Chipotle upbeat on earnings despite new health scare
Even as it deals with another health scare, Chipotle Mexican Grill offered an upbeat earnings report Tuesday that beat analysts’ estimates on both earnings and sales.
Chipotle reported earnings of $2.33 per share on close to $1.17 billion in revenue. Thomson Reuters had estimated earnings of $2.18 per share on $1.19 billion in revenue.
The Denver-based chain said the increase in revenue for the quarter was due to opening 50 restaurants and an 8.1% increase in comparable restaurant sales, thanks to more customer visits and larger average checks. The chain also closed two restaurants.
“We saw encouraging signs in our improved financial results during the first half of the year. Recent events, however, have shown that we still have a lot of opportunity to improve our operations and deliver the outstanding experience that our customers expect,” CEO Steve Ells said in a statement. “We will continue to strengthen our teams, enhance our technology, and expand our menu offerings in order to delight every customer who visits us.”
Last week, two people contracted norovirus from eating at the Chipotle in Sterling, Va., 20 miles west of Washington, D.C. The store was closed and completely cleaned before reopening two days later.
Ells said the outbreak was due to a sick employee. The company investigation found that the location didn’t adhere to company protocols.
“We need to ensure that we do much, much better after the events of last week, and we take this very, very seriously,” he said. “We took swift action and made it clear we have a zero-tolerance policy for not following these protocols.”
For many, the incident was a reminder of E. coli outbreaks the chain dealt with in 2015. Chipotle closed several locations after more than 50 people in 11 states got sick in fall 2015. That December, five people in three states got sick from E. coli, and a norovirus outbreak was traced to a Chipotle in Boston.
One way Chipotle said it plans to attract new customers and win back lapsed ones is with queso. The long-awaited addition to the chain’s menu was introduced in the company’s test kitchen in New York and has been so wellreceived that it’ll be expanded to other markets.
“The main reason we rejected queso in the earlier days is we couldn’t come up with a recipe with the kinds of ingredients we want to serve,” said Mark Crumpacker, chief marketing and development officer. “We came up with a recipe we like. It’s a clean recipe, and it’s an (operationally) easy recipe.”
Chipotle also plans to lay the groundwork for a loyalty program.
Wall Street wasn’t fully convinced, though.
“We continue to view Chipotle stock as one of the higher-risk restaurant names we cover, in part due to the difficulty in precisely predicting near-term and longer term sales and earnings, in part due to the health-related challenges that clearly have not fully dissipated, and in part due to the relatively high valuation still accorded to the stock,” Instinet analyst Mark Kalinowski wrote in his research note.