Chipotle Rallies After Sales Begin to Recover From E. Coli Scare

Updated on
  • Burrito chain’s comeback follows five quarters of declines
  • Data breach casts a cloud over company’s recovery celebration

Chipotle Mexican Grill Inc. shares gained the most in more than three months after the burrito chain’s sales finally started to bounce back from a food-safety crisis that began in 2015. 

Same-store sales rose almost 18 percent in the first quarter, beating the 15.5 percent average estimate compiled Consensus Metrix. But there was a cloud hanging over the celebration: Chipotle also warned that its payment system suffered a data breach.

The sales recovery follows the bleakest stretch in the restaurant chain’s history, when an E. coli outbreak and other food-poisoning incidents hurt its reputation and chased away customers. To recapture its allure, the chain has rolled out a new ad campaign and free-food offers, along with revamped tortillas and improved digital services.

“They’re getting through some of the worst media fallout from some of their food-safety issues,” said Simon Negri, a partner at A.T. Kearney’s consumer products and retail practice.

Chipotle’s stock rose as much as 4.3 percent to $491.84, the biggest intraday gain since January. Through Tuesday’s close, the shares have gained 25 percent this year, lifted by optimism that the company was nearing a recovery.

Same-store sales -- a closely watched measure in the restaurant industry -- had previously declined for five straight quarters.

Earnings amounted to $1.60 a share last quarter, topping the $1.29 predicted by analysts. Revenue also was rosier than Wall Street projected. It climbed to $1.07 billion, compared with an average estimate of $1.05 billion.

The company reiterated its forecast for the year, saying same-store sales will gain in the high single digits.

Sole CEO

In December, Chipotle put founder and co-CEO Steve Ells in sole charge of reviving the embattled company. He had previously shared the role with Montgomery Moran, who stepped down and left his board seat.

The Denver-based company also named four new members to the board that month, a shake-up spurred by activist investor Bill Ackman. Chipotle had faced criticism that its board was too insular and didn’t respond quickly enough to the E. coli crisis.

Chipotle is still grappling with higher labor costs and a tight market for restaurant employees. The chain raised menu prices at about 440 of its 2,200 locations earlier this month to cope with escalating expenses.

In reporting a breach of its payment systems, Chipotle joins a long line of restaurants and retailers suffering hacker attacks in recent years. Chipotle said it believes the unauthorized activity has been halted, but a fraud investigation is underway.

“Because the investigation is continuing, complete findings are not available,” Chief Financial Officer Jack Hartung said on a conference call.

In another attempt to boost sales, Chipotle will begin testing two dessert items, Ells said on the call. One of them will feature fried tortilla chips with honey, sugar and cinnamon -- served with an apple-caramel dipping sauce. It will start testing next month.

Chipotle opened 57 new restaurants during the quarter, and it reiterated plans to add as many as 210 this year.

With the crisis finally receding into the rear-view mirror, Chipotle can focus on expanding again, Negri said.

“There’s certainly more headroom for their format,” he said. “It should be a nice driver for them as they go forward.”

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE