Will Chipotle Continue Its Downward Momentum in 2H15?
2H15 issues for Chipotle
Previously in this series, we assessed the impact of Chipotle’s decision to close 43 of its restaurants following the E. Coli outbreak in Oregon and Washington state in late October and early November 2015. But Chipotle Mexican Grill (CMG) was already facing the challenge of low same-store sales growth.
Chipotle has had a tremendous success in 2014 with the company’s same-store sales growing by double digits. In contrast, the company has been taking a beating on the same-store sales growth front in 2015.
Impact on same-store sales growth
If we look at the chart above, Chipotle’s same-store sales growth in 2015 has decelerated. Same-store sales growth measures the sales growth in existing restaurants during a given quarter compared to the corresponding quarter one year previously. But in any analysis of Chipotle’s 2015 same-store sales growth, we should take into consideration the following:
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All three quarters of 2015 were up against a double-digit same-store sales growth in 2014, which makes the comparison a bit complicated.
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The company discontinued its largely popular carnitas option in 2015, which negatively impacted same-store sales growth.
In its 3Q15 earnings call, Chipotle’s management also stated that October trends for customer visits (or traffic) were “choppy” and that it expects 4Q15 to have same-store sales growth similar to 3Q15. This undermines expectations that resuming its carnitas line would help Chipotle bring back more customers.
Comparisons with peers
The pork supply issue that Chipotle blames for its low 3Q15 numbers did not, however, affect Yum! Brands (YUM), McDonald’s Corporation (MCD), or Darden Restaurants (DRI). These companies use conventionally raised meat in their ingredients—as opposed to Chipotle, which has historically taken pride in how its meat suppliers raise and treat animals. Currently, McDonald’s and Chipotle form 5% of the Consumer Discretionary Select Sector SPDR (XLY) portfolio.
But how have these challenges impacted Chipotle’s valuation multiple? Continue to the next part of this series to find out.
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