Chipotle Announces 2015 Results, 36% SSS Decline in January


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Chipotle (NYSE:CMG) announced earnings a day after the CDC closed the investigation into the E. coli outbreak that slashed traffic and brand affinity. 

“The fourth quarter was without question the most challenging period in Chipotle’s history,” said Steve Ells on an investor relations call. 

But management didn’t quite get the sigh of relief it was hoping for as the year ended.  

The company now faces two lawsuits, one a class action complaint for misleading investors about food-safety controls and another filed in late January accusing a general manager of sexual discrimination. And the investigation into a Simi Valley, California, norovirus outbreak has expanded to a company-wide, national investigation into food safety measures dating back to 2013. 

As for Q4 and 2015 full-year results, they were mostly in line with an 8-K in early January. Same store sales came in at -14.6%, meeting company guidance exactly. That brings full-year same-store sales to just .2%. But the new year didn’t bring any good news, with January same-store sales down 36%. 

Those 2015 same-store sales drops brought revenue down 6.8% to $997.5 million.

EPS for Q4 came in at $2.17, a 43.5% drop. Full-year EPS was $15.10, up 6.8%. 

Restaurant margins were down to 19.6%, a 7% drop in the fourth quarter, bringing margins for the year down to 26.1%. In an investor call after the closing bell, CEO John Hartung said margins will be down 200 basis points indefinitely because of ongoing food-safety procedures. They will likely stay in the 20% range through 2016, especially in the first quarter as the company pushes out a marketing and promotion campaign to the tune of $50 million. 

“The biggest thing in the first quarter will be 6% of sales in advertising, that will be a lot more than we’ve spent before, four times more,” said Hartung. 

Management hopes the massive marketing campaign will bring in wary consumers and drown out the ongoing media coverage of investigations and lawsuits. They said they hope especially to bring back their most loyal customers that account for some 20% of sales, said Mark Crumpacker, Chipotle's chief creative and development officer

Crumpacker cited internal research that showed 63% of Chipotle customers and 60% of fast-casual consumers were aware of the food-safety issues. And 60% said it would cause them to visit less. Hartung said they’re hopeful that anyone who redeems their promotional offer will return to their previous level of visiting.

Chipotle stock sank to $440.25 in after-hours trading, shedding 7.51% of value. 

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