THIRD-QUARTER EARNINGS FALL OFF FOR CHIPOTLE
The queso rollout didn’t buoy results for the restaurant chain, but new products, including margaritas, may soon help.
Liquid cheese wasn’t enough to save Chipotle Mexican Grill from the weather and $30 million data-breach liability, but perhaps a margarita will help.
Third-quarter earnings for the Denverbased restaurant chain fell short of analyst projections, causing the company’s stock to tumble after hours Tuesday afternoon. After ending the business day up a few points at $324.30 per share, the price slid (as if lubricated by a creamy cheese-and-milk combo) as low as $290.76 per share after the company released its third-quarter financial report.
The quarter included Chipotle’s initial pilot and then chainwide rollout of a new menu item for the company: Genuine Queso. Despite what critics said on social media, company officials found the chain’s allnatural approach to gooey liquid cheese did well with customers after being introduced to all stores Sept. 12.
The cheese was accompanied by the company’s largest-ever TV ad campaign, which will continue through next month.
“Not only did this campaign successfully change the narrative about Chipotle, early indications are that it is driving sales in the early fourth quarter,” company founder and CEO Steve Ells said in an earnings conference call.
Sales numbers at stores jumped by high single digits when queso was introduced be-
fore leveling off, then spiked again when TV adds debuted, company officials said.
“Currently about 15 percent of our customers continue to order queso,” chief marketing and development officer Mark Crumpacker said in Tuesday’s call. “This new menu item not only increased sales with existing customers, it’s also attracted new and lapsed customers into our restaurants.”
Perhaps emboldened by the results, company officials said they’re looking at other new products.
“Our teams are working on a variety of initiatives, including several new menu items, which include frozen margaritas, desserts, new salad greens and dressings, and a range of other menu items that are currently in the (research and development) process,” Crumpacker said.
The company will try out more diverse catering options later this year. That includes debuting orders for groups as small as 10 people, instead of the current baseline of 20, and setting a new entry-level price of $9 per person instead of the standard of $13.
But the company announced a plan to slow its growth rate for new restaurants in order to focus on the customer experience over the next year to 18 months. After setting a goal of opening up to 210 new stores in 2017, officials Tuesday indicated the target for next year would be in the 130-150 range. In the third quarter, 38 Chipotles opened and two closed, bringing the global total to 2,374.
Net income in the quarter was $19.6 million, according to the company’s report, compared with $7.8 million in the third quarter last year.
That gave owners diluted earnings of 69 cents per share. That figure was hindered by a 64-cent-pershare impact of an estimated $30 million liability assessed in the quarter for a payment data breach uncovered in the spring, company officials said.
Revenue for the quarter hit $1.13 billion, up 8.8 percent over the third quarter of 2016, according to the report. Same-store sales rose 1 percent over last year. Analysts, acknowledging circumstances such an impacts from Hurricanes Harvey and Irma and other weather events that sent the cost of avocados up, had projected revenues of $1.14 billion for the quarter and same-store sales growth of 1.2 percent, according to Bloomberg News.
Chipotle has been struggling to re-establish its footing since some of its stores were linked to an outbreak of foodborne illness in 2015. The company stock was selling for up to $700 per share that year, before sinking dramatically since.The issue reared its head again this year when a norovirus outbreak in Virginia was linked to Chipotle.