Planned enhancements to mobile and online ordering are expected to help boost flagging sales at Chipotle Mexican Grill Inc. after a choppy third quarter, company officials said Tuesday.
The Denver-based chain’s stock price dipped nearly 8 percent, to $651.19, in Wednesday morning trading following the third-quarter report, which fell slightly short of Wall Street expectations.
In reports Wednesday, however, Wall Street analysts expressed optimism that Chipotle’s results would improve in the months ahead.
“We believe the structural elements of CMG’s long-term growth model are intact (with unit openings ramping, returns improving), and we still see potential for comps to accelerate in upcoming periods,” wrote David Tarantino of Baird Equity Research.
In a call with analysts Tuesday, Jack Hartung, Chipotle chief financial officer, said the chain was “holding its own,” neither decelerating nor accelerating, after reporting a 2.6-percent increase in same-store sales that included a 1.9-percent increase in traffic. The remaining 0.7 percent was attributed to price increases on the chain’s beef products earlier this year.
Same-store sales for the quarter lapped a 19.8-percent increase a year ago, which was Chipotle’s highest quarterly comp as a public company.
Fourth-quarter trends so far have mimicked the third quarter, Hartung said, and the chain is expected to finish the year with comps in the low- to mid-single-digit range.
For fiscal 2016, Chipotle is projecting same-store sales increases in the low single digits.
Chipotle took a 2-percent hit to same-store sales in the second quarter this year after pulling pork carnitas from the menu at some restaurants when a supplier was suspended for not meeting animal welfare standards. A new supplier was found in the United Kingdom earlier this year.
With pork back at 90 percent of restaurants — and expected to be in all restaurants again by the end of November — Hartung said a sales bump is expected, but it’s difficult to say whether the full 2-percent bite will be restored.
“We’re hoping we’ll see that return, but it’ll take a little bit more time for us to fully see that happen,” Hartung said.
During the quarter, the chain saw a boost after a successful, six-week online game promotion called “Friend or Faux,” a buy-one-get-one offer designed to spotlight the brand’s use of simple ingredients. About 2 million BOGOs were redeemed, with 750,000 users playing the game within the first 24 hours. Overall, the program earned 7.5 million views over the duration.
During the quarter, however, Chipotle’s peak lunch hour throughput dropped slightly by one transaction, indicating that the chain had “taken its eye off the ball” in efforts to move more people through the line, said Monty Moran, Chipotle co-CEO.
Efforts to refocus on throughput will include enhancements to the chain’s mobile and online ordering platforms, which now account for about 5 percent of sales, a 40-percent increase over the prior year, Moran said.
Chipotle has long offered mobile and online ordering, but the convenience and quality of the guest experience can be improved, said Steve Ells, Chipotle founder, chairman and co-CEO.
“We’ve deliberately under-marketed our mobile ordering, and the reason is fairly simple,” Ells said. “We just have not quite optimized the experience in the restaurants to the point where we feel comfortable driving a large number of people in there.”
The chain hired its first chief information officer earlier this month, Curt Garner, formerly of Starbucks Corp.’s information technology team. Garner is expected to help build on the company’s strategic use of technology.
About two-thirds of Chipotle meals are eaten outside the restaurants, but only about 7 percent of orders come from outside, so there’s a lot of room for growth, Hartung said.
To help accommodate growth in out-of-unit orders, Chipotle is retooling its second make line in the kitchen, which responds to online, mobile, fax and catering orders.
Currently, the second make line averages about $500 per day in sales, Moran said, but capacity can be increased.
“It’s virtually a second restaurant within a restaurant, which is a phenomenal way for us to leverage our existing kitchens,” he said.
The company is also working on an online program for catering that will allow customers to order, pay and have their order delivered, Moran said. He added this could potentially include another third-party delivery partner.
Chipotle is already working with Postmates for delivery, as well as Tapingo on about 40 college campuses.
Wall Street analyst Stephen Anderson of Maxim Group wrote in a report Wednesday that the third quarter was likely a low point in Chipotle’s same-store-sales trends. He estimated that the chain will see same-store sales increase closer to 5 percent next year, not the low-single-digit increases the company expects, although Chipotle officials are known for being particularly cautious in projections.
Anderson predicted incremental gains from catering and off-premise sales will add 1 percent to 1.5 percent in comp gains next year, in addition to 0.5 percent to 1 percent from increased mobile sales.
Contact Lisa Jennings at [email protected].
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