Chipotle Mexican Grill Inc. likely generated stronger traffic in the first week after its Feb. 8 “relaunch,” according to a report today from ITG investment research analyst Joe Fersedi.
But that higher traffic might have come at the expense of average check.
“So what did the first week-plus post the February 8 relaunch look like?” Fersedi wrote. “The short answer is: Similar to or a few percentage points better than the -36 percent SSS rate reported for January — driven by improving traffic but weakening check.”
Chipotle finds itself in the unenviable position of working to regain the trust of its customers after an unprecedented series of six foodborne illness outbreaks in the second half of 2015, including an E. coli outbreak that hit several states.
Same-store sales plunged and the company’s stock, which in October was trading at over $700 per share, fell to below $400 per share for the first time in three years.
Chipotle’s stock has recovered some this year. It is up by about 25 percent since falling below $400 in early January as investors bet on the chain’s comeback.
But it’s also down 5 percent since Tuesday, as some analysts begin to question whether the chain’s stock surge is too premature. Deutsche Bank analyst Karen Short downgraded Chipotle to a "Sell" rating earlier this week.
It could take some time for Chipotle’s sales to return, at least based on Fersedi’s analysis. He did note that Chipotle’s traffic started to come back even before the Feb. 8 relaunch.
In his note, Fersedi wrote that some free food promotions “may be crowding out paying customers.” Chipotle has offered customers a free burrito as a “rain check” promotion for its decision to close restaurants for a time on Feb. 8. In addition, some managers might be giving food away to surprise customers.
Still, that might not be a bad thing, given that Chipotle has to get back into diners’ good graces.
“So while Chipotle stores may look busier, we think that is partially due to the company paying for traffic — an understandable tactic at this early stage in its recovery plan,” he wrote. “Chipotle needs to get people to dip their toes back in the water.”
But, Fersedi wrote, some traffic improvement is coming from people who are paying for their food. “We think that traffic from paying customers has improved by several points versus January … while check has weakened again,” he wrote.