Sometimes nerves can be a good thing.
Chipotle Mexican Grill Inc.'s shares dropped as much as 8 percent Tuesday after the company said it was "nervous" about reaching upcoming sales targets. Investors are no doubt disappointed by how long it's taking Chipotle to recover from last year's crippling food-safety crisis, but maybe some uneasiness is just what the company needs to shift its turnaround plans into high gear.
The company's guidance for next year -- given in October -- called for a year-over-year percentage increase in comparable restaurant sales in the high single digits. In the third quarter of 2016, though, comparable sales were down 19 percent from the year before. Over the past 10 months, sales have recovered somewhat, but progress is still slow and uneven, CEO Steve Ells suggested at an investor conference hosted by Barclays on Tuesday.
In other words, that sales rebound the company keeps promising hasn't happened yet. Don't expect it to show up in the current quarter, either.
I can't say I'm surprised: Chipotle was too slow to apologize to customers after dozens of food-borne illnesses were linked to it. It took too long to assure customers it was safe to eat at its restaurants, doggedly sticking to its old playbook of touting fresh ingredients and responsibly raised meat. And it's been dragging its feet on governance changes and technology improvements long promised to investors.
But here's the good news: Management's jitters seem to have accelerated at least three much-needed fixes:
- Technology: It's begun accepting online catering orders (as opposed to by phone or fax). It's using credit-card data to target customers with better marketing. It launched a new online ordering platform, reducing average wait time to 16 minutes from 45 minutes. In-store kiosks and a mobile rewards program could be next. Yes, Chipotle is just catching up to stuff already underway at competitors such as Panera Bread and Domino's. But it's encouraging to see Chipotle finally jumping back on the tech bandwagon.
- Board Shakeup/Activist Cooperation: After many months of investor grumbling, the company said Tuesday it would soon announce changes to its board of directors. It also said it planned to work with activist investor Bill Ackman, who has a 9.9 percent stake in the company, and could potentially give him a board seat. While Ackman's case for remaking Chipotle remains weak, the company probably doesn't need a public proxy fight with Ackman right now.
- Customer Service: Finally! Chipotle said Tuesday it would refocus on improving customer service. Executives saw an inflection point in July, when Chipotle gained more customers than it lost. But new and lapsed customers found poor customer service at half its stores, according to Chipotle's internal assessment. High employee turnover hasn't helped. It's not clear what took Chipotle so long to realize this. But it's important it did, because while Chipotle has been able to win back many customers, it hasn't been able to keep them coming back frequently.
Missing sales guidance is obviously bad for the stock in the short run, but maybe the anxiety will push Chipotle to accelerate much-needed business improvements.
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