Will Shrinkage Translate to Growth for Chipotle?
Chipotle Mexican Grill shares sank on Thursday after the burrito chain announced that it would be instigating a few changes to drive the brand forward.
Chipotle Mexican Grill Inc. (NYSE: CMG) shares sank on Thursday after the burrito chain announced that it would be instigating a few changes to drive the brand forward. Apart from a marketing blitz and loyalty program, Chipotle will be closing some underperforming stores as well.
As part of its restructuring, Chipotle is shuttering 65 restaurants. The chain also will be adding “in-app” delivery of its products to about 2,000 restaurants by the end of the year.
The burrito chain said it would launch a customer loyalty program in 2019 and is exploring offering $2 tacos with a drink as part of a proposed “happy hour.”
The restructuring to execute on the strategy will require changes to the organization and to the culture, which will result in non-recurring charges during the second quarter and over the next several quarters. These non-recurring costs primarily relate to the moving of offices, the restructuring of the organization and closing underperforming restaurants. In aggregate, Chipotle expects these costs, together with a small amount of other unusual items, to be in the range of $115 million to $135 million.
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Looking ahead, the company expects to report its quarterly results on July 26. Consensus estimates are $2.77 in earnings per share (EPS) and $1.26 billion in revenue.
Brian Niccol, CEO of Chipotle, commented:
All our efforts will focus on making the brand more engaging, visible, and culturally relevant while our restaurant teams are dedicated to providing an excellent guest experience with great hospitality and real food cooked to perfection. Specifically, this will include three big initiatives – revamping our marketing communications and plans, leveraging our second make line to grow digital sales and expand access, and engaging with our customers by launching a new loyalty program in 2019.
So far in 2018, Chipotle has outperformed the broad markets, with its stock up about 58%. Over the past 52 weeks, the stock is only up about 10%.
Shares of Chipotle were last seen down about 8% at $420.64, with a consensus analyst price target of $400.25 and a 52-week trading range of $247.52 to $474.46.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
