Shares of Chipotle Fall As Profit Disappoints, Fewer Store Openings

Chipotle Mexican Grill announced on Tuesday that it would open fewer new restaurants and posted quarterly sales and earnings that disappointed, as it struggles in its recovery from a run of lapses in food safety.

Shares for the burrito chain fell by over 9.5% in afterhours trading Tuesday following the company’s report that showed weaker than had been expected same-restaurant sales despite its introduction of queso (cheese) dip during September.

The company also announced that it would increase prices by approximately 5% in nearly 900 of its locations in November.

Chipotle tempered its forecast for 2017 that called fewer new restaurants to be opened that were below its low end of the range previously disclosed of between 195 and 200. It also added that it would be opening between 130 and 150 new locations in 2018.

CEO and founder of Chipotle Steve Ells said the company would slow down slightly, but only temporarily for up to the next year and a half.

Ells added that the fundamentals must be right first and looking and being able to understand where mistakes were made previously changes can be made.

One analyst on Wall Street said that when expectations are lowered for what the future growth unit will be, it hits the stock in a negative way.

Sales for restaurants opened a minimum of 13 months increased by just 1% during the third quarter. Analysts were expecting an increase of 1.2%.

Company executives said the sales at same-stores were down over 2% before the new queso dip was debuted, which is sold as a sauce to be used on entrees or a standalone dip.

Earnings per share were $1.33, while analysts were expecting $1.63,

Stock at Chipotle has dropped 53% since the beginning of 2015, while during the same period McDonald’s shares have increased 75% and the S&P 500 has gained 25%.

Chipotle’s menu is very small in comparison with other fast-casual chains. Its simple, small menu underpins its fast service that attracted customers at first as well as Wall Street, but it carries a bigger risk of have diner burnout when the novelty of it starts wearing off.

Net profit increased to over $19.6 million, or 69 cents a share, compared to $7.8 million equal to 27 cents a share, for the same period one year ago. Revenue was higher by 8.8% ending the quarter at $1.12 billion.

Leave a Reply