Chipotle's sales are showing signs of life

Guacamole sits on a dish at a Chipotle restaurant in Miami, Florida. (Photo by Joe Raedle/Getty Images)
Guacamole sits on a dish at a Chipotle restaurant in Miami, Florida. (Photo by Joe Raedle/Getty Images)

Chipotle (CMG) confirmed what was another quarter of declining sales at its restaurants.

During the three months ending in December, comparable store sales were down 4.8%, which is what management had pre-announced in January. The company earned $0.55 per share during the period, which was just shy of the $0.56 expected by analysts.

Shares were down less than 1% in after-hours trading.

Management is optimistic things are turning around. For 2017, they have the goal of increasing comparable store sales at a high-single digit rate, while also opening 195 to 210 new restaurants.

On a conference call with analysts, management noted that comparable store sales in January were up 24.6%.

This announcement comes amidst a tumultuous time for the Mexican fast food chain that’s been plagued with two different strains of E. Coli infecting 60 people across 14 states, despite the CDC declaring that the outbreaks were over a year ago.

Are Chipotle’s worst days in the past?

Most analysts have been cautious about Chipotle’s ability to recover its tainted brand identity, with Telsey Advisory noting that management has set a “hopeful tone” for 2017 trends but are still “heavily influenced” by factors outside its control.

In a research note on Wednesday, Guggenheim analyst Matthew DiFrisco wrote, “Chipotle is fighting to restore historical sales volumes and operational highs while maintaining 8 percent unit growth and introducing digital catalysts,” Matthew DiFrisco, an analyst with Guggenheim. We learned just last week the strain digital integration can put on a system. We expect Chipotle’s struggles to continue while facing increased fast, healthy format concepts.”

But Andy Swan, co-founder of LikeFolio, a company that analyzes social data for investors, says consumers have a renewed appetite for Chipotle. Swan told Yahoo Finance that he’s seen a major lift in consumer sentiment surrounding the brand.

“The most bullish indicator is the way people are talking about Chipotle as positive as it’s been since 2014. Chipotle can fully recover this year because their health scare is behind us. The American consumer is pretty forgiving once mistakes have been remedied,” he said.

Renewed food cost risks

Beyond recovering from the food-safety scandal, Chipotle faces other possible headwinds. Last week, President Trump’s press secretary Sean Spicer told reporters that the administration may consider a 20% tax on all Mexican imports as a way to pay for the construction of a wall along the US-Mexico border.

This would significantly impact Chipotle’s guidance going forward, according to Nomura-Instinet analyst Mark Kalinowski.

“Our belief is that the company generally obtains about 70 to 90 percent of its avocados from Mexico, all of its limes, the majority of its jalapenos, less than half of its tomatoes, and small amounts of other items (e.g., cilantro). In other words, should a 20 percent tariff be enacted for goods imported from Mexico, Chipotle likely would bear the biggest brunt of this potential impact on food costs compared to the other companies we cover,” he wrote in a research note on Tuesday.

Chipotle did not end up commenting on the tariff during its earnings call.

When Yahoo Finance reached out to Chipotle last week, spokesperson Chris Arnold made clear that he would not speculate based on the hypothetical situation. Arnold pointed out that a variety of factors can impact food costs, listing weather, supply and demand, and public policy decisions, specifically.

“If any events impact our food costs in material ways, we’ll make that information available in a timely fashion, but we’re not going to speculate about what any of these events might mean,” he said.

Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Read more from Melody here & follow her on Twitter @melodyhahm.

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