Chipotle Q2 results miss expectations
July 22, 2016
by Erica Shaffer
Net income for the quarter ended June 30, 2016, was $25.6 million, or 87 cents per diluted share, compared with $140.2 million or $4.45 per diluted share in the year-ago quarter. Analysts expected earnings of 90 cents to 93 cents per diluted share on revenues of $1 billion to $1.05 billion.
Revenue for the quarter was $998.4 million, down 16.6 percent from the second quarter of 2015, driven by a decline in comparable restaurant sales of 23.6 percent. Analysts forecast a comparable restaurant sales decline of at least 20 percent.
Results were partially offset by sales from new restaurant openings which totaled 58 in the quarter. Chipotle attributed the retreat in comparable restaurant sales to declining restaurant traffic and to a lesser extent a decline in average check.
However, the company’s recently launched Chiptopia rewards program lifted comparable sales in July, according to Steve Ells, founder, chairman and co-CEO, who said the program is “off to a nice start in the third quarter.”
“Our entire company is focused on restoring customer trust and re-establishing customer frequency, and rewarding our most loyal customers for visiting more often through Chiptopia is one way to do just that,” Ells said in a statement. “While it has only been a few weeks since Chiptopia launched, we are pleased to see that July sales comp trends have already improved by 200 to 300 basis points and transaction comp trends have improved by an even greater amount.”
Customers participating in Chiptopia can earn free rewards for making multiple paid visits to Chipotle restaurants within a given month now through September. Chipotle launched the rewards program in an effort to win back customers and restore its brand following an E. coli outbreak and multiple outbreaks of norovirus. Other efforts to restore consumer confidence include an extensive revamp of the company’s food-safety protocols. The new protocols have added to the company’s costs.
In the first six months of 2016, food costs jumped 120 basis points to 34.7 percent of revenue, as compared to the first six months of 2015. Chipotle attributed the increase to higher costs at the company’s suppliers related to new food safety procedures and food waste costs.
“Increases in food costs were partially offset by the benefit of small and targeted menu price increases implemented in the second half of 2015, and relief in beef prices,” according to the company’s earnings statement.
“The best thing that we can do for our business is to earn customers’ trust and loyalty by consistently providing a terrific restaurant experience with safe, delicious food and excellent service,” Monty Moran, co-CEO, said in a statement. “We will do that by continuing to develop great leaders who can build restaurant teams of empowered top performers that can successfully deliver on this goal.”
For the first six months ended June 30, 2016, the company reported a net loss of $0.8 million, or 3 cents per diluted share, compared with net income of $262.8 million, or $8.34 per diluted share during the first six months of 2015.
Revenue fell 19.9 percent to $1.83 billion during the first six months.
Comparable sales also dropped 26.5 percent for the first six months. During the period, Chipotle opened 114 new restaurants, net of two relocations for a total of 2,124 restaurants.