Drop it like it’s hot? Chipotle shares sink on disappointing sales

By Taylor Hall

Chipotle shares sank more than 7 percent Wednesday, despite reporting earnings that topped expectations. The company reported its smallest sales growth among year-old restaurants in the first quarter since 2013.

So-called comparable restaurant sales among stores open at least 13 calendar months rose just 10.4 percent, falling below consensus expectations of 11.5 percent growth. The company also lowered its revenue outlook for 2015.

Chipotle co-CEO Steve Ells blamed pork supply shortages and adverse weather for the sales slump during the company’s earnings conference call Tuesday.

In February, the fast-casual restaurant chain stopped serving pork carnitas at roughly one-third of its 1,800 locations after suspending a supplier that failed to meet food integrity standards.

“We had hoped that the shortage would encourage our carnitas customers to try another menu option, and some did, but many have decide to hold out until carnitas return,” Ells said. The company said it has found a new supplier and ensured supply consistency in the future.

Overall the burrito company’s net income rose 47.6 percent to $122.6 million compared with $83.1 million a year ago. Earnings per diluted share rose to $3.88 from $2.64 in the year ago period, outpacing the analysts’ consensus estimate of $3.615, according to Bloomberg LP.

Revenues rose 20.4 percent in the quarter to $1.09 billion, but with the company’s top line growth coming mostly from new stores, investors are pounding the stock and wondering what the company will do to increase sales beyond opening new locations.

“Among some investors, the decelerating trend in traffic is likely to raise questions about the long-term health of the business,” said a first-look report from Sara Senatore, a senior analyst at AllianceBernstein L.P. in New York.

“But given the concept’s rising productivity, demonstrated pricing power, and cumulative comp growth over the last several years, we believe that the evidence still speaks to Chipotle’s underlying business quality despite near-term headwinds,” Senatore said.

The company, which raised menu prices about a year ago, said it plans an incremental price increase through the end of September.

Chipotle executives said the chain’s popularity among millenials, a new marketing campaign, and a partnership with mobile delivery company Postmates will help build Chipotle’s brand and provide an offset to slowing same-store sales.

Chipotle opened 49 new restaurants this quarter, and expects to open 190-205 new restaurants in 2015.

Shares of the company fell $51.29 to close at $641.23 Wednesday.

Photo at top: Chipotle customers want their pork and it’s affecting the bottom line. (Alysha Khan/Medill)