Chipotle Mexican Grill (CMG) — Q3 2016 Earnings Call Transcript

Thanks, Hahn. Hello, everyone, and welcome to our call today. By now you should have access to our earnings announcement released this afternoon for the third quarter of 2016. It may also be found on our website at chipotle.com in the Investor Relations section. Before we begin our presentation, I would remind everyone that parts of our discussion today will include forward-looking statements as defined in the securities laws. These forward-looking statements will include statements of our business outlook, forecasts of EPS, comparable restaurant sales, restaurant-level operating margins and G&A and other cost savings in the fourth quarter 2016 and for the full year 2017, descriptions of the impacts of new technologies on our business, statements about planned marketing programs, projections of the number of restaurants we intend to open and new restaurant development costs, projections of effective tax rates for 2016 and 2017 and statements about stock repurchases as well as other statements of our expectations and plans. These statements are based on information available to us today and we are not assuming any obligation to update them. Forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We refer you to the risk factors in our Annual Report on Form 10-K, as updated in our subsequent Form 10-Q for a discussion of these risks. I'd like to remind everyone that we have adopted a self-imposed quiet period, restricting communications with investors during that period. The quiet period begins on the first day of the last month of each fiscal quarter and continues until the next earnings conference call. For the fourth quarter of 2016, it will begin December 1 and continue through our fourth quarter earnings release, planned for late January 2017. Our discussion today will also include non-GAAP financial measures, a reconciliation of which can be found on the presentation page of the Investor Relations section of our website. We will start today's call with some longer than normal prepared remarks and then we will be sure to allow 20 minutes to 30 minutes for questions. On the call with us today are Steve Ells, our Chairman and Co-Chief Executive Officer; Monty Moran, Co-Chief Executive Officer; Mark Crumpacker, Chief Marketing and Development Officer; and Jack Hartung, Chief Financial Officer. With that, I'll now turn the call over to Steve.

Thanks, Mark, and good afternoon, everybody. We are beginning to emerge from the most difficult year in our history and are seeing many reasons to be optimistic that we are headed in the right direction to restore our business to a place our many shareholders will be proud of. But please note that while we are on the road to recovery, we're not satisfied and we'll continue to work extremely hard to make the necessary adjustments to restore our business and deliver results as quickly as possible. From early this year, we have recovered more than 16 points of sales comp and we've recovered 20 points of traffic comp, and we're making steady progress toward further recovery. During the third quarter, we generated revenue of $1.04 billion, down 15% from last year on a comparable restaurant sales decline of 21.9%. During the third quarter, we opened 55 new restaurants, bringing our total number of restaurants to 2,178. And we generated diluted earnings per share of $0.27, which includes a negative $0.29 impact related to asset impairment. Since our recovery began, we have seen a gradually improving outlook for sales and earnings and fully expect that those trends will continue. 2016 will be marked as a significant reinvestment year as we continue to work to make Chipotle a stronger company in the wake of last year's events. Looking forward to 2017, and based on current trends, we believe that we will produce diluted earnings of $10 per share on same-store sales growth in the high single digits for 2017. We believe that in the full year 2017, we can generate restaurant-level operating margins of 20% and save more than $100 million in capital and operating expenses combined. To achieve these results, we must be steadfast in executing our recovery plan, which remains the primary focus of everybody at Chipotle. Specifically, we're focused on delivering a safe and extraordinary guest experience in every restaurant, restoring trust and building sales, restoring our economic model and enhancing the guest experience through innovation. Monty, Mark and Jack will provide additional detail on some of these priority areas, but right now I'd like to speak to the last point which is enhancing the guest experience. Two important enhancements to the customer experience are menu innovation and digital ordering. We are actively exploring ways to enhance the guest experience by offering new additions to our menu. We believe that this is a good way to entice infrequent or lapsed customers to return as well as a way to increase sales. Any time we consider new menu items, it's important to us that they remain consistent with our food culture, both in terms of the ingredients we use and how the new items are prepared. A great example of this is chorizo, which we launched nationwide earlier this month. Chorizo now accounts for roughly 7% of entrée sales around the country. Feedback from customers has been extremely positive and we plan to ramp up our advertising in the fourth quarter to support chorizo by encouraging our customers to come in and try it. We're also currently testing two different desserts and we hope to select one to offer in the near future. We believe that there's an opportunity to excite current customers and to attract new customers through thoughtful menu development and we're exploring these options. We're also moving aggressively to make digital ordering more appealing to our customers and more efficient for our restaurants. Nearly all of our restaurants have a second make-line in the back of the restaurant where we fulfill digital, fax, and catering orders. By optimizing the use and design of these second make-lines, we envision a time when digital ordering could account for a much larger percentage of sales than the 6% it represents today. Maximizing our digital sales requires changes both to the second make-line itself and to the ways by which our customers place digital orders. Our original second make-line resembles the service line our customers see in the front of the house, though scaled down and it takes up less space. The new line is a much more ergonomic and efficient design, configured such that less labor will be required to produce higher sales volumes, and does so more quickly. The new line incorporates an advanced queuing system that takes advantage of a heads-up digital display, which allows our crews to assemble orders without distraction. The benefits of these new lines will be enormous, including faster, more efficient assembly of orders, reduced errors and more consistent portion sizes for our customers; all of which we believe will help us drive increased sales volumes. After some additional testing is complete, we will begin to selectively add these new digitally enabled lines to some of our highest volume markets where it can best enhance our out-of-store ordering experience. It's important to note, however, that all of our original second make-lines are still able to take advantage of enhanced digital ordering options, even though they don't have the advanced indicating system of the digitally-enabled lines. Our crews in these restaurants will work from paper tickets until their restaurants are upgraded with the new system. To stimulate additional use of these second lines, we're introducing a new mobile optimized ordering site that provides an alternative to our iOS and Android ordering apps. Mark will talk more about this new ordering option later in the call, but the new site makes ordering and paying for digital orders easier than ever. In addition to our new ordering site, we are testing a tablet-based ordering option which allows customers to avoid the line and order in the restaurant on available tablets and get their order made from the second make-line in the back of the house. This tablet-based ordering system will initially be tested in a series of restaurants that are equipped with the new make-line. When the full system is realized, the second make-line has the potential to deliver as much as 50% of the sales from some locations including digital orders from all sources, including catering and delivery services.

Thank you, Steve. Achieving a full recovery means having all of our restaurants at their very best in terms of serving delicious, safe food and providing an excellent restaurant experience while continuing to grow sales. As we move forward with our recovery plans, the guest experience remains our greatest area of focus. Providing an excellent guest experience starts with serving food that's always safe and delicious. While many of our enhanced food safety efforts occur outside the restaurants in the supply and distribution network and with enhanced technology, we also rely on strong restaurant teams and field leaders to carry out additional elements of our food safety program in the restaurant. Ensuring that we execute these procedures in our restaurants has been our top priority. To accomplish this, we have significantly expanded training, food safety inspections and third-party and internal audits in our restaurant. These audits help us identify opportunities for improvement and ensure that all of the programs we've put in place are being executed consistently and properly. To further these efforts and to continuously improve food safety in our restaurants and supply chain, we've also established an independent Food Safety Advisory Council made up of some of the country's foremost experts in food safety and food microbiology. This advisory council alongside Dr. Jim Marsden, our Executive Director of Food Safety, is charged with continuously reviewing our food safety programs and looking for opportunities to strengthen them even more. This quarter we shared some key points about our enhanced food safety program with our customers through a PR campaign aimed at highlighting eight key areas of advancement that we made. The campaign included full-page ads in newspapers, as well as online and social media advertising in addition to print and video materials of Steve describing why our food safety changes are so effective. The campaign was very well received and it was effective in communicating the comprehensive steps we've taken. Details surrounding each of these programs continue to be available for you to see on our website. At the same time, we are keenly aware that safe food alone will not bring people into our restaurants. Instead, they come for delicious food and an excellent guest experience. This is why our restaurant teams are focused on delivering great-tasting food and excellent customer service in clean, friendly restaurants. This starts with our commitment to serving the best tasting food we can, food that is made with ingredients that are raised with respect to the environment, animals and the people that produce them. And we continue to look for ways to improve the quality of the food we serve, including our quest for better tortillas made with no artificial additives or preservatives, a promise we made last year and are close to fulfilling. So, as we work to rebuild our company and strengthen our brand, it is critical that our entire organization is focused on those things that will most powerfully delight our guests and speed our recovery. For this reason, we used this year's All Managers' Conference as a time to articulate to our field leaders and managers three areas of focus that are in their control. First, providing an excellent guest experience; second, marketing their individual restaurants, and third, restoring and protecting our unit economic model. Our officer team asked our managers to first train the fundamentals of excellent operations so that they could then proceed on the path to restaurateur. Our relentless focus on the most important things and implementing them exceptionally well is what has always made Chipotle great and we know that to ensure our sales recovery, we have to do better than ever to win our customers back.

Thanks, Monty. I'm very glad to be back and I'm eager to share with all of you some of the important work that we're doing to bring customers back and restore our brand image. But first, I want to apologize to everyone for recent events in my personal life. I'm sorry that I caused a distraction for the company and I want you all to know that I've put this behind me, learned from it and returned to my role in early September, excited and with a renewed focus and determination to help drive Chipotle's recovery. I want to thank you all for your support and forgiveness, which has meant a great deal to me. Today, I'm going to recap the marketing activities from Q3 and then I'm going to talk about several important breakthroughs with regard to customer data, technology and restaurant design before reviewing development expectations. During the quarter, we successfully concluded the Chiptopia Summer Rewards program, designed to restore the frequency of our most loyal customers. In all, we had just under 6 million participants with more than 2.5 million of those earning rewards in the program. We issued 340,000 super rewards for customers who maintained higher frequency levels, including more than 75,000 Catering for 20 rewards. We are excited by the potential positive brand impact of 75,000 catering parties over the coming six months. Throughout the course of the promotion, we saw increased transaction and frequency levels. But most importantly, we have nearly returned to pre-crisis levels among our most loyal customers. After the completion of the program, we anticipated traffic to fall slightly, but we have instead seen our improved sales levels generally continue to hold, which is very encouraging. During the quarter, we ran three marketing campaigns each with different but complementary objectives. The first was a food safety advancements campaign Monty referred to, which was designed to communicate what we've done to ensure the safety of our food. The campaign was broad-reaching, with more than 90 million impressions. Lapsed customers engaged more than any others with the video component of the campaign. Results of the campaign are positive and we will continue to communicate the benefits of our food safety program so that every customer can rest assured that our food is as safe as possible. The second campaign surrounded our Love Story, animated short film, which was distributed through digital media, social channels and in movie theaters across the country. The film has been viewed more than 60 million times and has proven to be highly effective at building trust in the Chipotle brand. The campaign also included the Love Story game, which challenges players to match fresh ingredients while avoiding fake ones. The game launched earlier this month and quickly surpassed the initial results of our popular Friend or Faux online game from the summer of 2015. Millions of people have played the Love Story game and more than 3 million BOGO rewards have been earned by playing the game. More than 35% of those have already been redeemed. The third campaign running during Q3 was the Ingredients Reign campaign which is designed to increase visits to Chipotle and build brand trust by focusing on the high quality of our delicious ingredients. Ingredients Reign is running across nearly all media channels including outdoor, radio, print, digital, social and theater. Both Love Story and Ingredients Reign's campaigns exceeded our expectations, for this reason both campaigns have been extended to run through much of the rest of the year. Finally, with regard to Q3, I'd like to provide an update on our latest consumer research. Admiration scores and serves healthy and nutritious food attributes have nearly returned to pre-crisis levels. Agreements that we have appropriately addressed the food safety issues increased to 90%. Sentiment on social media is increasingly positive and press mentions were 80% positive last month. Both are at or near pre-crisis levels. However, considerations still lag pre-crisis levels by more than 10%, though it is up slightly for the quarter. Moving on to Q4 and beyond, we will be leveraging significant improvements in our customer data capabilities along with a shift in marketing strategy to aggressively target new and lapsed customers. By combining transactional information with other customer data, we are now able to identify more than half of our customers and reach them with specific offers and tailored messages. This important breakthrough not only allows us to target messages and offers to current and lapsed customers, but it also allows us to accurately measure the effectiveness of those efforts by tracking return visits. We have already delivered two targeted campaigns using this data and we are continuing to refine our programs in real-time. But this new customer data has implications well beyond more targeted and measurable marketing. The data allows us to very accurately measure customer frequency and details about their orders and behavior. For example, using this data, we now know that during the last six months, we saw nearly 30 million new customers with Chipotle. These new customers, or customers who we have not seen since before the food safety events of last year, in fact transactions from these customers accounted for nearly half of all transactions over the last six months. Additionally, we know how many of these customers returned to Chipotle for additional visits and how many of them became regular customers. When combined with our marketing and advertising efforts, this detailed view into frequency and behavior allows us to evaluate the return on various marketing and promotional activities. Beyond customer data, we have also now begun to benefit from the strengthening of our technology infrastructure. In just a matter of days, we are launching a new online ordering experience that makes ordering and paying for Chipotle from any mobile device easier and faster. This mobile-optimized website works on any recent, web-enabled device and it requires no app download. The new ordering experience offers a beautiful and intuitive way to order from Chipotle. This new ordering experience is in addition to our existing apps for iOS and Android that currently have a combined user base of more than 2.6 million people. Additionally, our test of smarter pick-up times has concluded and we are in the process of rolling this technology out nationwide. Smarter pick-up times allow us to adjust the wait time between order placement and pick-up times based on the demand and capacity of a given restaurant at a given time. This means that the customer is always presented with the shortest possible time between order placement and pick-up. Smarter pick-up times work with our iOS and Android apps as well as our new online ordering, and when combined with the advanced second make-line, Steve described earlier, has significant potential to increase our online ordering volumes and improve the customer experience. We expect smarter pick-up times will be rolled out nationwide by January. Recent advancements in our technology infrastructure are also going to have a significant impact on the customer experience of ordering catering at Chipotle. Next month, we will enable online ordering and payment for catering which previously was only available via phone and required in-store payment. The ability to order and pay for catering online will dramatically improve the customer experience while simultaneously decreasing our call center costs. The next step with catering is to offer delivery, and tests are currently underway. Both catering and mobile ordering will receive significant marketing support during Q4, a time of year where we typically see an increase in catering volume ahead of the holiday season. We have also been supporting the national roll-out of chorizo, and we're excited by the results. As Steve mentioned, chorizo currently accounts for about 7% of sales, and customer response has been very positive. 84% of customers who tried chorizo like it, and 70% of those who tried it say that chorizo increases their desire to visit Chipotle. And 77% say that the new offering makes them feel more favorably towards Chipotle. Because of these strong results, we plan to increase the reach of our chorizo advertising campaign by more than 400%. Next, I'd like to talk about television advertising and the test that's currently underway. We recognize the need for wide-reaching efforts to invite new customers to Chipotle. The fact that nearly 30 million new or lapsed customers visited Chipotle over the last six months shows that customers are responding to our advertising and promotional efforts. But in order to accelerate that momentum, we are considering national television advertising. Because our Ingredients Reign campaign tested positively in terms of customer perception and brand trust, we are running a 30-second ad from that campaign in multiple test markets. If the test reveals that television advertising delivers the results we want, we may begin to integrate national television buys into our advertising campaigns. You may also be aware that we are currently undertaking a review of advertising agencies. While we are pleased with our current agency partners, we have developed a robust new marketing strategy for 2017, and in order to ensure that we have the absolute best creative work on that strategy, we are reviewing potential new partners. The review will be complete by the end of the year and in time for the launch of a new campaign in the spring of 2017. Going forward, we believe that there will be opportunities to incorporate new menu items into our overall marketing. We have been encouraged by the response we have seen with chorizo and see an opportunity to build excitement among existing customers and attract new customers through the thoughtful addition of menu items that are consistent with our brand. Any new menu item will be accompanied by extensive advertising campaigns designed not only to tout the new menu additions, but to excite customers about coming into Chipotle. Finally, I'd like to report on the successful launch of a new restaurant design that has been in development for more than a year. The new design is an evolution of the current design, with improvements in lighting, acoustics, seating, customer flow and the presentation of our kitchen. Additionally, the new design is more cost-effective with an average cost of $760,000, which is about $40,000 less expensive than our current restaurant design. We also anticipate a reduction in maintenance and repair as a result of this new design. This new restaurant design is already open in certain locations and under construction in several others. We expect that more than 50 new locations in 2017 will utilize this design and even more than that, will benefit from some aspects of the new design. Our new restaurants have been performing at approximately 73% of our comp restaurant volumes, slightly lower than pre-crisis levels. But in areas where we have increased marketing of our new restaurant openings, that performance has improved, and we are closing the gap of those pre-crisis levels. In total, we are planning to open between 195 new restaurants and 210 new restaurants in 2017. As our returns on new restaurants have compressed this year, along with our margins, we've lowered the number of restaurants we plan to open. We will continue to focus on opening up the best potential sites that combine the lower risk profile with the highest possible returns. And even with our lower sales levels in 2016, we are not seeing a marked increase in cannibalization from opening new restaurants, which remains at less than 1% nationally. Most importantly, we view this reduction in new restaurant openings as temporary. Our long-term development pipeline remains robust, and with our new lower-cost restaurant design, we are setting our new restaurants up to achieve even higher levels of return on investment. We strongly believe that the ultimate potential for Chipotle restaurants in the U.S. could total 5,000.

Thanks, Mark. When the year began, we described 2016 as a year where we will make significant investments to ensure our food is safe and encourage our customers to return to Chipotle. We knew these significant investments would put additional pressure on our margins in the form of elevated food costs, higher advertising and promotion costs, and higher labor costs to serve our returning customers. We intentionally did not emphasize restaurant efficiencies and even encouraged extra staffing in our restaurants during promotion periods because we did not want to risk trading a few points of margin on the P&L in return for disappointing a customer who visits an understaffed restaurant. The sales decline, combined with these investments and inefficiencies, have resulted in significant declines to our margins. As we near the end of 2016 and we begin to look ahead to 2017, we'll continue to do all we can to restore customer trust and recover customer visits. We also are committed to taking important steps to restore our economic model. With the strategies you've heard Steve, Monty, and Mark talk about, we believe we can deliver comps in the high single-digit range for the full year in 2017. Of course, we hope these strategies will deliver an even greater sales increase. But we believe this comp projection represents a stretch, yet responsible goal. With a focus on delivering greater efficiencies in our restaurants, identifying cost savings in everything we buy in our restaurants and in our offices, supporting our growing restaurant base with flat G&A, and beginning to normalize our promotion and advertising, we expect to deliver a restaurant level margin of 20% and an EPS of $10 in 2017. While these projected results do not fully restore our economic model, it's an important step in the right direction. We continue to believe we can, over time, fully recover our restaurant margins as sales recover. From the unit economic standpoint, these projected results would lead to an average restaurant volume of around $2 million and restaurant ROI of around 50%. And the return potential for new stores is even greater as we expect the average new store investment to decline to around $760,000 in 2017. I'll talk more about what to expect in 2017 and in Q4, but now let me recap our results for the third quarter. During the third quarter, we reported sales of $1.04 billion, a 15% decrease from the third quarter of 2015. Our reported sales were reduced by $11.5 million because of deferred revenue related to our summer Chiptopia promotion. As a reminder, Chiptopia ended on September 30 and we recorded deferred revenues associated with rewards earned but not yet redeemed. These rewards can be redeemed or will expire over the next six months and the deferred revenue will be recognized over this period. As a result, we reported a negative same-store sales comp of negative 21.9%, which included a negative 0.8% impact from the revenue deferral. The Q3 comp is comprised of July down 23.8% and that includes 100 basis points from the revenue deferral; August was down 21.7%, which includes 70 basis points from the revenue deferral; and September was down 20.1% which includes 70 basis points from the deferral. And while October comps for the first two weeks are affected by Hurricane Matthew and were down about 21%, for the past 10 days have recovered and normalized, and we're down around 19%. But we're not satisfied, we're still being down around 19%. We continue to see small, but steady progress month-after-month. As a side note, July had improved to declines in the 21% range in the weeks before our Q2 earnings report, but then was impacted by a negative month-end trading day effect, plus comparing to our Friends and Faux BOGO from 2015 which ran the last week of July and into early August, and was also impacted by the Chiptopia revenue deferral. Our traffic trends have also suddenly improved and were down 15.2% overall in the quarter compared to down 19.6% in June. Transactions improved to 13.4% in September and most recently are running down 14% in the past week or so. Chiptopia helped drive the sales and transaction improvement in the quarter, as our most loyal customers returned to their historic frequency pattern, as Mark mentioned. On a regional basis, we continue to see wide variances in the progress of the recovery. With comp sales in the Midwest and middle regions of the country, down in the 17% range in September outperforming the coastal areas, especially in the Pacific coast in the northeast, which are down closer to the 24% to 25% range in September. From a transaction standpoint, there are several markets, including Kansas City, Chicago, Denver and Minneapolis where traffic is now down only in the high single digits. We know that restoring customer habits takes time and to help ensure that renewed habits established during Chiptopia for our most loyal customers continue to hold, A Love Story campaign that Mark mentioned was launched this month. Although hard to estimate customers' behavior in October from only a few weeks of data, so far our high frequency customers are continuing to visit this month with similar frequency to September. Restaurant level margin was 14.1%, down from 15.5% in the second quarter of this year. The deferred revenue related to Chiptopia negatively impacted our restaurant level margin by nearly 100 basis points, so our underlying margin was 15.1%. The remaining decline from Q2's margin of 15.5% is due to higher marketing and promo costs related to Chiptopia and higher food cost. Food costs were 35.1% of sales but excluding the effect of the deferred revenue, underlying food cost was 34.7%. This represents a sequential increase from Q2 of 50 basis points primarily due to much higher cost for avocados. Avocado supply declined during the summer. We began to experience higher pricing. Although we had hoped that this would be a temporary spike, in recent weeks though, supply has become even tighter and pricing has become much more volatile than expected. In fact, we've seen that some competitors recently have posted signs on their doors saying they are out of avocados altogether. We have remained in supply of avocados, but case pricing has risen from an average of about $30 per case during the first half of the year to a case pricing approaching $80 this month. Because of these higher avocado prices, food costs will remain above 35% in Q4 before seeing relief in early 2017. Our labor costs for the quarter were 27.6% of sales, up from 22.2% of sales last year. Without the revenue deferral, labor costs were 27.3% of sales. Sales deleverage accounted for approximately 300 basis points and the remaining increase relates to inflation and additional labor related to Chiptopia and other promotions. Underlying wage inflation was in the 5% to 6% range in the quarter. Labor was about $9 million higher in Q3 versus Q2 this year to support higher sales levels as our transaction trends continued to improve. We also had increased labor as we returned to prepping produce inside of the restaurants. And we also had increased labor with the higher promo level activity of Chiptopia. In prior years, total labor dollars had been relatively flat from the second quarter to the third quarter. Other operating expenses as a percent of sales were 16% during the quarter, an increase from 11.1% last year. About 290 basis points of the year-over-year increase is due to sales deleverage. Marketing and promo expenses combined were 4.8% of sales during the quarter, which is double the rate of marketing and promo from the prior year, and it was 50 basis points higher than Q2 due to Chiptopia.

Hi. Good afternoon. Steve, I just have a general question on the overall operating approach going forward. One of the hallmarks of the Chipotle business is how simple you've kept the operations and how focused you've been on delivering high quality. And now we're hearing that you're going to shift the focus a bit towards menu innovation and perhaps traditional marketing tactics or strategies. So just wondering why you think that shift is needed now versus perhaps just going back to basics on focusing on delivering the high-quality experience.

Well, David, I think that we're going to do both. We're going to focus on fundamentals and try to continually deliver a better experience through that method. But we also want to try new things. Again, to get some customers who may have lapsed to reinvigorate our regular customers to encourage them to come more, and perhaps to even entice new customers who haven't tried Chipotle. It's important that when you add something to the restaurant, you take something away. And although with the addition of new menu items, we're not going to take away other menu items, there are things that we can do to create efficiencies in the way we prep, in the way we get ready for business, in the way we find leverage. Finding leverage is interesting because there have been suggestions that we add breakfast, for instance. Well, I'm not saying that we won't add breakfast, but when trying to find leverage, our second make-line now has an enormous opportunity. The second make-line can attract or provide for catering, for delivery, for the mobile app, to enable customers that are in line to get out of line and go to a tablet, and probably things we haven't thought of yet. It's extraordinary leverage because the labor to produce the food is much less at the second make-line because of the new technology. So my point is that you need to balance everything in the restaurant. And so we will make some things more efficient, so we will be able to add things like a dessert item or a new menu item. Again if you look at some other examples of fast-food places getting too complicated, I don't think they kept this idea of taking away whenever you add something. So on balance, you still have the same amount of ability to focus on delivering the extraordinary experience that they've been accustomed to.

Thank you, Steve. Well articulated as always. I think that trying new things is an important part of keeping a business fresh and exciting, but we will always maintain our core focus on quality and safety.

As we look ahead, we expect to see improvements in our sales and recovery efforts driven by the combination of our new marketing strategies and operational efficiencies. We're committed to restoring our margins and overall profitability while keeping customer experience at the forefront of our objectives.