Chipotle Mexican Grill Inc. (ticker: CMG) investors just received yet another sign that the company is back on track after a devastating string of E. coli outbreaks starting in mid-2015. Chipotle has reportedly raised prices by an average of 5 percent at about 440 of its locations. The 440 restaurants represent about a fifth of Chipotle’s total restaurants.
“The increase is our first in about three years and was implemented to help offset labor and food inflation,” Chipotle spokesperson Chris Arnold says.
For investors, the price hike is a positive sign that management is gaining confidence in the company’s business after a series of E. coli outbreaks in multiple states in 2015 sent the company’s profits plummeting 82 percent in a year. The company even reported its first-ever quarterly loss in the first quarter of 2016 in the wake of the outbreaks.
Chipotle’s share price dropped from an all-time high of $758.61 just prior to the outbreaks to as low as $352.96 by late 2016. However, the stock has bounced back strong so far in 2017 on hopes customers’ memories of the outbreaks are fading.
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Jim Cramer, CNBC analyst and host of “Mad Money,” says investors can expect those memories to disappear in the near future. “It’s 18 months before you get the American consciousness to forget about something that happened. If you remember, December 7, 2015, is when the last outbreak of an illness occurred at a Chipotle,” Cramer said back in March.
Piper Jaffray recently found that younger Americans seem to have an even shorter memory when it comes to Chipotle. Chipotle ranked third behind Chick-fil-A and Starbucks Corp. ( SBUX) as the top restaurant picks among U.S. teens in Piper Jaffray’s biannual survey.
Chipotle stock could also get a boost from the recent flurry of consolidation in the restaurant business. Earlier this month, JAB Holdings acquired Panera Bread Co. ( PNRA) for $7.5 billion. Now that Panera is off the market, other potential buyers could see Chipotle a top target. In March, UBS analyst Dennis Geiger said Chipotle and Panera have significant overlap in the fast casual dining market.
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Chipotle shares rose 1.35 percent on Monday following news of the price hike and are now up 24.6 percent for the year.
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Chipotle Mexican Grill, Inc. (CMG) Price Hike Hints At Stabilizing Business originally appeared on usnews.com
