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The Chipotle turnaround may officially be over

Patrick T. Fallon | Bloomberg | Getty Images.

Andy Swan is the co-founder of LikeFolio, a company that provides social data for investors.

Social media data on consumer behavior suggests the Chipotle (CMG) turnaround may be over.

At LikeFolio, we use data gathered from social media to measure trends and shifts in consumer behavior. Our most powerful metric, “Purchase Intent Mentions,” looks at the number of people tweeting they’re spending money with a company at that moment.  

In Chipotle’s case, this could be “Headed to Chipotle for some grub” or “This Chipotle line is so slow.”  This approach gives us a real-time view into consumer spending patterns without having to run clunky surveys or wait for company-issued reports.

At the turn of the year, things were starting to look promising for Chipotle as it started to recover from the fallout over two E. coli outbreaks. Purchase intent mentions had firmed significantly and looked ready to move higher. Our late 2016 prediction of a Chipotle turnaround was shaping up nicely as store sales came in with positive numbers, analysts began to talk about a “turnaround,” and the stock price started to rise from the $380s to solidly over $400.

In its Q1 earnings report, the burrito chain confirmed what we were seeing in the early 2017 social data — an increase in same-store sales along with revenue and earnings numbers that beat analysts’ expectations. The stock briefly touched $500/share and analyst upgrades began flowing in. Nice, right?

Unfortunately, the same metrics that led us to accurately predict a Chipotle comeback early in the year are now telling us the turnaround party is officially over.   

To get a better view, let’s look directly at the social-data. In the 5-year chart below, you can see that 1) purchase intent mentions (green line) have been very predictive of stock price (gray line) for Chipotle and 2) they’re starting to crumble here in the second quarter of 2017:

What you’re seeing at the far right of the chart above is a complete breakdown in purchase intent mentions in April and May. In fact, we are now seeing Chipotle turn in all-time low readings of purchase intent mentions, our most comprehensive and critical measure of consumer spending.

There are many reasons this decline could be happening. The company is offering fewer giveaways to get people in the door and more and more fast-casual options are springing up in areas Chipotle used to dominate. It’s also raised prices. As an aside, my personal theory for the decline in consumer interest is the fact that Chipotle stubbornly refuses to offer delicious queso.

In any event, LikeFolio data is telling us consumers aren’t buying what Chipotle is selling. This negative shift in consumer behavior is coming at a critical time for the company. The stock is up almost 30% since our original turnaround prediction and expectations for the remainder of the year are as high as they’ve ever been. If Chipotle were really in the midst of a turnaround, the social-data would be ticking up over the last couple of months … not making all-time lows.

This combination of high investor expectations, and social-data indications that consumers have resumed their Chipotle-exodus, is a recipe for some very disappointed shareholders through the rest of 2017.

LikeFolio provides unique social-data insights to individual investors through the free LikeFolio app and to professional firms through its enterprise solutions.

See also:

Chipotle unveils a fried tortilla dessert 

The most bullish indicator for Chipotle ahead of earnings

What a 20% tariff could mean for Chipotle’s menu