Chipotle Mexican Grill Inc. is focused on operational changes, mobile orders and investing in employees and existing restaurants, CEO Steve Ells said during the company’s fourth-quarter earnings call on Tuesday.
Chipotle beat expectations thanks in part to menu price increases and the lower cost of avocados. But the company has a long way to go to get back to its glory days.
“Our results for the quarter clearly show that there is still work to be done to restore strong growth and company trust,” Ells said during the call.
Customer trust was shaken in 2015 after a series of E. coli outbreaks. And late last year Chipotle said Ells would step down as CEO once the company found a replacement.
“The search for a new CEO is well underway, and as soon as we have found the right person, I will transition to the role of executive chairman,” Ells said. “The board and I are committed to bringing in a world-class leader with demonstrated expertise to improve execution, build consumer trust and drive sales.”
This quarter, same-store sales increased 0.9 percent, which the company partially attributed to menu price increases. Net income for the quarter was $43.8 million, or $1.55 per share, compared with $16 million, or $0.55 per share, the previous year.
After making leadership and operational changes, “we are starting to see some success,” Ells said in a statement.
The company said those leadership changes included adding Scott Boatwright as chief restaurant officer, Laurie Schalow as chief communications officer and four new directors to the company's board. Operationally, the company reorganized its field leadership structure with the goal of creating better oversight of restaurant operations, a spokesperson said in an email.
Lower avocado prices helped the bottom line, too. Revenue rose 7.3 percent, to $1.11 billion, matching expectations. At the end of the fourth quarter, Chipotle operates 2,408 restaurants and plans to open another 130-150 new locations in 2018.
During the call, Chipotle said it was expecting $40 million to $50 million in tax savings as a result of the recently passed federal Tax Cuts and Jobs Act. The operator plans to invest more than a third of the savings into the company and its employees. These investments included a training center in Denver, upgrades to existing units, and additional benefits and bonuses for employees. The employee benefits will help Chipotle hire and retain staff in a competitive environment with low unemployment, executives said.
Many analysts reacted positively to these new initiatives.
“We are reiterating our ‘when, not if’ thesis on Chipotle following the company's 4Q report, which highlighted slightly better-than-expected same-store sales trends and [earnings per share],” wrote Nicole Miller Regan, a research analyst at Piper Jaffray & Co., in an email after the call.
Although Chipotle shares were down after market, “we continue to believe in the Chipotle recovery story and are encouraged to hear about incremental investments into the company's human capital and portfolio of stores supported by incremental capital generated by recent tax reform,” Miller Regan wrote. “Looking forward, we see execution against store-level operational improvement plans and new unit development (centered around existing markets) as catalysts.”
The company will also aim to increased digital ordering in 2018, executives said. Digital sales currently account for 8.6 percent of average sales. The new version of the Chipotle mobile app has helped increased online ordering, as has the company's “digitally enabled second makelines,” or separate prep kitchens specifically for digital orders, which the company plans to roll out to more locations.
This year, Chipotle will celebrate its 25th anniversary, which Ells said would be a “rallying point for our brand.”
But over the past 25 years, the fast-casual segment that Chipotle helped establish has changed dramatically.
“We continue to believe that competitive intrusion remains a major factor in the company's challenged performance given explosive unit growth in the fast-casual space over the last several years,” wrote Lynne Collier, a Canaccord Genuity Group Inc. restaurant analyst, in an email after the call.
Correction: Feb. 8, 2018 This story has been updated with additional information about Chipotle's leadership and operational changes.
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