Investors are getting heartburn over the latest financial report from Chipotle Mexican Grill (CMG).
The reason? Slowing sales.
The popular Mexican restaurant chain reporting sales at stores open at least at least a year rose 16.1% in the fourth quarter, less than analysts had forecast. And the company is reiterating an earlier warning that sales growth this year won’t keep up with the breakneck pace of earlier quarters. The report led to an immediate selloff of the stock.
Yahoo Finance Editor in Chief Aaron Task says the news is a bit surprising considering the boost American consumers have gotten recently from savings at the gas pump.
“Gas prices have come down so far and that puts money in people’s pockets and you would think that Chipotle would be in a good position capitalize on that,” he notes. “They may yet do that, but the ‘body language’ as the analysts like to say and the actual guidance from the company is that they’re still expecting a slowdown this year.”
Task adds there’s another concern-- rising food prices.
“They’re having to absorb higher costs for beef and avocado, most notably,” he points out. “They’re juggling that question of can we pass that along to our consumers or do we eat those costs-- no pun intended.”
Task points out that Chipotle has been a darling on Wall Street. Shares have soared some 1600% since it began trading in 2006, and he thinks the chain has become a victim of its own success.
“The stock has had an unbelievable performance since it became a public company, so any hiccup is going to have an impact on a stock when you have a chart like that,” he says. “There’s no room for error.”
Despite the disappointing headlines, Task doesn’t believe Chipotle needs to make any major changes in what it does.
“They still have room to grow with their current strategy,” he says. “They have about 1800 stores right now and most of them are concentrated in urban areas and college towns. They haven’t made any big inroads into the suburbs. So they still have room to expand their core business, and that’s what I think the Street is looking for the next phase of growth-- if there is going to be growth-- for Chipotle.”
Task adds that Chipotle has been a trailblazer for the industry.
“In some ways you can give Chipotle credit for the whole boom in restaurant IPO’s we’ve seen over the past few years: Potbelly (PBPB), Zoe’s (ZOES), The Habit (HABT) and Shake Shack (SHAK),” he argues. “Everybody is looking for the next Chipotle because the stock chart of Chipotle, those kinds of grand slams, they don’t come around that often.”
And Task says that instead of chasing the next big thing, it might be smart to put your money in the tried and true.
“That’s what investors are looking for-- who could be the next Chipotle,” he notes. “And then you might say maybe I should stick with Chipotle because it's done incredibly well."