For the quarter, comparable store sales were down 29.7%–impacted by declining traffic and coupon-driven check decline–versus expectations for a 28.4% decline. Revenue came in at $834 million, below expectations for $863 million.
Expectations were low going into the quarter, particularly after the company’s March 15 filing calling for downside comparable store sales and earnings guidance.
With the mid-March filing having revealed a large part of first-quarter sales (January comps down 36.4%, February down 26.1%, and the first two weeks in March down 21.5% and 27.3%, respectively), investors reacted exit comp momentum and early April trends on the conference call. April comparable store sales down 22% (or down 26% excluding the Easter benefit) came in below expectations and worse than late-March trends (down low to mid 20s).
Customers redeemed about 6 million free burritos or bowls in February and March, and while couponed purchases have decreased to 5% of transactions in April–half the rate it was in March–comp improvement has also stalled out.
And while the company reiterated that it expects to open 220 to 235 new restaurants during the year, the growth trajectory from the year-end 1,971 U.S-based burrito locations has been called into question by lingering concerns around core business growth, according to analysts.
While Chipotle’s stock saw some support after the U.S. Centers for Disease Control declared the E.coli outbreaks over in February, the stock lost its momentum as analysts began to cite meager store-level data. The company has gotten no less than eight ratings downgrades this year from Wall Street analysts. One downgrade by Wedbush at the end of March cited the company’s original high-profile “Food with Integrity” appeal as a hindrance to a bounce-back in traffic, especially given negative stories spread via millennial-driven social media.
Consensus same-store sales and EPS estimates have fallen with each of the four financial updates provided since the early November E. coli outbreak. Wells Fargo analyst Jeff Farmer says this is “a dubious trend that could continue with 1Q earnings but on a much smaller scale.” And analysts were mixed after the March 30 report by Bloomberg that Chipotle may be exploring a burger chain expansion. Sentiment turned increasingly bearish during the quarter as investors reassessed the rate and cost of the topline recovery. And while traffic improvements came during periods of couponing, it remains yet to be seen if sales can stand on their own without that crutch, with concerns deepening after the quarterly report.
Chipotle reiterated that 2016 will be an “investment year.” The real question for investors is: How long will the recovery take?
“As time passes since the food-related issues of late last year, we think food-safety concerns are less a specific reasons for the comp declines, and we believe sales pressure is now more to do with CMG simply losing its turn in its consumers’ regular rotation,” according to Morgan Stanley analyst John Glass.
While the stock has been dealt blows before, the ability to restore faith in its core health message–and to return to hyper growth status–could be a higher barrier to climb.
Click here for more Yahoo Finance coverage of Chipotle:
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