5 December 2019 Equity Research Americas | United States

Chipotle Mexican Grill, Inc. CMG

Comping the Comp

Target price (12M, US$) 930.00

Restaurants | Comment Outperform

■ Can Chipotle Comp the Comp? One of the most common questions we receive on Price (4 Dec 19, US$) 809.40 CMG is the brand’s ability to “comp the comp” as it laps difficult compares, with concerns 52-week price range 851.54 - 385.84 valuation will compress as SSS decelerate. We believe CMG is still in early innings, with a Market cap (US$ m) 22,497.44 strong runway for growth to return to prior peak AUVs of $2.5MM and opportunity to Enterprise value (US$ m) 22,128 exceed prior levels as the brand increasingly leverages its second make-lines, now comprising ~18.5% of sales. Confidence in ongoing strength includes contributions from: Research Analysts 1) digital & delivery; 2) loyalty program; 3) new menu innovation; 4) marketing strategy; and 5) operations. More consistent price increases (~2%) and enhanced data analytic Lauren Silberman capabilities should also contribute to SSS. CMG has exceeded initial 2019 SSS 212 325 2720 expectations, sequentially accelerating traffic and SSS on tougher compares, and we [email protected] expect momentum to continue in 4Q & 2020 as the brand unlocks digital growth by leveraging its loyalty program, launches new menu innovation and enhances marketing & operations to generate increased engagement and a better customer experience. ■ Chipotle 2.0: CMG is well positioned to capitalize on the digital shift given its younger consumer base, transportable food and optimized operations, with digital customers now contributing 80%+ to SSS. ~7MM customers have joined Chipotle’s loyalty program since March, and assuming it grows to 12MM by 2020, we estimate one incremental visit per loyalty customer would generate ~2.5% in SSS, supported by commentary indicating personalization has driven incremental visits across frequency bands in test. Loyalty should also unlock greater digital adoption, with digital-forward peers at strong levels (Panera ~35%; Sweetgreen 50%+) and select CMG stores already reaching a ~30% digital mix. ■ Queso for Innovation: CMG has been prudent in its approach to menu innovation, though such likely lends itself well to heightened initial trial. In mid-Sept, the brand launched Carne Asada, accelerating SSS trends (likely low double digits), with expectations to remain in stores through 1Q. Queso Blanco appears to be the farthest along, in test ~4-5 months, and we estimate it could contribute ~50-100bps to SSS once launched. We see significant upside with quesadillas (also in test), one of the most requested items, with our estimates suggesting SSS contribution of ~4.5-9% on reasonably conservative assumptions. ■ Valuation: Our $930 TP is based on 23.5x NTM EBITDA & 42x NTM EPS in 12 months. Share price performance

Financial and valuation metrics Year 12/18A 12/19E 12/20E 12/21E EPS (CS adj.) (US$) 8.88 13.87 18.68 23.33 Prev. EPS (US$) - - - - Revenue (US$ m) 4,865.0 5,551.5 6,286.8 7,011.9 EBITDA (US$ m) 543.8 697.4 933.6 1,127.4 P/OCF (x) 19.4 33.2 26.8 22.5 EV/EBITDA (current) 40.7 31.7 23.7 19.6 Net debt (US$ m) -250 -369 -551 -817 On 04-Dec-2019 the S&P 500 INDEX closed at 3112.76Daily Dec04, 2018 - Dec04, 2019, 12/04/18 = US$468.35 ROIC (%) 20.26 30.28 37.99 44.70

Number of shares (m) 27.80 IC (current, US$ m) 1,191.39 Net debt (Next Qtr., US$ m) -369.1 Dividend (current, US$) - Quarterly EPS Q1 Q2 Q3 Q4 2018A 2.13 2.87 2.16 1.72 Net debt/tot eq (Next Qtr.,%) -22.7 2019E 3.40 3.99 3.82 2.66 Source: Company data, Refinitiv, Credit Suisse estimates 2020E 3.95 5.51 4.63 4.60

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

5 December 2019

Chipotle Mexican Grill, Inc. (CMG) Analyst: Lauren Silberman Price (04 Dec 2019): US$809.4 Target Price: 930.00 Rating: Outperform

Income Statement 12/18A 12/19E 12/20E 12/21E Company Background Revenue (US$ m) 4,865.0 5,551.5 6,286.8 7,011.9 EBITDA (US$ m) 544 697 934 1,127 Chipotle Mexican Grill operates fast casual restaurants with a focused Depr. & amort. (195) (210) (229) (249) EBIT (US$) 349 487 704 879 menu of burritos, tacos, burrito bowls and salads, made using fresh Net interest exp -0 -0 -0 -0 ingredients.

PBT (US$) 359 503 718 889 Income taxes (111) (111) (198) (249) Blue/Grey Sky Scenario Profit after tax 248 392 521 640 Net profit (US$) 248 392 521 640 Other NPAT adjustments 0 0 0 0 Cash Flow 12/18A 12/19E 12/20E 12/21E Cash flow from operations 622 688 842 986 CAPEX (287) (308) (320) (320) Free cashflow to the firm 334 380 522 666 Cash flow from investments (388) (308) (320) (320) Net share issue(/repurchase) (161) (252) (340) (400) Dividends paid 0 0 0 0 Changes in Net Cash/Debt 65 119 182 266 Balance Sheet (US$) 12/18A 12/19E 12/20E 12/21E Cash & cash equivalents 250 369 551 817 Account receivables 62 49 49 49 Other current assets 481 495 495 495 Total fixed assets 1,379 1,443 1,534 1,605 Investment securities 0 0 0 0 Total assets 2,266 4,938 5,211 5,548 Total current liabilities 450 634 634 634 Shareholder equity 1,441 1,622 1,895 2,232 Total liabilities and equity 2,266 4,938 5,211 5,548 Net debt (250) (369) (551) (817) Per share 12/18A 12/19E 12/20E 12/21E No. of shares (wtd avg) 28 28 28 27 CS adj. EPS 8.88 13.87 18.68 23.33 Our Blue Sky Scenario (US$) 1200.00 Prev. EPS (US$) - - - - Dividend (US$) 0.00 0.00 0.00 0.00 Our $1,200 one-year valuation in a blue sky scenario is based on an Free cash flow per share 11.95 13.44 18.72 24.26 EV/EBITDA of ~25.5x our blue sky FY21 EBITDA. Our blue sky FY21 Earnings 12/18A 12/19E 12/20E 12/21E EBITDA is based on: 1) SSS of 7.5%; 2) unit growth of ~6.5%; and 3) Sales growth (%) 8.7 14.1 13.2 11.5 restaurant-level margins of ~23%. EBIT growth (%) 16.1 39.6 44.5 24.8 Net profit growth (%) 31.8 57.6 33.0 22.9 EPS growth (%) 34.6 56.1 34.7 24.9 Our Grey Sky Scenario (US$) 600.00 EBITDA margin (%) 11.2 12.6 14.8 16.1 EBIT margin (%) 7.2 8.8 11.2 12.5 Our $600 one-year valuation in a grey sky scenario is based on an Pretax margin (%) 7.4 9.1 11.4 12.7 EV/EBITDA of ~19x our grey sky FY21 EBITDA. Our grey sky FY21 Net margin (%) 5.1 7.1 8.3 9.1 EBITDA is based on: 1) SSS of 3%; 2) unit growth of ~5%; and 3) Valuation 12/18A 12/19E 12/20E 12/21E restaurant-level margins of ~20.7%. EV/EBITDA (x) 40.7 31.7 23.7 19.6

P/E (x) 91.1 58.4 43.3 34.7 Returns 12/18A 12/19E 12/20E 12/21E Share price performance ROIC (%) 20.3 30.3 38.0 44.7 Gearing 12/18A 12/19E 12/20E 12/21E Net debt/equity (%) (17.3) (22.7) (29.1) (36.6) Quarterly EPS Q1 Q2 Q3 Q4 2018A 2.13 2.87 2.16 1.72 2019E 3.40 3.99 3.82 2.66

2020E 3.95 5.51 4.63 4.60

On 04-Dec-2019 the S&P 500 INDEX closed at 3112.76 Daily Dec04, 2018 - Dec04, 2019, 12/04/18 = US$468.35

Source: Company data, Refinitiv, Credit Suisse estimates

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5 December 2019

Sales initiatives to support sustainable SSS strength

While Chipotle’s narrative has largely turned to a story of growth rather than recovery, AUVs are still ~15% below peak and SSS have yet to fully recover from losses during the food safety incidences (4Q15 to 4Q16), with ongoing opportunities for sales to recover from declines (2H sales composition underweight relative to prior peak food safety incidence levels). Beyond a return to prior peak levels, we are optimistic in ongoing momentum driven by Chipotle’s comprehensive sales plan and omni-channel strategy, with multiple initiatives still in early innings or in test. Key opportunities for SSS contribution include: 1) digital & delivery initiatives; 2) loyalty program; 3) new menu innovation; 4) marketing & social media strategy; and 5) operations. We expect more consistent price increases of ~2% (Chipotle recently implemented ~2%), enhanced analytical capabilities and potential benefits from catering growth to also contribute to SSS. Digital & Delivery – digital & delivery represent ~17-17.5% of sales currently and have driven the majority of SSS growth and acceleration over the last several quarters. We view Chipotle as best positioned in the shift to digital, with a younger consumer base, transportable food, best-in- class operations and no drive-thrus – enhancing the perception of convenience from digital access (relative to QSRs with ~60-70% of sales at the drive-thru). We believe Chipotle will continue to increase digital utilization, noting fast casual peer Panera generates ~35% of sales through digital channels (including ~7% delivery; Panera also has kiosks in stores) and fast casual peer Sweetgreen (albeit small with ~100 units & concentration in urban markets) generates 50%+ orders digitally. We see significant runway for mobile order ahead utilization, and believe the recent launch of Chipotle’s loyalty program could serve as an accelerator. Loyalty Program – Chipotle has already amassed ~7MM loyalty members since launching its rewards program in March 2019. The program is still in early innings, and the brand has yet to convert the loyalty member data it has collected into actions. Chipotle has highlighted expectations for the loyalty program to contribute to SSS growth in 2020 as it leverages its database of customer information to influence behavior, noting personalization is contributing to increases in transactions across all frequency levels in test. We estimate Chipotle’s rewards program expands to ~12MM members by the end of 2020, with just one incremental visit per loyalty customer translating to ~2.5% in SSS. New Menu Innovation – Chipotle is taking a more strategic approach to menu innovation, with opportunities to market a combination of existing ingredients, add new ingredients and invest in new processes/equipment. The launch of Carne Asada in mid-September supported an acceleration in SSS which continued in October (likely low double digits, with 3Q19 SSS of 11%), with the product now expected to be available through 1Q20. Queso Blanco is currently in test in select markets, and likely the next product to launch. We estimate it could drive ~50- 100bps of SSS assuming an attachment rate of ~15%, from an estimated ~10% currently and relative to ~50% for guacamole. Quesadillas, one of Chipotle’s most requested items, are also in test, with our checks suggesting stores in test are selling ~50-75 quesadillas per day, with the majority priced at parity to burritos/burrito bowls of the same protein. We estimate quesadillas could contribute 4.5-9% to SSS on reasonable assumptions (50 quesadillas per day and 100 quesadillas per day, respectively, with incrementality of ~75%), though likely could exceed that with marketing support. Marketing & Social Media Strategy – Chipotle has increased its visibility, shifting marketing dollars nationally, with more effective campaigns and creative promotions generating improved ROI. We expect new menu innovation and data from the loyalty program will be meaningful to the marketing strategy in 2020. Operations – Chipotle continues to highlight improvements in operations have supported recovery efforts. With restaurants doing ~25 transactions per peak 15 minute window, relative to ~35 at AUVs of $2.5MM, Chipotle has notable runway to enhance throughput. We also note

Chipotle Mexican Grill, Inc. 3

5 December 2019 the second make-lines handle 18%+ of sales, about three times the mix in 2014/2015, giving us confidence in the potential for the brand to exceed prior peak levels.

Figure 1: SSS have yet to fully recover from food safety Figure 2: 2H sales remain underweight relative to history given challenges from 4Q15-4Q16 (SSS remained negative for five SSS have not fully recovered from food safety declines. quarters), with existing recovery opportunities.

100% 100%

90% 90% 24.8% -18.7% 26.1% 25.2% 80% 16.9% 80% 70% 70% -21.9% 17.0% 60% 60% 25.9% 25.9% 25.3% 50% 50% 22.8% 40% -23.6% 40% 25.4% 26.0% 25.9%

30% 30% Compounding Compounding SSS 20% 20%

-29.7% 32.3% Quarterly Sales Composition 10% 10% 22.6% 23.3% 23.6% 0% 0% 4Q15-4Q16 1Q17-4Q19E 2007-2014 2015-2019 2019E Food Safety Post Food Safety Pre Food Safety Post Food Safety Consensus 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Source: Company data, Consensus Metrix, Credit Suisse estimates Source: Company data, Consensus Metrix, Credit Suisse estimates Note: 4Q19E includes consensus’ estimate for SSS of 9.2%. Note: 2019E is based on consensus’ estimates.

Figure 3: Chipotle’s AUVs remain ~15% below prior peak of Figure 4: Acceleration over the last several quarters has largely $2.5MM, though the brand exudes confidence in a return and been driven by digital sales growth, highlighting the potential to exceed prior peak levels. importance of the digital ecosystem.

$2,600 2015 prior peak 20% ~$2.5MM 17.8% $2,500 18% $2,400 3Q19 TTM 16% ~$2.15MM $2,300 14% 11.0% $2,200 12% 9.9% 10.0% 10% $2,100 8.1% 8% $2,000 6.1% 6% 4.4%

$1,900 SSS Composition TTM AUVs TTMAUVs ($000s) 4% 3.3% $1,800 2.2% 1.0% 0.9% 2% $1,700 0% $1,600 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19

-2%

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Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Digital

Out of restaurant or digital sales comprise 18%+ of overall sales (digital/delivery ~17-17.5% and catering ~1-1.5%), demonstrating growth of nearly 100% in 2019, contributing to the majority of SSS growth and acceleration over the last couple of years. Chipotle is well suited for digital given its younger and more affluent consumer base, on-trend positioning, food that travels well and transportable packaging. Chipotle has indicated digital could represent nearly 50% of overall sales in some restaurants, which we believe is likely given industry growth trends, digital sales as high as 30% in some of Chipotle’s restaurants and already high digital utilization among select digital-forward peers (Panera ~35% of sales; Sweetgreen 50%+ of orders). We view Chipotle as better positioned than nearly every other large restaurant chain to capitalize on digital. Chipotle has secondary production lines (second make-lines) to assemble digital

Chipotle Mexican Grill, Inc. 4

5 December 2019 orders without disrupting the main production line, and recently completed the installation of digitized second make-lines across the system to further enhance operations. Chipotle has addressed friction often created from in-store pick-up by adding designated shelves for in-store pick-up orders. Chipotle has historically not built restaurants with drive-thrus, thus digital access likely enhances the perception of convenience relative to traditional QSRs (~60-70% of sales at the drive-thru). Chipotle has indicated the digital ecosystem is attracting light and medium users, which is a best-case scenario to drive increased frequency and influence behavior. We would have expected heavy users to adopt digital more quickly given the inherent loyalty implied from customers downloading an app or joining a rewards program. We believe Chipotle’s down the line in-store layout could be driving the higher digital sales mix among less frequent customers (which could be viewed as more intimidating).

Figure 5: Digital currently represents ~18-18.5% of Chipotle’s Figure 6: Chipotle’s digital business will likely reach (and total sales mix, up from ~13% at the end of 2018 and ~8.5% at potentially exceed) $1BN in 2019, nearly doubling the the end of 2017. ~$530BN in digital sales generated in 2018.

20% $300

18% $250

16% $200 14% $150 12%

$100 Digital Digital Sales %

10% Digital Sales ($MM) $50 8%

6% $0

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Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates While Sweetgreen is a privately-owned, 100 store concept, its fast casual positioning, younger consumer base and down the line restaurant layout make it a reasonable comparison to Chipotle. Sweetgreen has indicated 50%+ of its orders are generated through its app, up from ~20-25% in January 2016 (when it launched mobile order ahead, a new app and an updated loyalty program). Sweetgreen does not currently offer delivery through its app, suggesting the 50%+ of orders generated through its app are for in-store pickup and payment only, though it appears the brand is planning on launching app-based delivery in 2020. Given mobile order ahead sales are likely less than 10% of total sales at Chipotle currently, we believe there is significant runway for ongoing digital sales growth as 1) awareness increases and 2) the loyalty program unlocks utilization and Chipotle leverages data to influence behavior. We believe Chipotle can increase its digital utilization closer to that of Sweetgreen, though do note that Sweetgreen is concentrated in urban markets which generally have higher digital adoption.

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5 December 2019

Figure 7: More than 50% of Sweetgreen’s orders are Figure 8: ~17-17.5% of Chipotle’s sales are generated through transacted through its digital channels, up from ~25% in 2014 mobile order & deliver, and we expect continued adoption as and ~40% in 2017. awareness increases and Chipotle better leverages data to influence customer behavior.

60% 18%

50% 16% January 2016: 40% Mobile order 14% launched on app

30% 12%

10%

Sweetgreen Sweetgreen Digital % 20%

8%

10% Chipotle Chipotle Mobile &Delivery Sales % 6% 0%

2014 2015 2016 2017 2018 2019

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Source: Sweetgreen, Fast Company, Fortune, Nation’s Restaurant News, Credit Source: Company data, Credit Suisse estimates Suisse estimates Note: Excludes estimated catering sales % - 1% in 1Q/3Q, 1.5% in 2Q/4Q. We view Panera’s digital utilization trajectory as a reasonable comparison to where Chipotle can progress over time given the brand’s digital-forward strategy, fast casual appeal and reasonably similar AUV & system size (though we note Chipotle does not have in-store kiosks). At the time Panera was public (through 2017) and investing in in-store technological integration, cafés that had been remodeled with integrated technologies (i.e. kiosks, Rapid Pick-Up – Panera’s version of mobile order ahead, delivery) for a longer period of time (i.e. more mature Panera 2.0 cafés) were generating digital sales mixes ~10% above the overall system. At the end of 2016, ~24% of system sales were digital and ~35% of sales at mature Panera 2.0 cafés were digital. As of August 2019, the entire system reached the 35% level (including ~7% delivery) – suggesting faster adopting stores could be a leading indicator to larger scale digital utilization. Across the system, digital represents ~18.3% of sales at Chipotle through 3Q19, an increase of more than 700bps from 3Q18, with some stores already at ~30% digital utilization. While Chipotle has offered digital and delivery for several years, digital sales have accelerated since 2018, in large part due to enhancements to its digital ecosystem (including in-store operations), with 2019 likely to be Chipotle’s strongest year of digital sales (digital sales up nearly 100% year-to-date). As the brand enhances its personalization capabilities, we believe it will better leverage data through its loyalty program to influence behavior and increase adoption.

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5 December 2019

Figure 9: Panera’s digital sales mix has continued to increase Figure 10: Digital represents ~18.5% of sales at Chipotle, with over time, now representing ~35% of sales, in-line with the its highest adopting stores approaching ~30%. digital sales mix of its high adoption stores in 2016.

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10% Panera Panera Digital Sales % 5% Chipotle Digital Sales % 5%

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Digital Sales % Digital Sales % in Mature Cafés Digital Sales % Digital Sales % in Highest Adoption Stores

Source: Panera, Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Digitized Second Make-Lines and Digital Pick-Up Shelves Chipotle has secondary production lines across its store base to assemble out-of-store orders, including web, mobile, delivery and catering, which we view as a competitive advantage relative to other concepts which would have to retrofit store layouts and might require significant investments to meet regulatory requirements (i.e. ventilation). Chipotle recently completed the implementation of its digitized secondary production lines, incorporating digital screens to improve accuracy, throughput (~40% increase in throughput) and capacity. The brand has also installed in-store pick-up shelves for out-of-store orders, reducing friction, limiting congestion and providing in-store marketing of its digital channels.

Figure 11: Chipotle’s digitized make-lines improve accuracy, Figure 12: Chipotle in-store pick-up shelves for out-of-store throughput and increase capacity without disrupting orders helps increase awareness and reduce friction. operations.

Source: Chipotle presentation Source: Chipotle presentation Chipotlanes Chipotle is testing digital drive-thru lanes, branded “Chipotlanes,” which are drive-up windows for customers to pick up digital orders. Early feedback has been very positive, with restaurants with Chipotlanes generating an above average digital sales mix (high-20%), higher overall sales (CMG has not disclosed, but across the restaurant industry, drive-thrus tend to add 20-30% in sales) and more favorable returns. Chipotle has shifted its 2019 real estate strategy to seek more sites that can accommodate Chipotlanes, and by the end of 2019, Chipotle expects to have 60 Chipotlanes. More than half of the 150-165 new restaurants expected to open in 2020 will also include a Chipotlane, with restaurants with Chipotlanes likely making up ~5% of

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5 December 2019

Chipotle’s store portfolio by the end of 2020. As more new unit opens shift to the Chipotlane prototype, average digital sales should increase across the portfolio. Delivery

Chipotle has partnered with DoorDash and Postmates, and delivery is seamlessly integrated into Chipotle’s back-of-house system, avoiding operational disruptions. We suspect Chipotle has negotiated very favorable rates from its partners, making delivery a margin-accretive channel (assuming incrementality). Importantly, Chipotle is the first large restaurant chain to offer delivery directly through its app, which should help enable digital sales, drive awareness of the channel, lower delivery costs and increase digital sales (Chipotle has indicated only one in ten transactions in-app is delivery). We suspect Chipotle could explore partnerships with other delivery providers (i.e. Uber Eats, Grubhub) as most now offer direct POS integration capabilities. Other restaurant companies have indicated multiple partnerships as incremental, as providers have different market share across regions. To increase awareness of the delivery feature in its app, Chipotle periodically offers free delivery exclusively through its app. Delivery is generating order sizes ~1.5x that of an in-store order ($16-17 vs $12-13 average in-store order), with commentary suggesting incrementality of at least ~65-70%. From 12/18-1/7 in late 4Q18/early 1Q19, Chipotle ran a Free Delivery Bowl campaign, offering free delivery through its digital channels and DoorDash, with nearly half of guests new or lapsed users. Digital has generated year-to-date sales growth of ~95%, with two year trends that have accelerated since 3Q18 (when Chipotle added direct delivery capabilities through its app). Chipotle also participates on DoorDash’s Dasphpass subscription service (launched August 2018), which offers customers unlimited free delivery for $9.99 month, with DoorDash previously indicating a double-digit proportion of Chipotle’s delivery sales coming from DashPass subscribers.

Figure 13: Chipotle periodically offers free delivery, which has Figure 14: While delivery is Chipotle’s fastest growing channel generally been marketed around specific events (i.e. NBA (driving the material acceleration in digital sales), digital sales Finals, Cinco de Mayo). growth continues to remain high, even with fewer free delivery days, with Chipotle noting sustainably higher delivery sales post promotions.

25 160%

1-yr Digital Sales Growth 20 140% 20 2-yr Digital Sales Growth 120% 101% 15 99% 100% 15 14 88% 80% 66% 9 10 60%

7 7 48%

Free Free Delivery Days Digital Digital Sales Growth 40% 33% 5 3 20% 20%

0 0% 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Loyalty

Chipotle Rewards launched nationally in March 2019, a top consumer request, which has already grown to ~7MM users. The outsized adoption of the loyalty program by new and light/medium users will likely be a key contributor to the success of the initiative and should limit sales dilution. While Chipotle’s loyalty program is still in early innings, and the brand has yet to convert the loyalty member data it has collected into actions, we expect more meaningful SSS

Chipotle Mexican Grill, Inc. 8

5 December 2019 contribution in 2020 as the brand leverages its database of customer information to influence behavior, noting personalization has increased transaction levels across all frequency levels in test. In July 2016, Chipotle launched its first loyalty program, “Chiptopia,” for a three month promotion that ran from July through September. By the end of July, Chipotle attracted 3.6MM customers onto its platform comprising 30% of transactions. While the program was not meant to be permanent, it also was quite rich, somewhat confusing, did not drive meaningful loyalty and Chipotle did not appear to garner customer data. We believe the fast adoption of Chipotle’s new loyalty program, faster than expected redemption (drag from loyalty program revenue deferral not as high as originally guided) and commentary suggesting the ability to convert customer data to sales growth in 2020 highlight the early success of the program, while the relatively high adoption of its past program provides insight into demand from its customer base. We used Panera’s loyalty program growth over time to get a sense of the potential opportunity for Chipotle. Panera launched its loyalty program nationally by the end of 2010, attracting 4.5MM members, which grew to 28MM by the end of 2017, one of the largest in restaurants. Panera’s loyalty program doubled in size in its first year (2011), and subsequently increased by ~3MM on average each year following through 2017. By 2013 and with 15MM members on its loyalty platform, ~50% of Panera’s transactions were associated with a loyalty member. It appears Chipotle is already exceeding Panera’s initial trajectory, with ~7MM loyalty members on the platform since launching in March 2019. Assuming a similar trajectory to Panera, albeit a more accelerated rollout in the first year to 9MM members, growth of ~3MM members per year would lead to ~15MM members by 2021, more than doubling in size from current levels, and 21MM by 2023, potentially tripling in size.

Figure 15: Panera’s loyalty program doubled in size in its Figure 16: Chipotle has grown its loyalty program to ~7MM second year, and subsequently increased by an average of members since launching in March 2019. Assuming a similar ~3MM members per year over the next several years. trajectory to Panera, we believe the loyalty program could triple in size by 2023.

30 28.0 25

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Panera Panera Loyalty Members (MM) 3.0

5 Chipotle Loyalty Members (MM)

0 0 2010 2011 2012 2013 2014 2015 2016 2017 1Q19 2Q19 3Q19 4Q19E 2020E 2021E 2022E 2023E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Note: Represents loyalty members at the end of each year. Assuming 12MM loyalty members by the end of 2020 and one incremental transaction per loyalty member, the loyalty program should contribute ~2.5% to SSS in 2020. Assuming ~3MM new members per year going forward, one incremental transaction per new loyalty customer and an incremental 0.5 transactions per existing loyalty customer, loyalty should contribute ~1.5%-2 to SSS in 2021 and 2022. We note our estimates could be conservative, with a minimal change in transaction frequency and no assumptions of higher average checks generally associated with digital transactions (we do adjust for system average check increases). Our estimates also assume no contribution from the loyalty program in 2019, with all incremental contribution allocated to 2020.

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5 December 2019

Figure 17: We estimate one incremental transaction per loyalty member would contribute SSS of ~2.5% in 2020, with new loyalty members and a slight increase in incremental transactions per existing loyalty member 1.5-2% in SSS in 2021/2022. 2019E 2020E 2021E 2022E

Chipotle Rewards Members (MM) 9.0 12.0 15.0 18.0 YOY Change in Members 3.0 3.0 3.0 YOY % 33% 25% 20% Average Rewards Members (MM) 4.5 10.5 13.5 16.5

Chipotle AUV ($000s) $2,170 $2,335 $2,456 $2,558

Stores (End of Year) 2,626 2,786 2,956 3,136 YOY Change in Store Count 135 160 170 180 Average Stores 2,559 2,706 2,871 3,046

Loyalty Members/Store (End of Year) 3,427 4,307 5,074 5,740 YOY Change in New Members/Store 880 767 665

Avg. Loyalty Members/Store 3,880 4,702 5,417 YOY Change in Avg New Members/Store 3,880 822 715 Incremental Transactions/Member 1.0 1.0 1.0 Incremental Transactions/Existing Member 0.5 0.5

Avg. Transaction Size $13.00 $13.25 $13.50 $13.75

Incremental Sales/Store ($000s) New Members $51 $11 $10 Existing Members $29 $35 Incremental Sales/Store ($000s) $51 $40 $45

Est. SSS Contribution 2.4% 1.7% 1.8%

Source: Company data, Credit Suisse estimates Note: Incremental Sales/Store uses CS estimates for average stores and loyalty members. New Menu Innovation

Chipotle is taking a more strategic approach to menu innovation, with opportunities to market a combination of existing ingredients, add new ingredients and invest in new processes/equipment. In January 2019, Chipotle added Lifestyle Bowls, which combined Chipotle’s existing ingredients into marketable meals/recipes that increased customer convenience and generated new news. Chipotle is taking a page out of the Taco Bell playbook by leveraging its existing ingredients to create new innovation without affecting operations. Chipotle is also testing new menu items that are relatively easy to implement by adding them to the traditional line. Chipotle rolled out Carne Asada in mid-September, noting extremely strong feedback, and the first new menu item launched through the brand’s stage gate process. Queso Blanco is also in test, and appears to be the farthest along in the stage gate process relative to other new menu items. Salads could also be added as a new menu category. New products requiring new processes are more difficult, with concerns around throughput and operational disruption, as well as the need to roll out new equipment. Quesadillas, the most frequently requested item at Chipotle, are in test, as well as nachos and beverages. Carne Asada In May 2019, Chipotle announced it was testing Carne Asada in two markets, which it rolled out nationally by mid-September. After 3Q19 earnings in October, Chipotle indicated it had been

Chipotle Mexican Grill, Inc. 10

5 December 2019 looking for a Carne Asada source six to eight months prior, suggesting a four to six month lead time from sourcing and initial testing to national rollout. Carne Asada contributed to SSS acceleration at the end of September and into October, exceeding expectations. While Chipotle indicated Carne Asada would be removed in late November/early December due to supply constraints, it recently announced it had been able to source additional protein to maintain the new menu item through 1Q20, and will explore options to add Carne Asada permanently. Based on commentary from Chipotle, Carne Asada is generating incremental transactions and new customer acquisition, with trade up to the higher quality protein also contributing to average check increases. In 3Q19, 2-yr SSS sequentially accelerated by ~210bps, including 2-yr traffic acceleration of ~130bps and 2-yr mix acceleration of ~80bps, in part due to the introduction of Carne Asada, which was only in stores for approximately two weeks. We assume SSS at the end of the quarter and into October were trending in the low double digits (accelerated from 3Q19 SSS 11%), prompting an increase in 4Q19 SSS guidance to high-single-digits. Given Chipotle had expected Carne Asada would be removed from the menu in December, we assume 4Q19 SSS will likely come in above initial guidance, with consensus’ estimate for ~9% potentially conservative. Queso Blanco In early August 2019, Chipotle announced it is testing a new Queso Blanco in 52 restaurants in three markets. Chipotle has indicated positive early feedback, with an increase in Queso Blanco sales across all test markets after the first week. We note that the recipe uses six month aged cheddar, meaning Chipotle would have to source a sufficient level of white cheddar for its system with at least a six month lead time, requiring a relatively accurate predictive sales forecast. Given expectations that Chipotle would look to roll out the new queso on its menu permanently (as opposed to Carne Asada, which it had indicated was an LTO), we believe the company could look to scale in the first half of 2020. Chipotle currently offers queso across its system, though feedback has been mixed since initially launched in mid-September 2017. Chipotle indicated an immediate sales lift in the high single digits, which leveled off after initial trial, noting in October 2017, ~15% of customers continued to order queso. In September 2017, queso added 3.5% to SSS (though launched mid-month, with underlying trends driving a ~6% benefit), ~4-5% in October, before leveling off at a ~2% contribution to avg check. By 1Q18, it appeared queso attachment was trending a little over 10%. For comparison, ~50% of Chipotle transactions include guacamole. Assuming Chipotle launches Queso Blanco in early 2020 and sustains an increase in queso incidence mix of ~15% (from an estimated 10% currently), we estimate SSS contribution of ~50-100bps. Our queso contribution estimate reflects a benefit from mix, though does not include any additional benefit from incremental transactions. Should Chipotle launch a campaign with marketing support, we believe the queso attachment rate could be closer to ~20-25%.

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Figure 18: We estimate queso contributed ~1.7% to SSS, Figure 19: We estimate the launch of Queso Blanco could assuming average attachment of ~12.5% (~15% at launch, contribute ~50-100bps to mix assuming an increased which likely declined through the year & settled at ~10%), with attachment rate to 15% from an estimated 10% currently. the new menu item largely incremental. Queso Impact Per Store - September 2017 Launch Potential New Queso Impact Per Store

Chipotle AUV ($000s) - TTM 3Q17 $1,948 Chipotle AUV ($000s) - 2019 $2,170 Chipotle AUV ($000s) - TTM 3Q18 $1,980 Avg Check $13.00 Avg Check $12.50 # Daily Transactions 464 # Daily Transactions (TTM 3Q18) 440 Queso Add-on $1.30 Queso Add-on $1.25 % of Queso Sales 65% % of Queso Sales 65% Queso Side $2.30 Queso Side $2.25 % of Queso Sales 25% % of Queso Sales 25% Chips & Queso $3.85 Chips & Queso $3.70 % of Queso Sales 5% % of Queso Sales 5% Large Chips & Queso $6.15 Large Chips & Queso $5.25 % of Queso Sales 5% % of Queso Sales 5% Guacamole $2.30 Guacamole $2.25 Current Queso Attachment Rate 10.0% Queso Attachment Rate 12.5% Potential Queso Attachment Rate 15.0% Daily Queso Sales $100.7 Current Queso Sales $89.5 Potential Queso Sales $134.3 Annualized Queso Sales ($000s) $36.3 Additional Queso Sales $44.8 % Incremental 90% Incremental Sales ($000s) $32.3 Annualized Potential Queso Sales ($000s) $48.4 Annualized Additional Queso Sales ($000s) $16.1 % Sales Lift 1.7% % Incremental 90% Queso as % of Sales 1.8% Incremental Sales ($000s) $14.4 % Sales Lift 0.7% Queso as % of Sales 2.2% Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Quesadillas Quesadillas appear to be one of Chipotle’s most requested menu items, though the brand’s down the line store layout and potential impact on operations remain headwinds. Chipotle is currently testing quesadillas in select markets with new presses reducing the melting time to ~30 seconds (from ~3 minutes prior). Chipotle has also suggested the new equipment could be used to cook nachos and dessert. We believe Chipotle could initially look to launch quesadillas exclusively through its digital channels (like Lifestyle Bowls), which should limit operational disruptions from having to cook the menu item off the direct line (and as a way to drive digital adoption). That said, test markets appear to be offering quesadillas both in-store and through digital channels. Based on test markets, the majority of stores had quesadillas priced at parity with burritos/burrito bowls of the same protein, though some stores priced quesadillas ~15-20% below burritos/bowls. Assuming quesadillas are priced in-line with burritos/burrito bowls, we would not expect any impact to mix with customer substitutions. Should Chipotle decide to price quesadillas at a lower price, there could be a drag from trade down. We also expect quesadillas to generate strong incremental transactions and new customer acquisition. Based on our checks, restaurants testing quesadillas are selling anywhere from 40-100 quesadillas per day, with a national marketing campaign likely to generate even higher sales.

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In our base case assumption, we estimate a Chipotle restaurant sells 50 quesadillas per store per day at an average price of $7.50 and a ~75% incrementality level, priced at parity with burritos/bowls of the same protein. Our unit sales assumption is near the low end of our checks from test locations. Our implied mix assumption of ~6% of sales is based on the sales mix of chorizo, which represented ~6-7% of sales across the system when it was available, and Chipotle’s launch of Sofritas in CA in 2013, which settled at 4-5% of the product mix during testing (though was higher with initial marketing support). We believe our base case assumption is likely conservative given: 1) price per quesadilla of $7.50 does not assume any incremental add-ons (i.e. guac, chips, etc.), noting Chipotle’s average check is ~$13; 2) product mix of ~6% is likely light given quesadillas have been one of Chipotle’s most requested items; and 3) unit sales will likely exceed 50 units per day in test markets once Chipotle turns on marketing support (note: the majority of stores indicated 50-75 quesadillas per day). Based on our base case assumptions, quesadillas would contribute ~4.5-5% to SSS. In a more aggressive (yet still achievable) scenario, we assume 100 quesadillas are sold per store per day, which would generate a sales mix of ~11% and incrementality of 75%. While chorizo represented ~6-7% of sales when available in the system, we believe quesadillas can appeal to a broader audience and have greater potential for incrementality. Based on our more aggressive assumptions, the rollout of quesadillas could contribute ~9-9.5% to SSS in 2020.

Figure 20: In our base case assumption, we estimate Chipotle Figure 21: In our more aggressive quesadilla assumption, we sells 50 quesadillas/store/day at an average price of $7.50 and estimate Chipotle sells 100 quesadillas/store/day at an incrementality of 75%, which would contribute 4.6% to SSS. average price of $7.50 and incrementality of 75%, which would generate a SSS lift of ~9% in 2020. Quesadilla Impact Per Store Quesadilla Impact Per Store

Chipotle AUV ($000s) $2,170 Chipotle AUV ($000s) $2,170 # Daily Quesadillas Sold 50 # Daily Quesadillas Sold 100 Price/Quesadilla $7.50 Price/Quesadilla $7.50 Daily Quesadilla Sales $375 Daily Quesadilla Sales $750 Annualized Quesadilla Sales ($000s) $135.0 Annualized Quesadilla Sales ($000s) $270.0 % Incremental 75% % Incremental 75% Incremental Sales ($000s) $101.3 Incremental Sales ($000s) $202.5 % Sales Lift 4.7% % Sales Lift 9.3% Quesadilla as % of Sales 5.9% Quesadilla as % of Sales 11.1%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Salads Salads could also be added as a new menu category relatively simplistically, with Chipotle recently indicating salads are currently in pilot. Salad dressings have been in test for a period of time in the NYC NEXT Kitchen. Beverages Chipotle has indicated an opportunity to improve its beverage line-up, noting relatively low drink attachment, which is currently in test. Given strong margin potential associated with beverages, we believe the brand will look to add beverages more in-line with the quality of its food offerings, as well as move the location of its beverages to be more accessible to customers (rather than behind the register). Marketing & Social Media

Chipotle has made a noticeable change in its social media strategy over the last 18 months, transitioning to a more engaging, humorous personality from a more food-centric approach previously. Chipotle often features memes and non-food posts unique to Chipotle. Engagement

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5 December 2019 with followers appears to have increased, and the team makes it more personal by signing their names with each response. We are encouraged Chipotle has a more distinct personality and believe it is well positioned to drive increased loyalty and affinity with its followers given the brand’s younger target demographic. The brand has also increased its visibility, shifting marketing dollars nationally and reducing localized spending (i.e. regional advertising, sponsorships, 5K runs, etc). The brand has enhanced its national campaigns and is running more creative promotions, with Chipotle noting an improvement in its ROI. We expect new menu innovation and greater leverage of data from the digital ecosystem will be key contributors to the marketing strategy in 2020.

Figure 22: Chipotle has historically engaged a food-centric Figure 23: Two years later, Chipotle has shifted to more social media approach, largely featuring its menu items and diversified posts, encouraging brand engagement with a more ingredients (December 2017 posts). distinct brand personality rather than a food-centric social media strategy (November 2019 posts).

Source: Chipotle Instagram – December 2017 Source: Chipotle Instagram – November 2019 Operations

Initiatives implemented to address operational execution thus far appear to be generating results, with Chipotle experiencing improvements in restaurant AB scores, lower hourly turnover, declines in guest complaints and improved guest satisfaction scores. Going forward, improved throughput, consistent execution of food and consistent delivery of a great atmosphere remain opportunities. Chipotle has indicated it is generating ~25 transactions on a peak 15 minute window, with the goal to return to the ~35 transactions on a peak 15 minute window it was executing three to four years ago. At that time, Chipotle was not utilizing its secondary make-lines at the same rate (~18%+ currently vs 6-7% previously), suggesting Chipotle could even exceed the ~35 transactions per 15 minute window over time as it increases its digital sales mix.

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Analytics

Overarching Chipotle’s strategy is the utilization of customer data analytics to drive decision making and implementation of initiatives. Chipotle now has the infrastructure in place to robustly test, evaluate and iterate initiatives before full-scale roll-out. We expect insights from the newly launched loyalty program will meaningfully contribute to the brand’s go forward strategy We believe that an organization’s ability to collect and utilize data is paramount to understanding initiatives that will resonate with consumers. We expect these insights will be relevant for generating marketing campaigns that appeal to new and existing customers, as well as in building the innovation pipeline. Chipotle has already highlighted strength among Millennials and Gen Z customers, and we believe initiatives geared towards engaging marketing campaigns, new menu innovation and digital will resonate with these customer segments. Pricing

Chipotle has historically been conservative with its pricing strategy, enacting menu price increases every 2-3 years to offset rising food costs. Following three to four years of flat pricing, Chipotle rolled out price increases in tranches averaging ~5% across markets starting in 2Q17 through early 2018. There appeared to be minimal resistance to the price increase, with the majority flowing through to comp. Chipotle also implemented a price increase of ~1.7% in December 2018 and another price increase of a little below ~2% recently. We expect Chipotle will enact more regular, but lower, price increases each year to offset margin pressures. To maintain margins in a mid-single-digit inflationary cost environment, transaction-growth must be approximately mid-single-digit, so prudent pricing will likely be used to better leverage the economic model. Chipotle has indicated it can cover current wage inflation of ~4-5% with menu price increases of ~2%.

Figure 24: CMG has historically enacted price increases every Figure 25: We expect CMG to implement lower and more 2-3 years. CMG rolled out average price increases ~5% consistent price increases to better leverage the economic system-wide for the first time in 3-4 years in 2017 and 2018, model while limiting resistance. Chipotle recently implemented and has since rolled out a ~1-5-2% menu price increase in an increase of ~2%. December 2018 and 2019.

9.0% 4.5% 2019: Menu price Chipotle recently 8.0% 2007/2008: increase ~2% 4.0% implemented a menu Menu price 3.5% price increase of ~2% 7.0% increases (market by 2017/2018: 3.0% 6.0% Menu price market) 2Q14: 2.5% increases (market 5.0% Menu price by market) Price 2.0% 4Q06: Select increase

Price 1H11: 4.0% menu price 1.5% Menu price increases 3.0% increases 1.0% 0.5% 2.0% 0.0%

1.0%

2013 2014 2015 2018 2017

0.0% 2016

2019E 2020E 2021E 2022E

CSe Consensus Actual

1Q06 3Q07 2Q08 1Q09 4Q09 3Q10 2Q11 1Q12 3Q13 2Q14 4Q15 3Q16 2Q17 1Q18 4Q18 3Q19 4Q06 4Q12 1Q15

Source: Company data, Credit Suisse Source: Company data, Consensus Metrix, Credit Suisse estimates Catering

Catering represents just ~1-1.5% of sales, a potentially significant and largely untapped opportunity. Chipotle has amended the platform in recent years to lower the minimum order size and offer catering delivery. Customers can also earn loyalty points through catering transactions. Taken together, increased access through lower group order sizes, lower pricing tiers, ability to earn loyalty points and delivery availability should help drive channel growth.

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Chipotle’s catering business has some seasonality, with catering sales higher in 2Q and 4Q from graduations and holidays, respectively, and generally skews at-home vs office. We believe catering delivery could be unlock sales among businesses/offices, with the convenience of delivery a potentially meaningful factor in restaurant catering choices and offices being relatively inelastic to delivery fees. Over the last several years, different companies have emerged targeting the catering channel, particularly focused on office buildings and through marketplace platforms. Fast casual competitor, Sweetgreen, is rolling out a hybrid delivery-catering model (Outpost), where the company delivers customized orders to office buildings with designated pick-up shelves. This allows the brand to deliver a large number of transactions profitably, increasing access and convenience to customers at a low cost. Since launching Outpost in September 2018, the brand has expanded the program to more than 400 locations, with plans to expand to 600 by the end of 2019, targeting as many as 3,000 long-term – significant considering the chain only has ~100 units. NYC-based Just Salad (~50 units) has launched a similar program to capitalize on in-office demand with a hybrid-catering model. We would not be surprised to see restaurants engaging in these types of opportunities given the benefits of higher volume orders on delivery profitability, and believe Chipotle could engage in a similar strategy as it looks to enhance its second make-line and optimize four wall economics.

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Companies Mentioned (Price as of 04-Dec-2019) Chipotle Mexican Grill, Inc. (CMG.N, $809.4, OUTPERFORM, TP $930.0)

Disclosure Appendix

Analyst Certification I, Lauren Silberman, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Chipotle Mexican Grill, Inc. (CMG.N)

CMG.N Closing Price Target Price Date (US$) (US$) Rating 11-Jan-17 413.93 375.00 N 26-Apr-17 482.99 425.00 24-Jul-17 339.98 325.00 26-Jul-17 340.60 335.00 25-Aug-17 308.79 320.00 25-Oct-17 277.01 275.00 23-Jan-18 328.71 330.00 07-Feb-18 272.21 275.00

19-Feb-18 305.63 290.00 NEUTRAL 14-Mar-18 319.66 NC NOT COVERED OUTPERFORM 25-Jun-19 733.22 870.00 O * 24-Jul-19 777.96 880.00 23-Oct-19 788.19 930.00 * Asterisk signifies initiation or assumption of coverage. Effective July 3, 2016, NC denotes termination of coverage. As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most att ractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within th e relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportuniti es. For Latin American and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Aust ralian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

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Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 47% (32% banking clients)

Neutral/Hold* 38% (26% banking clients) Underperform/Sell* 13% (22% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit- suisse.com/sites/disclaimers-ib/en/managing-conflicts.html . Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the development, manufacture, or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see https://www.credit-suisse.com/media/assets/corporate/docs/about-us/responsibility/banking/policy-summaries-en.pdf . The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

Target Price and Rating Valuation Methodology and Risks: (12 months) for Chipotle Mexican Grill, Inc. (CMG.N) Method: Our $930 target price and Outperform rating is based on ~23.5x our NTM EBITDA in 12 months & implies ~42x our NTM EPS in 12 months.

Risk: Key risks to our Outperform rating $930 price target include: food safety headlines, competition and food safety. Chipotle's headline risk is still elevated as multiple food safety incidents have emerged over the last few years, with brand perceptions which are likely still sensitive. In recent years, there has been an emergence of smaller competitors delivering on attributes that have differentiated Chipotle for many years, offering high quality food at reasonable prices, many of which are similarly mission-driven and locally sourced.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s):

CMG.N

For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=476486&v=- 67o9qpb5k2qp1l9rldpab1ihs . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. This research report is authored by: Credit Suisse Securities (USA) LLC ...... Lauren Silberman

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