Chipotle launching delivery
April 22, 2015
by Monica Watrous
Pork carnitas shortage weighed on Chipotle's financial performance.
DENVER — Customers of Chipotle Mexican Grill, Inc. may have had beef with the burrito chain’s decision to pull pork from menus at a third of US locations in January. Same-store sales growth during the first quarter slowed to 10.4 percent, which compared with 13.4 percent in the prior-year period.
Chipotle, which removed pork carnitas following a routine audit that revealed a supplier was not complying with the company’s animal-welfare standards, reported earnings and revenue that fell below analysts’ expectations. Shares slid more than 5 percent in pre-market trading following the market close on April 21.
“We had hoped that the shortage would encourage our (customers) to try another menu option, and some did, but many have decided to hold out until carnitas returns to their market,” said Jack Hartung, CFO, during an April 21 earnings call with financial analysts.
For the first quarter ended March 31, Chipotle had net income of $122,641,000, equal to $3.95 per share on the common stock, up 47 percent from $83,069,000, or $2.67, in the year-ago period. Revenue advanced more than 20 percent to $1,089,043,000, which compared with $904,163,000 in the prior quarter. Average sales volumes reached a record $2.5 million per restaurant. The company opened 49 new units during the quarter.
Comparable restaurant sales benefited from a nationwide menu price increase introduced during the second quarter of 2014 and, to a lesser extent, increased traffic.
As for the pork problem, Chipotle said it may have found a new supplier and plans to reintroduce the protein in some of its restaurants in the coming month.
“If all goes as planned, we believe that we will be steadily increasing our supply throughout the third quarter and back in full supply during the fourth quarter,” said Steve Ells, chairman and co-CEO.
For 2015, Chipotle executives continue to expect 190 to 205 new restaurant openings, low- to mid-single digit comparable restaurant sales increases, and an effective full-year tax rate of approximately 39 percent.
This year, the company is launching a new marketing campaign to highlight the simplicity of its ingredients and said it is working “diligently” to eliminate preservatives and additives from its tortillas. Other initiatives under way include mobile ordering and payment, as well as delivery in select markets. The chain said it has begun delivery of on-line and mobile orders for individuals and small groups in more than 60 cities using the PostMates delivery app.
“There have been a lot of people that have been delivering Chipotle through various services over the years, and we’ve tried to in a lot of cases shut them down because we weren’t sure whether the quality was going to be sufficient or whether they were following our rules,” said Mark Crumpacker, chief marketing and development officer. “This is different because we have made an official deal with PostMates, and they have been delivering Chipotle for quite a while too. And so we have them as our official partner and they will be delivering Chipotle — they are delivering Chipotle in all of their markets which are — it’s 64 cities in about 24 big metropolitan areas.”
The company also is planning another price increase to take effect in the third quarter to offset higher commodity costs for beef.
“If trends don’t change, we are likely going to increase prices,” Ells said. “If something happened in the economy, or something happened with our trends, we might defer it...
“We are underpriced on steak right now. We’re just not charging the going rate. We actually lose money anytime somebody comes in thinking about getting chicken and instead gets steak, for example. So, we would like to fix that.”