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Wall Street sees less negative sales ahead for Chipotle

Wall Street sees less negative sales ahead for Chipotle

This post is part of the Reporter's Notebook blog. 

So how’s Chipotle Mexican Grill Inc. doing?

Wall Street analysts are hoping the Denver-based chain will continue to pre-announce monthly same-store sales, as the company did throughout the first quarter. But Chris Arnold, Chipotle's director of communications, said the company has no plans to do that at this point. The chain will return to its typical reporting practices at the end of the quarter, unless there is some compelling reason or need.

After a horrible second half of 2015 that included a series of foodborne illness outbreaks, Chipotle officials kept investors apprised of the impact, detailing same-store sales declines of 36.4 in January, 26.1 percent in February and 26.4 percent in March for a decline of 29.7 percent for the first quarter overall.

Three weeks into April, Chipotle said same-store sales were down that month 22 percent, showing sequential improvement.

In a report Tuesday, Andrew Charles of Cowen & Company offered his projections ahead of any potential pre-report, saying May would also likely be down 22 percent. In June, he expects same-store sales to improve slightly to a decline of 18 percent.

Coupons are working, especially combined with the passage of time, Charles noted.

A proprietary survey by Cowen & Company of about 1,000 in April indicated that 41 percent of those who received a coupon visited a Chipotle 3.8 times over the prior 30 days, compared with 1.4 times for the 59 percent who didn’t receive a coupon. And brand perceptions were higher for those who received coupons, he noted.

Still, Charles said Chipotle’s coupons for free food mostly went to the upper echelon of loyal customers, who probably would have paid for their food anyway.

Those coupons expired May 15, and promotional activity has since switched to buy-one-get-one offers, like the one targeting nurses on Wednesday.

New drivers are coming this summer, including new short films similar to “Back to the Start” and “The Scarecrow,” as well as another game tied to a BOGO, and a temporary loyalty program for frequent users.

There’s also the possible addition of chorizo to come, which will bring back the loyal fans, the report said.

Still, wrote Charles, “Chipotle remains in a ‘show me’ state, given the slower-than-expected pace of recovery since issues surfaced.”

Charles blames weaker-than-expected sales on Chipotle “not fully communicating to consumers the improved safety of its food.”

There is no in-store signage, for example, to point out food-safety standards put in place. When the Centers for Disease Control and Prevention called the outbreak over in February, the chain quickly switched from defense to offense with an intense wave of marketing and promotions, but not enough to convince consumers Chipotle’s food was safe to eat, he said.

“We understand management’s desire to not want to harp on the issues,” he wrote, “but we believe a reflection and wider communication of the improved safety measures still represents an opportunity to drive traffic.”

And, like some other Wall Street analysts, he doesn’t like that Chipotle is continuing growth when the recovery requires full attention.

After the first-quarter report, Chipotle’s chief financial officer Jack Hartung said the company does not expect to report a loss in the second quarter, in part because there will be fewer one-time costs and the second quarter is typically stronger for the chain, but also because the recovery is happening.

How long it will take and whether the trajectory will climb steadily upward or hit choppy air ahead remains to be seen.

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

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