Chipotle (NYSE:CMG) has had a rough few years, to put it lightly.
The fast-casual Mexican chain was on top of the world for nearly all of its first decade as a public company beginning with its January 2006 IPO. On the day of its IPO shares closed at $44 per share, double its initial public offering price of $22.
The company went from strength to strength as people discovered and took delight in its simple menu and fresh ingredients, including naturally raised meat and organic produce. Shares of Chipotle peaked at over $750 in July 2015, the summer before the food scare that was heard around the world.
After follow up food scares in 2017, two years after the initial outbreak, loyal investors are wondering how many second chances a Mexican restaurant deserves.
An ever procrastinating recovery
Each time Chipotle seems to be recovering, it sizzles out.
If you look at the chart below, you can see that Chipotle posted an encouraging 17.8% same-store sales growth for the 2017 first quarter. The restaurant had investors' hopes up, saying sales were improved by increased customer traffic.
"2017 is off to a strong start, as our restaurant managers and teams are energized by our renewed focus on the customer," Steve Ells, founder and former CEO of Chipotle, said in a statement at the time. "By simplifying the focus in our restaurants to only those elements that lead to a great guest experience, our operations have improved every single month. . . "
|Q3 2017||$1.33||$1.13 billion||1%|
|Q2 2017||$2.32||$1.17 billion||8.1%|
|Q1 2017||$1.60||$1.07 billion||17.8%|
|Q4 2016||$0.55||$1.03 billion||(4.8%)|
|Q3 2016||$0.27||$1.04 billion||(21.9%)|
For the second quarter of 2017, same-store sales grew by just 8.1% compared to a soft 2016 base and missed expectations for 9.7% growth. And the most recent quarter disappointed as well with just 1% same-store sales growth against expectations for 1.2% growth.
"It's been a challenging year and the third quarter was no exception, but we are making meaningful progress," Ells said in the November earnings call.
When you compare these low sales growth numbers to its peak growth period from 2014 to 2015, you realize that it might never see those figures again. Chipotle's same-store sales growth peaked at 19.8% for the 2014 third quarter, a full 18.8% higher than the sales growth seen in this year's third quarter.
To make matters worse, Chipotle backtracked on its previous forecast for full-year 2017 same-store sales in the high-single digits. The restaurant is now expecting comparable sales growth of 6.5%.
Similarly, Chipotle cut its new restaurant openings forecast for 2017 to slightly below the 195 to 210 it had previously announced. For 2018, it expects to open just 130 to 150 new stores.
"We're going to slow down just a little bit, but this is a temporary slowdown for 12 to 18 months," Ells told Reuters. "You have to get the fundamentals right first. Looking inward and understanding where you made mistakes in the past helps you set up for change."
Shares of Chipotle have mirrored the initial positive opening to 2017, quickly followed by two disappointing quarterly earnings reports and other missteps, including another foodborne illness outbreak at a Virginia restaurant in July and less than stellar reviews for its new queso that launched in September.
Chipotle wants to transfer its problems to new CEO
Chipotle is trying to reignite hope in its investors base with the news that Ells has stepped down to executive chairman as the company searches for a new CEO.
However, as my colleague, Rick Munarriz wrote, "a bad team is still a bad team -- and an out-of-favor burrito roller is going to continue to be an out-of-favor burrito roller."
The company emphasized in its latest earnings call that it has a real opportunity to expand its famously limited menu, thus driving up foot traffic around exciting new launches. Ells claims that after the queso launch in September, sales saw an "immediate lift" before leveling off after the initial excitement wore off. The new product drove up sales of existing customers and also brought in new customers.
Chipotle's chief marketing and strategy officer Mark Crumpacker backed Ells up by saying, "Chipotle is a company that historically hasn't added a lot to the menu. When we do it, we get a lot of attention for it. . . It's really untapped potential for us."
But if the launch of queso -- a product customers have been begging Chipotle to develop for years -- failed to produce meaningful results, then what will? Margaritas, desserts, and queso aren't special enough to attract old and new customers to a restaurant chain that is beginning to be known for its numerous foodborne illness outbreaks. There are too many other options for finding those foods.