Chipotle Earnings Report Shows Turnaround May Take Time

Quick-service restaurant (QSR) Chipotle Mexican Grill slightly beat fourth-quarter earnings estimates, helped by higher menu prices and despite declining foot traffic. The restaurant reported earnings of $1.34 per share, excluding its $0.21 tax benefit, just above estimates of $1.33, Bloomberg reported.

Still, the stock fell by almost 10 percent in early morning trading on Wednesday (Feb. 7) after the earnings results were released. Even with its earnings, the results suggest the company’s turnaround might not be all that fast. Chipotle has been through the wringer over the past couple of years, from an E. coli outbreak to its employees accusing it of wage theft and hackers stealing customer payment data from 2,250 locations.

Despite these challenges, digital sales are fueling growth at the restaurant chain, Chipotle founder Steve Ells said in the company’s fourth-quarter earnings call, per a Seeking Alpha transcript.

“Our digital sales continue to be the fastest growing part of our business,” he noted.

Those numbers represented 8.6 percent of sales, while two of Chipotle’s regions saw digital sales at greater than 10 percent of their overall mix. Growth of the company’s digital sales has been led by mobile ordering, which was up 50 percent from last year.

Sales were also driven by a new version of the Chipotle mobile app for Apple and Android. It allows customers to quickly reorder past purchases, new mobile pay options and several features. The restaurant announced in 2017 that its app would come equipped with Apple Pay or Android Pay, an easier-to-use store locator and an improved design for easier navigation. Chipotle also expects to launch a loyalty program — part of a larger customer relationship management (CRM) push — in the second half of 2018.

As the QSR expands its digital efforts, it also expects to open 130 to 150 new brick-and-mortar locations.

“The majority of new restaurants will continue to be built in our proven markets where we’ve had a loyal and growing customer base,” Chipotle’s chief financial officer, John R. Hartung, said on the call. It also plans to roll out more second-make lines in its restaurants to serve digital customers in 2018.

As for the search for a new CEO, the process is “well under way,” according to Ells. Chipotle announced in 2017 it was searching for a new chief executive to replace Ells, whose own efforts would be tied to innovation once a new chief executive is found. Ells said the company is looking to bring in an executive with “demonstrated expertise to improve execution, build guest trust and drive sales.”

He did not offer a timeline for when that hire would happen.

“We do not have an update on timing today, but we’ll share news of our decision as soon as the process is complete,” Ells said on the call.