Chipotle Plummets After Storms, Hacker Attack Ravage Profit

Chipotle Mexican Grill Inc. fell as much as 11 percent in late trading after recent hurricanes and a hacker attack hammered earnings last quarter, adding obstacles to the burrito chain’s elusive comeback.

Profit amounted to 69 cents a share last quarter, net of expenses tied to the data-security breach earlier this year and hurricanes Harvey and Irma. Analysts had estimated about $1.63 a share, according to data compiled by Bloomberg.

The results suggest that Chipotle’s turnaround effort remains slow going. The Denver-based company has been reeling since an E. coli outbreak struck in 2015, crushing its sales, profit and stock price. The chain had started to recover in the past year, but then a norovirus incident in Virginia — along with a video of mice at a Dallas location — sparked a fresh round of negative headlines.

“There is a sense that Chipotle’s rebirth is running out of steam,” said Neil Saunders, managing director of GlobalData Retail. “There is no single reason for the slowdown; rather, a number of factors have conspired in making this a somber quarter for the company.”

Chief Executive Officer Steve Ells acknowledged that the latest results weren’t what he hoped for, but he believes the company’s revival is still on course.

“We’re embracing the things we need to reach our full potential,” Ells said in an interview. “From a structure standpoint — and a feeling internally — the teams are ready.”

Investors may still need more convincing. Chipotle shares fell as low as $290 in extended trading. The stock had slipped 14 percent to $324.30 this year through Tuesday’s close.

“There were a lot of unusual items in the quarter,” Chief Financial Officer Jack Hartung said. In addition to the breach and the storms, higher avocado prices hurt results. These aren’t recurring costs, he said.

But even when ignoring Chipotle’s one-time setbacks, its numbers were a bit worse than analysts had projected. Same-store sales grew 1 percent, missing the 1.2 percent estimate. Total revenue came in at $1.13 billion, short of the $1.14 billion projection.

The company expects same-store sales to gain 6.5 percent this year. That’s below the 7.2 percent estimate compiled by Consensus Metrix.

One bright spot was the rollout of queso last quarter. Sales gained 4 percent after the item was added to menus nationwide in September, Hartung said.

Chipotle executives have been banking on queso to help the chain regain its allure. On the previous earnings call in July, company officials mentioned the new product roughly two dozen times. The cheese dip is the centerpiece of Chipotle’s attempts to win back customers with advertising.

The company has said that customers have requested queso for years. It’s typically made with processed cheese, but Chipotle created a recipe that was designed to meet its natural-food standards.

Some customers have complained on social media that the consistency is grainy. The criticism led Chief Marketing Officer Mark Crumpacker to implore employees to ignore the outcry in a companywide memo last month.

Chipotle suffered through five straight quarters of same-store sales declines in the aftermath of 2015’s E. coli outbreak. The company’s stock had hit an all-time high of $757.77 earlier that year, but it’s now lost more than half of its value.

The data breach, meanwhile, struck Chipotle’s payment systems in the spring. The company warned investors about the problem in April and said in May that it had successfully removed malicious software from its systems.

The restaurant chain also has been reining in its growth ambitions. It’s now looking to open slightly fewer locations this year than the low end of its previous range of 195 to 210. And management expects to add a smaller number of restaurants in 2018.

“The company has lost quite a lot of the momentum it built over the past six months,” GlobalData Retail’s Saunders said.

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    Tags: Advertising Banking business CHIPOTLE MEXICAN GRILL INC Dallas Earnings Jack Hartung Neil Saunders Social Media Steve Ells Virginia

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