After more than a year of slumping sales and a falling share price, Chipotle Mexican Grill, Inc. (ticker: CMG) seemed to finally be back on track. However, a new U.S. Securities and Exchange Commission filing reveals the company’s turnaround efforts aren’t working as well as investors had hoped.
An outbreak of E. coli in Chipotle restaurants that began in mid-2015 sent the stock plummeting from its all-time high of $758.61 just prior to the outbreaks to as low as $352.96 by late 2016. But things have been looking up for Chipotle investors so far in 2017. Shares climbed 27.4 percent through the first four months of the year, and Chipotle reported a huge first-quarter earnings and revenue beat.
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Chipotle management even raised food prices by an average of 5 percent at 440 restaurants earlier this year, suggesting business at the popular burrito chain may finally be back on the right track.
Unfortunately for Chipotle investors, the new SEC filing sent a bit of a mixed message regarding the ongoing recovery. Chipotle reiterated its previous full-year 2017 guidance from April, which includes comparable-restaurant sales growth in the high single digits. Wall Street analysts had been expecting comparable-restaurant sales growth of 10.3 percent, according to Factset.
In addition, Chipotle said food costs will represent 34.2 percent of total revenue in the second quarter, while marketing and promotional costs will rise 20 to 30 basis points. Chipotle also said it expects “other operating costs as a percentage of sales for Q2 to be at or slightly higher than reported for Q1.”
The market certainly wasn’t impressed by the updated guidance, as Chipotle shares opened Tuesday’s session down more than 5 percent.
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“We remain ‘underweight’ and would continue to highlight our concerns on the pace of [average unit volume] recovery, margin progression versus expectations and valuation,” Stephens analyst Will Slabaugh wrote on Monday. “Further, given company- and industry-specific trends, we believe that positive SSS and EPS revisions are unlikely in the near term.”
Other analysts, such as PiperJaffray’s Nicole Regan, see Chipotle’s glass as half full. “Our latest checks largely reflect the consensus view that Chipotle trends have largely turned the corner and are now on the mend,” Regan wrote on Monday.
Investors may be disappointed with the pace of Chipotle’s recovery, but positive same-restaurant sales growth suggests Chipotle is at least headed in the right direction. PiperJaffray maintains an “overweight” rating for Chipotle stock.
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Chipotle Mexican Grill, Inc. (CMG) Suffers Another Setback originally appeared on usnews.com
