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Chipotle names Taco Bell chief as CEO, to lead turnaround

By Lisa Baertlein and Vibhuti Sharma
FILE PHOTO: The logo of Chipotle Mexican Grill is seen at a restaurant in Paris, March 7, 2016. REUTERS/Charles Platiau/File Photo

By Lisa Baertlein and Vibhuti Sharma

(Reuters) - Chipotle Mexican Grill Inc on Tuesday said it had hired Brian Niccol from Yum Brands Inc's Taco Bell unit as chief executive officer to turn around the burrito chain that has been hurt by a series of food safety lapses.

Shares of Chipotle were up 11 percent at $279 in extended trading. They had hit a high of $742 in 2015, before sales-crushing E.coli, Salmonella and norovirus outbreaks sickened hundreds of U.S. customers at the company known for burritos made with high quality ingredients such as organic produce and antibiotic-free meat.

Niccol, 43, who has headed Taco Bell since 2015, replaces Chipotle founder Steve Ells. He will bring operational discipline and fresh thinking to Chipotle but faces a mass of problems, said Neil Saunders, managing director of GlobalData Retail.

"Chipotle still hasn’t recovered from its health scares and has a lot of work to do to rebuild confidence. The menu and concept are tired and customers are less enthusiastic about the brand than they once were. On top of all of this, there is a lot more value-focused competition in the market," he said.

Taco Bell, known for less expensive "fast food" compared with Chipotle, got a turnaround fueled by Doritos Locos Tacos, a hit product introduced in 2012, under the leadership of Greg Creed, who is now CEO of the fast-food chain's parent company, Yum Brands.

The run continued under Niccol, who joined the chain in 2011, was president from 2013 to 2014 and became its CEO in 2015 and launched breakfast and mobile ordering at Taco Bell.

In 18 of the past 20 quarters, Taco Bell has reported growing sales at established restaurants - better than many of its rivals, said Maxim Group analyst Stephen Anderson.

Ells said in November he would step aside after failing for two years to rescue the burrito chain's sales and reputation.

Chipotle shares through Tuesday's close had fallen 13 percent in 2018, adding to a 23.4 percent drop last year. That compares with a 22.8 percent gain in the S&P 500 Restaurants sub index <.SPLRCREST > in 2017.

Chipotle shares traded recently at 28.79 times earnings projected over the next 12 months, compared with peers' 21.28, according to Thomson Reuters data.

Ells became sole CEO after co-CEO Monty Moran departed in December 2016, under pressure from hedge fund manager William Ackman, whose Pershing Square Capital Management LP is Chipotle's largest investor with a 10 percent stake.

On Tuesday afternoon, Ackman's team cheered the move.

“He is the right leader to reinvigorate the company and help it achieve its enormous potential,” said Francis McGill, a Pershing Square spokesman.

Ackman has been telling his own investors that Chipotle has enormous potential by innovating its menu and improving customers’ digital experience.

Last year Chipotle ranked among Ackman’s biggest losers and his Pershing Square Holdings fund lost 4 percent, the third straight year of declines.

(Reporting by Lisa Baertlein in Los Angeles and Vibhuti Sharma in Bengaluru; Additional reporting by Svea Herbst Bayliss in Boston, Peter Henderson in San Francisco and Ankit Ajmera in Bengaluru; Editing by Anil D'Silva and Lisa Shumaker)