Chipotle changing strategy amid decline in profit

There are close to 15 Chipotle restaurants in North Texas area, many of them in Collin County cities of Allen, Plano, Frisco and Mckinney.

Last week, Chipotle reported financial results for its third quarter ended September 30, 2016. Some of the information may be of interest to local residents.

Chipotle is making the changes following three straight quarters of plunging same-store sales in the wake of two E. coli outbreaks last year that affected its restaurants in more than 10 states.

chipotle

The burrito chain said this week that it’s adding new menu items, redesigning restaurants, launching television ads, testing digital ordering tablets, and offering some free food — some of these things represent a noticeable departure from Chipotle’s business strategy for past two decades.

As the company considers new menu items, it’s also cutting costs by designing a cheaper restaurant model, slowing down new restaurant growth, and pulling the plug on its Southeast Asian chain, ShopHouse. The company has been working on a new restaurant design that will cost $40,000 less to build than its current design with improvements in lighting, seating, customer flow and the presentation of their kitchen.

Mark Crumpacker is Chipotle’s chief marketing officer.

Here are some of the highlights:

chipotle_q3-16-earnings-release_chart

Overview for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015:

  • Revenue decreased 14.8% to $1.0 billion
  • Comparable restaurant transactions decreased 15.2%
  • Comparable restaurant sales decreased 21.9%, which includes a 0.8% decrease from a revenue deferral related to unredeemed Chiptopia awards
  • Restaurant level operating margin was 14.1%, a decrease from 28.3%. The Chiptopia revenue deferral negatively impacted restaurant level operating margins by 0.9%
  • Net income was $7.8 million, a decrease from $144.9 million. Net income includes a $14.5 million non-cash, pretax impairment charge related to ShopHouse and was reduced by an $11.5 million pretax revenue deferral related to Chiptopia
  • Diluted earnings per share was $0.27, a decrease from $4.59, including $0.29 related to the ShopHouse impairment charge and $0.23 due to the deferral of revenue from Chiptopia
  • Opened 54 new restaurants, net of one closure

For 2017, management is targeting the following:

  • 195 – 210 new restaurant openings
  • Comparable restaurant sales increases in the high single-digits
  • Restaurant level operating margins of 20%
  • An estimated effective full year tax rate of approximately 39.5%, which will be impacted by volatility due to a recently issued accounting standard that changes how the company accounts for taxes associated with stock-based compensation awards.
  • $10.00 earnings per diluted share
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