Chipotle Mexican Grill (NYSE:CMG) reported its first-ever quarterly loss this earnings season -- its same-store sales fell by a whopping 29.7% last quarter.
In this clip from the Motley Fool Money radio show, Chris Hill, Matt Argersinger, and Jeff Fischer talk about how much Chipotle's free burrito coupons increased that huge sales decline; how this quarter's earnings will probably make next year's comps a breeze; and why Chipotle isn't following McDonald's (NYSE:MCD) lead and using a breakfast menu to boost sales.
A transcript follows the video.
This podcast was recorded on April 29, 2016.
Chris Hill: Chipotle reported its first quarterly loss ever as same-store sales fell nearly 30%. I mean, I guess that's to be expected, Matty.
Matt Argersinger: We knew it was going to be an ugly quarter. That 30% number, it's bad. It's not as bad as the number might suggest. If you look at transactions, essentially, people coming in and actually getting food, that was down 21%. So, it's still bad, but obviously much better than the 30% number because a lot of people, including me, are using those coupons to get free burritos and tacos.
Silver lining, April is showing a lot of improvement. Comps so far this month are down 20%, which is a big improvement from the down 36% we saw in January. Hopefully that trend continues. The real story here, though, is, if you look at the food and labor costs as a percentage of sales, they're pretty much the highest they've ever been. Much higher, obviously, with all the new safety procedures they're putting in, and training employees to handle the food differently. The question is, do those lower margins stick around? Can they get some of those expenses lowered over time, and get back closer to historical levels? That's the big question to me. You really want to watch Chipotle's margins.
I expect, this time next year, we'll be talking about pretty good comps. Obviously the comparisons will be a lot easier. Traffic will be back. But, how profitable is every store now going forward? That's the big question.
Hill: You know what another restaurant company has done to make their stores more profitable? All-day breakfast. And I'm wondering if Chipotle needs to look at what McDonald's is doing. Which seems, in some ways, absurd to suggest, given that, for years, people were like, "Ugh, McDonald's should try and be more like Chipotle!" I don't know, I look at the success they're having, and I think, why aren't they serving breakfast at Chipotle?
Argersinger: I love a good breakfast burrito like anyone else. The thing is, to me, it must be an operational thing. Adding that tweak to the menu, whether they do it all day or at certain periods of the morning, is probably something that will add a lot of cost, and they haven't figured out a smart way to do it.
Jeff Fischer: McDonald's is the company I would point to to have hope for Chipotle again. Because, if McDonald's can turn it around and become a vibrant business again, then certainly Chipotle can, I would think.
Hill: Last question, Matty. Any color from the management regarding the other brands in the Chipotle portfolio, in terms of expanding ShopHouse, Pizzeria Locale? Any plans to speed that up?
Argersinger: Very little. They just keep saying these are the aspirational, new big franchises for us, and growth is slow. They're being very experimental with new markets, but it's obviously very nascent still.
Fischer: Since Chipotle has a black eye right now, they could just take down those signs and switch them over to a different store, make them each a pizza place.
Hill: I'm not a lawyer, but that sounds illegal. (laughs)
Jeff Fischer has no position in any stocks mentioned. Matthew Argersinger has no position in any stocks mentioned. Chris Hill owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.