Chipotle Mexican Grill to add board members soon

Chipotle Mexican Grill to add board members soon

Recovery from foodborne illness outbreak remains slower than expected

Changes to the make up of Chipotle Mexican Grill’s board are coming shortly, company officials said Tuesday after indicating that sales may once again fall short of expectations in 2017.

At a Barclays investment conference in New York, Chipotle chair and co-CEO Steve Ells reportedly said he was “nervous” about meeting guidance for fiscal 2017 as the Denver-based chain continues to struggle to bring guests back after a series of foodborne illness outbreaks last year.

Rumors also swirled Tuesday that Chipotle co-CEO and board member Monty Moran is on his way out, according to a Tweet by Howard Penney, consumer analyst at Hedgeye Risk Management.

Moran has been in the position since 2009 after serving as president and chief operating officer since March 2005. He was previously with Denver law firm Messner & Reeves LLC, where he was Chipotle’s general counsel. He did not attend the Barclay presentation.

According to unnamed sources for Reuters, activist investor William Ackman of Pershing Square Capital Management LP wants multiple board seats. Ackman took a nearly 10 percent stake in Chipotle earlier this year.

Investor groups Amalgamated Bank and CtW Investment Group have also urged shareholders to diversify Chipotle’s board and name an independent chair, a move that would push Chipotle founder Ells from board leadership.

Ells on Tuesday reiterated that the company is taking a look at its existing directors to strengthen the board, but he did not give specifics or say whether Ackman would take a seat.

Meanwhile, long lines are back at restaurants across the country, but Ells said that may be more the result of slower throughput than higher traffic.

Ells said more than 1,000 restaurants, or about half of the roughly 2,000-unit chain, were performing poorly and would be graded “C, D or F,” with untidy dining rooms and slow lines. Ells said new food-safety-related operating procedures have made working at Chipotle tougher, causing employees to quit, according to The Street.

In guidance earlier this year, Chipotle said it expects same-store sales in the fourth quarter to be down in low single digits, but to turn positive in 2017, with high-single-digit increases.

That’s mostly because the chain will lap the 14.6-percent dive in same-store sales for the fourth quarter a year ago, after reports of E. coli out of the Pacific Northwest in the fall of 2015 made headlines, the first in a series of reports of foodborne illness that ultimately included 60 restaurants in 14 states and wasn’t declared officially over until February.

Double-digit same-store sales declines were reported through fiscal 2016 with a drop of 21.9 percent during the Sept. 30-ended third quarter, an improvement over the low decline of 33.7 percent in January, but indicating a slower-than-hoped-for recovery.

Wall Street analysts, meanwhile, in reports Tuesday said they were pleased to see Chipotle executives acknowledge the need for stronger unit-level execution.

“We believe getting back to running great restaurants, i.e. focusing on what has worked historically, is the key to driving a sales recovery,” wrote David Tarantino of Baird Equity Research in a report Tuesday.

“That said, we suspect that efforts to improve operations, …[including] new management in the Northeast region, proper employee training [and] implementing four pillars of throughput could take times to gain meaningful traction.”

Contact Lisa Jennings at [email protected]
Follow her on Twitter: @livetodineout

TAGS: Fast Casual
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