U.S. Markets closed

Why we predicted the Chipotle turnaround

Andy Swan
Andy Swan
Chipotle could see a rosier 2017. Patrick T. Fallon/Bloomberg/Getty Images

Last month, we made the case that Chipotle (CMG) may be in the midst of a major turnaround.

Yesterday, the company announced that sales at Chipotle stores jumped by over 14% in December, a sharp turnaround after devastating losses throughout 2016.

The stock exploded higher by over $21/share.  

This came after a rough year for Chipotle as it weathered a torrent of negative press from two E. Coli outbreaks. The outlook for the fast-casual chain got even worse after a Norovirus at one of its Boston restaurants sickened 80 college students.

The company’s same-store sales sank nearly 22% in the third quarter of 2016. As of last month, its stock had declined 25% in a 12-month period. While Chipotle tried to get customers back with free burritos, its efforts didn’t seem to be making a huge difference — until now.

So how did we call this?

Our company, LikeFolio, uses Twitter (TWTR) data to discover insights into consumer behaviors. For Chipotle, all of those insights lined up into a really great turnaround story:

1.  Consumer Happiness has recovered and is moving higher.  This is extremely important for Chipotle, because it meant consumers were starting to trust that the company’s burritos weren’t going to make them sick.

 

As you can see, consumer happiness for Chipotle has finally fully recovered from the health scare a year ago.

2.  Purchase intent at Chipotle firming up.  We can also use social data to determine shifts or trends in the number of people who are actually talking about eating at Chipotle stores.  We saw this in a free fall through most of 2016, until right near the end of the year, when it finally started to reverse.

Through social data, we are actually able to see that Chipotle customers were finally happy, and starting to come back to eat in the stores … in real time.

That kind of insight — before the news hits Wall Street — is an extremely powerful tool for investors. After all, it is consumers…not Wall Street analysts … who ultimately determine a company’s fate.

Andy Swan is the co-founder of LikeFolio, which analyzes social data for investors.