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Chipotle details strategy for a tough 2009

DENVER After hefty prices increases failed to overcome rising costs and falling traffic in its fourth quarter, Chipotle Mexican Grill Inc. said it would hone its marketing message and look to improve its kitchen operations in order to thrive during the difficult economy.

The company, which operates more than 830 fast-casual restaurants, cited troubling economic conditions as it forecast same-store sales gains in the single digits for 2009.

“If the economy worsens, we may end up in the low end of that range,” said Jack Hartung, Chipotle’s chief financial officer. “The biggest wildcard right now is what happens with the economy and consumer confidence.”

To counter the negative trends, Steve Els, Chipotle’s chairman and co-chief executive, said the company would fine-tune its marketing message to attract new customers. He noted that new menu boards are also in the works to simplify the ordering process for first-time visitors and remind regular customers of the variety Chipotle offers.

In addition, Els, a graduate of the Culinary Arts Institute of America, said he plans to spend more time in the restaurants cooking and refining food preparation and cooking techniques.

He added that the company would remain committed to its Food with Integrity program and continue to increase the amount naturally raised, hormone free meats and dairy products and organic and locally grown produce.

In its fourth quarter ended Dec. 31, Chipotle reported net income of $17 million, or 52 cents per share, down from $17.5 million, or 53 cents per share, during the year-earlier quarter. The results, nonetheless, beat analysts’ expectations of 48 cents per share. Chipotle's stock rose more than 12 percent in trading Thursday to close at $53.25.

Revenues jumped 19.5 percent to $345.3 million for the quarter, driven by a 7-percent increase in menu prices along with new store openings.

Same-store sales for the fourth quarter rose 3.5 percent. CFO Hartung said it was unclear how much the price hikes had assisted with the same-store sales increase. He also questioned whether the increases might have been better if unemployment had not also risen and consumer confidence fallen in the fourth quarter.

The company also said that increased food costs, occupancy and other operating costs decreased restaurant-level operating margins to 21.1 percent in the fourth quarter, down from 22.1 percent in the same year-earlier quarter.

For the full year, Chipotle reported net income of $78.2 million, or $2.36 per share, compared with $70.1 million, or $2.13 per share, in fiscal 2007. Revenues for the year were $1.3 billion, up 22.7 percent from $1.1 billion the year earlier.

Same-store sales for the year were up 5.8 percent, Chipotle reported.


“Given the challenges we faced in 2008, I am extremely proud of the results we were able to deliver,” Els said. “By remaining focused on our vision to change the way the world thinks about and eats fast food, we have been able to continue to develop our Food With Integrity program, foster our people culture and deliver strong financial results.”

Chipotle opened 39 new restaurants during the fourth quarter. It opened 136 new restaurants in 2008 and closed one underperforming store in Indianapolis. Hartung said the chain plans to open another 120 to 130 restaurants in 2009 to bring its total count closer to 950 units.

Contact Dina Berta at [email protected].

TAGS: Finance News
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