CHIPOTLE STOCKS TICK UP
Confidence grows over the Denver chain’s ability to successfully emerge from food-safety crisis.
Those promises, combined with a marketing plan to regain customers scared off by E. coli and norovirus outbreaks linked to its restaurants, seemed to ease investors’ nerves. The Denverbased company’s shares enjoyed their biggest gains in weeks.
Chipotle Mexican Grill’s stock closed at $428.28 Wednesday, up $24.02, or 5.94 percent, on a day that the Dow Jones industrial average sank 2.21 percent.
“I have confidence that we’re going to recover from this, that we’re going to win our customers back, and we’ll emerge a much stronger company,” Chipotle co-CEO Steve Ells said in a presentation Wednesday at the ICR Conference in Orlando, Fla.
Ells said that confidence is anchored in a food-safety approach that includes testing initiatives at the supply level, and in central kitchens and restaurants, to ensure ingredients are free of pathogens.
Those measures are critical to the company’s future, but they also will be costly in the near-term, according to Ells and fellow Chipotle executives.
Chief financial officer Jack Hartung said profit margins will be less of a focus than safety measures, workforce training and customer retention.
“It’s going to be messy in terms of margins,” Hartung said. “It’s going to be messy in terms of earnings.”
Chipotle’s costs related to food safety could land in the range of 100 to 200 basis points, which amounts to about $50 million to $100 million annually, said Jake Bartlett, an analyst for SunTrust Robinson Humphrey.
Chipotle executives said they expect
Chipotle executives said Wednesday that “extraordinary measures” — including rigorous testing and cooking practices, and a planned all-company meeting next month — are in place to ensure that the risk of future foodborne illnesses remains at “near-zero.”
the Centers for Disease Control and Prevention to wrap up its investigation soon into E. coli linked to the company’s restaurants that sickened 53 people in nine states.
The company also will open up to 235 new restaurants as planned, launch a marketing campaign in February to win back customers, and host an all-company meeting in the coming weeks.
“We’re going to let all of our folks know what we know about how this happened and, in detail, all the steps we’re taking to ensure that it won’t happen again,” Ells said.
The end of the CDC investigation should be a positive catalyst for the stock, Bartlett wrote in a research note released Wednesday after a breakout session with Chipotle executives.
The fast-casual chain’s stock had shed more than 45 percent of its value since August, when the first cases of foodborne illness traced to Chipotle in several states were reported.
The company is facing slumping sales and several lawsuits — including shareholder-led complaints — as well as a federal criminal investigation into a norovirus outbreak at a California location.
Chipotle is likely in a holding pattern until the
I think, ultimately, as investors get more confident that there’s not another shoe to drop. … I think the stock will go up.” Jake Bartlett, an analyst for SunTrust Robinson Humphrey
CDC gives the all-clear, Bartlett said in an interview. For now, it also is unclear as to whether the company is seeing an improvement in sales trends, he said.
“It’s really uncertain as to what the current trajectory is right now,” he said.
Bartlett said he remains bullish on the stock. He rates Chipotle as a “Buy” and has a price target of $500.
“I think, ultimately, as investors get more confident that there’s not another shoe to drop. … I think the stock will go up,” he said.