Chipotle looks to rebuild after food scares bite into profit

Posted at 4:53 PM, Feb 02, 2017
and last updated 2017-02-02 18:53:32-05

NEW YORK (AP) -- Chipotle closed the books on its toughest year ever, with a series of food scares that took a monster bite out of its sales.

The company said Thursday that sales fell 20 percent at established locations for all of 2016. Its profit fell sharply too as it spent heavily on marketing and food safety measures to win back customers, all while dealing with rising food and labor costs.

And while sales trends appear to have hit bottom and began bouncing back in December, Chipotle is still not out of the clear. The company noted that it's working on improving customer service, for instance, and that it too often is short an employee during peak lunch hours.

During a call with analysts, CEO Steve Ells noted that the chain attracted "millions" of new or lapsed customers in the second half of the year. And he said the company will work on turning them into loyal customers by improving service.

"Frequent customers start as infrequent ones," Ells said.

Already, Chipotle's efforts to win back customers have included promotions for free burritos and the rollout of chorizo as a topping for its burritos and bowls. The moves came after a series of food scares that sent sales plunging, starting with an E. coli outbreak that came to light in the fall of 2015.

The company has additional plans in store for this year to continue its recovery, including a major marketing campaign in April and the possibility of adding a dessert to the menu.

The push comes as Chipotle is pressured by rising labor costs, yet is reluctant to derail its comeback efforts with price hikes that might scare off customers. There are other measures Chipotle is taking to save money, such as doing a better job of scheduling employees. Last month, it also noted that it is testing a napkin dispenser that helps save money.

For 2017, Chipotle Mexican Grill Inc. said it expects sales to rise in the "high-single digits" at established locations. It plans to expand its base of 2,250 restaurants with about 200 more locations.

For the quarter ended Dec. 31, the company earned $16 million, or 55 cents per share. That was a penny less than analysts expected, according to FactSet. Total sales were $1.03 billion, just shy of Wall Street expectations.

Its shares were down 30 cents to $423 in after-hours trading.

Profit for all of 2016 was $22.9 million, or 77 cents per share. That's down from $475.6 million, or $15.10 per share, in 2015.

Previously, Chipotle has forecast earnings of $10 a share for 2017, and a restaurant-level operating margin of 20 percent. On Thursday, Chief Financial Officer Jack Hartung noted the company said those were reasonable but "stretch goals."


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