Chipotle's 2016 net income plummets 95%

by Kimberlie Clyma
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 Chipotle Mexican Grill burrito with chorizo, chips and salsa
Management remains optimistic about 2017 despite negative year-end results.
 

DENVER – At the conclusion of 2015, former co-CEO of Chipotle Monty Moran said 2016 would be a “very difficult year for the company.” That was an understatement. The E. coli outbreak linked to Chipotle Mexican Grill restaurants in 2015 continued to heavily impact the chain’s bottom line throughout 2016. The chain’s net income for the year ended Dec. 31, 2016, fell 95 percent from $475.5 million to $22.9 million. And, net income for the fourth quarter fell 76 percent from $67.9 million in Q4 2015 to $16 million for the fourth quarter of 2016.

Revenue for the full year 2016 was $3.9 billion, down 13.3 percent from the prior year. The company reported that the decrease in revenue was driven by a 20.4 percent decrease in comparable restaurant sales, partially offset by revenue from new restaurants. “Comparable restaurant sales declined primarily as a result of a decrease in the number of transactions in our restaurants, and to a lesser extent from a decline in average check,” the company said.

Chipotle opened 240 new restaurants during 2016, with three restaurant relocations or closures, bringing the number of restaurants to 2,250. Seventy-two of the new restaurants were opened in the fourth quarter.

The company credited the new 4Q restaurant openings with its increase in revenue for the quarter, up 3.7 percent to $1.0 billion from 4Q 2015. The increase was slightly offset by a 4.8 percent decrease in comparable restaurant sales. Comparable restaurant sales decreased 20.2 percent in October, 1.4 percent in November, and increased 14.7 percent in December 2016.

Food costs were 35 percent of revenue, an increase of 160 basis points as compared to the prior year. According to the company, “The increase was driven by increased waste and costs related to new food safety procedures as well as higher avocado prices, partially offset by relief in beef prices and a benefit of menu price increases implemented in select restaurants in the second half of 2015.”

Despite the challenging year and less than stellar financial results, Chipotle executives remain optimistic about the year ahead.

“We are energized and focused to achieve our goals in 2017, and to return to a path of long-term value creation for our shareholders,” said Steve Ells, founder, chairman and CEO of Chipotle. “Returning to our roots of what originally made Chipotle great has helped refocus all of our strategies toward the guest experience.”

During a Feb. 2 earnings call, Ells shared his thoughts about what’s in store for the company in 2017.

“Today I’m more confident than ever about Chipotle’s future,” he said. “I’m confident in the significant changes we made throughout the last year to position Chipotle for a strong performance in 2017.”

Those changes included:

  • Implementation of an industry leading food safety system;
  • Investment in digital to enhance customer convenience of ordering;
  • Expanded use of consumer data and analysis; and
  • Changes to leadership to strengthen culture and sharpen focus on the customer.

 

“To fully align the entire company behind delivering an excellent guest experience, we are rolling out a new compensation system for restaurant managers, restauranteurs and field leaders,” Ells said. “It will reward the leaders who are delivering the best customer experience on a sustainable basis.”

CFO Jack Hartung expressed additional optimism about the upcoming fiscal year.

“We are optimistic about our ability to grow our sales, improve our margins over time and allow us to invest in building long term shareholder value,” he said. “There remains a lot of hard work ahead of us but we believe in our vision, we believe in our strategy and we believe in our team’s ability to continue to drive operational improvement.” 

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