William Blair Says Chipotle Has The Strategy In Place To Accelerate Sales Recovery Pace

William Blair’s Sharon Zackfia mentioned that Chipotle Mexican Grill, Inc. CMG reported “lackluster” 2Q results, with modest comp recovery and a return to profitability, following the loss of money in 1Q.

Zackfia maintains an Outpeform rating on the company.

Management Strategy

The analyst pointed out that “the early innings of Chiptopia appear to be accelerating the pace of recovery so far in July, with management also planning to specifically address food safety concerns with new marketing content in coming months that will highlight how Chipotle has become a leader in food safety.”

Zackfia believes management’s strategy was encouraging, since monthly survey have consistently shown that addressing food safety could potentially accelerate the pace of recovery.

2Q Results

For 2Q, Chipotle reported its EPS below the estimate and the consensus, while same-store sales declined 23.6 percent, improving modestly against 1Q, but below the consensus and the estimate.

Traffic declined 19 percent during the quarter, which was also better than the 20 percent decline in the April quarter.

“Since the July 1 introduction of Chiptopia… comps have improved to -21 percent in July, with traffic improved to -15 percent,” Zackfia stated.

Chiptopia

Chiptopia has already garnered more than 3.6 million participants, with 100,000 new members each day and representing almost 30 percent of the July transactions.

“Most importantly, Chiptopia is increasing frequency of usage, as Chipotle’s research suggests most customers have returned, albeit not at similar frequency levels as before,” the analyst added.

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