Chipotle seeking a new big cheese to spice things up
Founder, CEO Steve Ells to step down, says company needs someone who can revive flagging brand
NEW YORK— Chipotle Mexican Grill Inc. founder Steve Ells agreed to step down as chief executive officer after struggling to pull out of a two-year slump, a shakeup that sent shares of the burrito chain surging.
Ells, who started the company in 1993, will hand over the reins once a new CEO is found, the Denver-based company said on Wednesday. He will continue as head of the board, taking the title of executive chairperson.
Chipotle has struggled to bounce back from an E. coli crisis in 2015 that sickened customers around the U.S. The company had begun to restore its reputation in the past year, but a norovirus incident in Virginia and a viral video of mice at a Dallas location sparked a fresh round of negative headlines.
“It is clear that we need to move faster to make improvements,” Ells said in a statement. “Simply put, we need to execute better to ensure our future success.”
Chipotle’s third-quarter earnings, released Oct. 24, disappointed Wall Street. Adjusted earnings per share were $1.33 cents (U.S.) on revenues of $1.13 billion, below the $1.63 on revenue of $1.14 billion, which Thomson Reuters I/B/E/S had forecast.
But investors applauded the move Wednesday, with the stock gaining as much as 7.5 per cent to $307.30 in early trading. It had been down 24 per cent this year through Tuesday’s close.
Chipotle’s board has formed a search committee that includes Robin Hickenlooper and Ali Namvar — two directors who were added in an overhaul last year backed by investor Bill Ackman. Ells, 52, will also serve on the committee, which he said would seek an experienced leader who can improve “customer experience, operations, marketing, technology, food safety and training.”
“Bringing in a new CEO is the right thing to do for all our stakeholders,” he said.
“It will allow me to focus on my strengths, which include bringing innovation to the way we source and prepare our food.”
Ells has been knocked for lacking the operational chops needed to handle a large restaurant chain. Chipotle also suffered a data breach earlier this year, an incident that hurt its earnings and contributed to another stock slump. This year’s hurricanes hammered Chipotle as well; it had 425 restaurants in the direct path of the storms.
Neil Saunders, managing director of Global-Data Retail, called the Ells announcement “the inevitable consequence of Chipotle’s inability to get to grips with its various problems” and pointed out that investors had been concerned about the chain’s lack of momentum.
“Under his leadership, the chain has stumbled from one crisis to the next and has failed to reignite the growth that it once enjoyed,” he said. “While a new CEO is not a silver bullet, the move gives Chipotle a chance to look again at its strategy and its approach.”
Ackman, a billionaire hedge-fund manager, is Chipotle’s biggest investor. His firm, Pershing Square Capital Management, took a 10-per-cent stake in the burrito chain last year. He described the company then as an undervalued business with a “strong brand, differentiated offering, enormous growth opportunity and visionary leadership.”
Chipotle director Neil Flanzraich said on Wednesday that Ells’s vision was key to creating and expanding the chain, which helped pioneer the use of fresher ingredients and more menu transparency. But the company now has more than 2,350 restaurants — and difficult problems.
The executive-recruitment firm Spencer Stuart will assist with the search for a new leader.
“Now is the right time to identify a new CEO who can reinvigorate the brand and help the company achieve its potential,” Flanzraich said.
“We are committed to recruiting a world-class CEO for this incredible opportunity.” With files from USA Today