Chipotle Climbs After Telling Analysts It Can Regain Luster

Chipotle Mexican Grill Inc. finally had a good day.

The shares climbed the most in more than five months after the beleaguered company assured investors it can rebound from its food-safety crisis. Chipotle told analysts at an ICR conference in Orlando, Florida, that it can win back the trust of customers and restore its industry-leading restaurant margins by 2017, when the chain expects sales to have recovered. Chipotle also reiterated that it has no plans to slow the pace of new restaurant openings, with as many as 235 slated for 2016.

“The thing that matters most for the stock is that they believe they’re going to get back to where they were,” said Howard Penney, a managing director at Hedgeye Risk Management, who attended the conference. Penney, who laid out a case to bet against Chipotle shares in November, said the company contends the food-safety crisis was “a blip on the road to creating a big change in the way people eat.”

Chipotle’s remarks brought a ray of hope to investors after months of seeing the stock slide. More than $10 billion in market value has been wiped out since August, when shares of the Denver-based company closed at an all-time high of $757.77. The company’s reputation, built on the promise of fast food made with locally sourced, fresh ingredients, has been damaged since it was linked a multistate E. coli outbreak.

The shares gained 5.9 percent to close at $428.28 on Wednesday, the biggest one-day jump since July 22. The rebound follows a 30 percent decline in 2015.

‘Messy’ Margins

Chipotle, which has apologized for making customers sick, announced new protocols that it says will make it an industry leader in food safety. The chain’s sales slumped about 15 percent in the fourth quarter following the E. coli outbreak and a separate norovirus incident in Boston. Sales are expected to be negative at least until 2017, and analysts have argued that increased spending related to the crisis will weigh on margins.

Jack Hartung, the company’s chief financial officer, acknowledged that earnings and margins would be “messy” this year, but he said that Chipotle can restore its sales and profitability in 2017.

Steve Ells, Chipotle’s founder and co-chief executive officer, said he was hopeful that the Centers for Disease Control and Prevention, which is investigating the E. coli illnesses, will soon declare that the outbreak is over. That step should reassure customers, Ells said.

Chipotle said it plans a marketing push next month to explain what happened and “invite customers back.”

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