasions. And our Rewards Program, I think is doing a nice job of understanding those journeys and then building the right engagement going forward. So mobility is a key piece of the puzzle because you want people out and about and you want people go into their office or going to their activity. That’s how you get that restaurant experience back.

David Palmer — Evercore ISI — Analyst

Thank you.

Operator

The next question will be from Jon Tower from Citi. Please go ahead.

Jon Tower — Citi — Analyst

Awesome. Just quick in terms of — well, bookkeeping and then a question. In terms of the delivery mix in the quarter, I was wondering if you could comment on where that settled? And then just thinking about the labor situation going back to that point. I know obviously, you guys have made quite a bit of investment in your employees over time and have given them a nice path to make a lot more money over time, assuming they earn it in the system. But I’m curious, when you think about the investments that you made, do you think that’s enough to keep people engaged into the balance of this year and going forward or do you foresee perhaps even more labor investment necessary in the future outside of just normalized inflationary spend?

Brian Niccol — Chairman and Chief Executive Officer

Look, I think the one thing I want to emphasize on labor is what we’ve heard from people that are with our Company. So they’ve been with us five, six, seven years, what they get excited about is all the growth because they can go from being an apprentice to a general manager to a field leader to a Team Director, Regional Vice President, and it’s a reality because we’re building 200, 300 restaurants a year. They know they have to be developing themselves and others so that they can step into the next opportunity. That’s where they get the greatest change in both, I would say, professional satisfaction as well as the wages that come with it.

We do know we’ve got a very competitive starting wage, but what people get really excited about is where that starting wage can take them. And our Company can take them really far and also really quick. So it’s great that we have all the other benefits that I think separate us and continue to be consistent with our purpose of cultivating a better world. But when I’ve had the opportunity to get out in the field and talk to people, what they’re really excited about is the fact that they’re a part of a Company that’s committed to its purpose and committed to growth. And that growth is both for them as an individual, as well as those that work around them. And that’s what we’re going to keep investing in. So we haven’t seen a whole lot of pressure on the starting wage, where we are putting a lot of pressure is on making sure that we’re developing our people, so they’re ready for the growth.

Jon Tower — Citi — Analyst

Got it. And just delivery mix and then the second piece in terms of…

Brian Niccol — Chairman and Chief Executive Officer

Yeah, sorry, delivery mix is like low-20s, 20%, 21%.

Jon Tower — Citi — Analyst

Okay. And in terms of thinking about — sorry, go ahead.

Brian Niccol — Chairman and Chief Executive Officer

No, no, go ahead.

Jon Tower — Citi — Analyst

I was just going to ask about pricing expectations for the balance of ’22, obviously, you just took a chunk recently. Curious if all else holds for the balance of the year based upon your expectations for wage rate inflation and obviously, commodities appear to be all over the map. But at this moment, are you anticipating future pricing action in the balance of ’22?

Brian Niccol — Chairman and Chief Executive Officer

Gosh, I really hope we don’t have to take more pricing, but I’m going to kind of give you the same answer I’ve been giving you for the last, call it, 12 months, which is, if it moves and we can’t find efficiencies to offset it, the good news is we’ve got the pricing power to make a move. I really don’t want to be ahead of it. So I think a great example is probably what you just saw over this last quarter, look, inflation continued to move in a big way, we saw it wasn’t going away, so we had to take the pricing action that we did. And hopefully, that won’t continue to be the case. But if it has to be the case, we have, I think the organization, the people and the pricing power to do it. But it really is the last thing I’d like to do.

Jon Tower — Citi — Analyst

Got it. Thanks for taking the questions.

Operator

Thank you. And the next question will be from John Ivankoe with JPMorgan. Please go ahead.

John Ivankoe — JPMorgan — Analyst

Hi, thank you. I wanted to revisit some of the numbers that were in the ESG report that you guys published because it did look like some of the general manager and field level turnover was actually up ’21 versus ’20. Was that something that just happened maybe in the middle of the year as part of kind of the Great Resignation we’ve seen a significant improvement in trends? I guess did that surprise you in any way? And I guess how has some of that normally maybe slightly more stable, your employee base change as we’ve come into ’22?

Brian Niccol — Chairman and Chief Executive Officer

Yeah, sure. So obviously, that’s looking back at 2021. And yeah, there were — look, there were a lot of ups and downs with Omicron. There were a lot of ups and downs with wages. And obviously, that was a tough time to be running restaurants. There was a lot of situations where you were understaffed, and then it was very hard to get people to sign up to work. And the good news is we’ve made tremendous progress. Obviously, we’ve increased our starting wage.

I think we’ve done a much better job of explaining the growth path at our Company. And then illustrating that growth path by having 90% of our promotions come from internal employees. So that’s why when you fast forward to 2022, we’re in just such a better place with stability definitely at the manager level, and then I think that will follow into the crew. So you know what the challenges were in ’21, I think we dealt with them. And we’re leaning into our purpose values and growth platforms to keep people excited about being at Chipotle.

John Ivankoe — JPMorgan — Analyst

And hopefully, this is an appropriate follow-up. But obviously, in the last six months or so, labor units have really become a very topical subject for companies that didn’t quite frankly even mention them for years of discussion of covering some of these names both in the retail and the restaurant side. It’s obviously great that you guys recently had an All Manager Conference that was just in March. I guess what can you do? I guess that you’d kind of always stay in front of that issue and maybe derisk that from a Chipotle perspective? Again, hopefully, that’s a perfect question to ask on a public call.

Brian Niccol — Chairman and Chief Executive Officer

Yeah. Look, I mean what we’re committed to is developing our people, and growing people that want to be at Chipotle. And the best thing we can do is make sure that they’re trained, so that they’re successful in their job, and then that we give them a culture and a leader that develops them so they realize they have the growth opportunities at Chipotle. And that’s why — look, I can’t remember who asked the question, but it’s kind of — hopefully, you’re not surprised by my answer when you asked like, well, what’s next after Chippy. Well, the answer is we talk to our employees to find out what would be the tasks that would make sense for us to automate in the restaurant to make the employee experience better, because we know if the employee experience improves, we’ll have better retention and also we’ll have better execution than for our customers.

And so we really spend a lot of time communicating and taking action on how we can improve the employee experience and then we spend the time developing our people. And you mentioned, we just had this All Manager Conference, right? I mean it was electric, man. It was so great to have all our leaders in one place, understanding the future of Chipotle and how they play such a critical role. And we had the opportunity to have everybody in the room stand up that’s been promoted over the last four years. And you know what, almost every person in the room was standing up. I don’t think there are many places where that happens. So we have to continue to stay committed to our purpose, our culture and the development of our people.

So that when you end up at All Manager Conferences, hey, you got just about everybody in the room standing up because they’ve been promoted or they’ve developed others that have gotten promoted. So that’s what we’re focused on. That’s our proposition. That’s who we are. If you want to be a part of that, we’re going to be building lots of restaurants that present an opportunity for you to be a part of it.

John Ivankoe — JPMorgan — Analyst

That’s great. Thank you.

Operator

The next question is from Dennis Geiger with UBS. Please go ahead.

Dennis Geiger — UBS — Analyst

Great. Thank you. Jack, I wanted to ask another one on margins and thinking about cost pressures over the balance of the year. Great insights on the 2Q and kind of getting back to that mid-20s level already and recognizing there’s a lot of moving pieces through the year. But is there any additional color that you could share even at a high level and thinking about back half restaurant margins with respect to food inflation. I guess, particularly in light of how Brian just spoke to pricing philosophy, if there’s anything you can add at a high level there?

John R. Hartung — Chief Financial Officer

Yeah. We — again, we just had at our leadership meeting my — of my group, we talked to Carlos, our Head of Supply Chain. And there’s nothing we can see on the horizon that says things are going to retreat that things are going to go down, but things have at least for the time being stabilized. So that’s what right now we can hope for is a stable environment.

We do expect there’s going to be an inflection point at some point, the pressures of getting some of our like packaging, for example, in from overseas, the pressure that some of the suppliers are having, whether it’s from a labor standpoint or just from a cost standpoint for their input costs, what we can hope for is that they don’t step up from here, they stabilize. And at some point, they just kind of normalize in the future. But I — right now, if I was going to build a model, I would not build in a reduction in food costs for the fourth quarter. It looks like it’s more going to be something in 2023 before we see that.

Dennis Geiger — UBS — Analyst

Great. Thank you. And then just one quick one, and apologies if I missed it. But could you guys speak to kind of the percent of the dine-in sales or traffic that have recovered at this point? I don’t know if you can touch on kind of that overlap with digital, that digital dine-in customer. And then related to that, just how exciting the further dine-in recovery can be here as it relates to how low that overlap is, if there’s any commentary there? Thank you.

John R. Hartung — Chief Financial Officer

Look, I think one of the things we mentioned was our in-restaurant sales increased by 33%, while digital remained roughly 40% of our business, right? And one thing that I mentioned earlier in the call is as we continue to see people increase their mobility, I think we will continue to see gains in the in-restaurant experience. And I don’t see these digital occasions just disappearing. I think they’re going to continue to play their role. And we’re working hard on keeping digital to be frictionless and just completely intuitive.

And then at the same token, we’re working hard on having great throughput with great culinary. And the good news is there’s a lot of room to grow in both of these things. That’s why we’re optimistic we’ll get to 3 [Phonetic] million AUVs. And while we do that, we’re going to build a lot of restaurants. So I think we’re in a really good spot. And obviously, I’m excited for, hopefully, COVID staying behind us and inflation stabilizing and hopefully, in 2023, maybe you can see some improvement on that front. But regardless, I think we’ve demonstrated we’ve got a business, a brand and an organization that can handle it all.

Dennis Geiger — UBS — Analyst

Great. Thank you very much.

Operator

The next question is from Lauren Silberman from Credit Suisse. Please go ahead.

Lauren Silberman — Credit Suisse — Analyst

Thank you for the question. Jack, I think you had mentioned new store productivity is at record levels. Can you just provide an update on where new unit productivity and cash-on-cash returns are running today?

John R. Hartung — Chief Financial Officer

Yeah. The productivity has been in that kind of mid-80s to high- 80s, depending on the quarter, it may have touched like 90% from time to time. And what I mean by that is that’s the percentage of mature restaurants of our comp restaurants. When we deliver those kind of openings, sales, when most of them are Chipotlane, which is more efficient than a non-Chipotlane, our cash-on-cash returns are in the 40%, 45% range out of the box. When you put a couple of years of comp on that as they basically close the gap and get very close to our average volumes, our comp restaurants, we’re talking about returns in the 60%, 65% returns within just a few years.

Lauren Silberman — Credit Suisse — Analyst

Great. Thank you for that. And just on menu innovation, can you talk about how you’re thinking about menu innovation to the rest of ’22? And specifically, just how you’re thinking about opportunities for innovation around proteins versus other parts of the menu?

Brian Niccol — Chairman and Chief Executive Officer

Sure. I think we’ve kind of established a pretty good cadence here where we do, call it, two to three menu initiatives a year. And we have a few protein initiatives in place that I’m sure you’ll see in test. And then we’re continuing to work hard on trying to figure out a dessert proposition or another call it, add-on item, right? So to complement how we have guac on 50% of our transactions, I think quesos on like, was it 20-some-odd percent of our transaction. So it’s like if we could find another add-on like that, whether it comes as a dessert or in that space like a queso and guac, you’ll see us continue innovating in that — in those areas. But we think we’ve got a lot of room to still, I think excite and engage customers with the chicken, steak, plant-based solutions and at the same time, look at these other add-on opportunities.

Lauren Silberman — Credit Suisse — Analyst

Great. Thank you, guys.

Brian Niccol — Chairman and Chief Executive Officer

Sure.

Operator

The next question is from Brian Vaccaro from Raymond James. Please go ahead.

Brian Vaccaro — Raymond James — Analyst

Thanks, and good afternoon. Question was on the commodity inflation backdrop. I’m sorry if I missed it. But Jack, what was inflation on the basket in the first quarter?

John R. Hartung — Chief Financial Officer

Yeah, within that like 12% to 13% range. Again, it’s the highest inflation I’ve ever seen.

Brian Vaccaro — Raymond James — Analyst

Yeah, yeah, I guess knock on wood.

John R. Hartung — Chief Financial Officer

Yeah, hopefully, we’ve seen the last of it. Like I said in a few comments ago, things have stabilized for now. If you get one month in a row that’s stabilized, that’s a start. But let’s see what happens in the next two or three months to see if we see stable costs.

Brian Vaccaro — Raymond James — Analyst

Right. And if you did see that stabilization sort of hold, would you start to see that year-on-year inflation moderate into Q4 or at this point, are you just thinking we’ll be in the low-teens for now until that dynamic changes?

John R. Hartung — Chief Financial Officer

I mean, listen, as you go throughout the year, if it stabilized completely, that 13% is going to tick down as we compare to some of the inflation we saw last year. But most of that 13% is going to be with us for the rest of the year. I think importantly is the food cost that we talked about being in kind of that 31% range, if commodity costs stay stable, we should stay in that range for the rest of the year. And we know that our margin — we have our full margin potential ahead of us if we keep our food cost in that like 31% range. So knock on wood that things stabilize, and the price increase that we’ve taken so far will give us that margin potential that we know is possible.

Brian Vaccaro — Raymond James — Analyst

All right, great. That’s helpful. And then on the comps, could you just level set, if you don’t take additional pricing, where would effective pricing be over the next couple of quarters? And then on mix specifically, does that start to normalize now on a year-over-year basis? I know we’re kind of — there’s been some funky comparisons on the mix front, the last four quarters now it seems, does that sort of flatten out next several quarters?

John R. Hartung — Chief Financial Officer

Yeah. Well, on menu prices, they’ll step up a bit in the second quarter. So we’ll move from, like, call it 10% [Phonetic], 10.5% [Phonetic] to like a, call it, 12.5% [Phonetic], something like that. Then it steps down to a little under 10% [Phonetic] and then it will step down in the fourth quarter to like an 8.5% [Phonetic]. Mix, it just depends on the mobility that we talked about before. Mix, for the foreseeable future is going to be at this lower check size because we’re comparing to last year where most of the year, a good part of the year still had very heavy digital. I mean we did start stepping down near at the end of the year. So I think you’re still going to see like year-over-year, the group size is going to be lower.

There’s going to be relatively in terms of percentage growth, like we saw 33% growth in in-restaurant versus digital, I think you’ll see some numbers like that. So I still think you’re going to see some distortion where the group size is getting smaller and you’re going to see transactions grow while the average check, excluding menu price increase is going to decline a bit. But we’ll keep you guys updated each quarter on what those components are.

Brian Vaccaro — Raymond James — Analyst

All right. That’s very helpful. Thank you. I’ll pass it along.

John R. Hartung — Chief Financial Officer

Operator, is there one more question? Hello?

Brian Niccol — Chairman and Chief Executive Officer

Yeah.

John R. Hartung — Chief Financial Officer

Well, I don’t know if we’re having technical trouble. We can’t hear the operator or anyone else. We’re about at the end of the time. So Brian, I don’t know if you want to make a closing comment.

Brian Niccol — Chairman and Chief Executive Officer

Yeah. Sure. So I’ll just close this real quick. Thanks for taking the time. Thanks for the questions. Obviously, very proud of our results in the quarter. Very proud of the work that’s been done to-date. I think the one thing that’s worth reminding people, there’s a few things that haven’t changed, right? We have a great brand, we’ve got a great culture, we’ve got a unique purpose around cultivating a better world, and we’ve got tremendous growth in front of us, both within the existing restaurant between the combination of our in-restaurant opportunity and our digital business, as well as adding additional restaurants across the country. And one thing that I’m confident about is our culture, our people will capture the upside for this business and continue to drive growth going forward. So thank you for taking the time, and look forward to talking to you next quarter. Take care.