Is Chipotle Mexican Grill Still Worth It?CMG) announced fourth quarter ended December 31, 2015 total revenue of $997.5 million, down 6.8 percent year-over-year compared to $1.1 billion during the same period last year.
Chipotle declared fourth quarter of 2015 net income of $67.9 million or $2.17 per diluted share, down 44 percent year-over-year from $121.2 million or $3.84 per diluted share in fourth quarter of 2014.
The Mexican food chain company reported continued decline in both its top and bottom lines primarily due to nearly 14.6% decline in similar restaurant sales which was further driven by a negative publicity in the quarter regarding food-related illness happenings linked with several of Chipotle’s key restaurants.
Weakness across the board
Chipotle has recently witnessed a slight sequential decline in its quarterly revenue with continued fall in revenue growth rate over the past one year and mainly due to the development of negative sentiments among people after the outbreak of news regarding Chipotle’s food being impacted by the E.
Importantly, Chipotle recently opened 79 new restaurants which are in line with its expansion strategy. Going forward into 2016, the management estimates to introduce nearly 220 to 235 new restaurants.
A majority of the customer sentiments or nearly 46% of key customers have declined significantly regarding having food at Chipotle Mexican Grill restaurants post the outbreak of its food being affected by Ecoli virus. About 10% of the customers have decided not to have food at Chipotle Mexican Grill restaurants after the news and would never return. Only 32% and 12% of key customers have decided to maintain the frequency of their visit and somewhat reduce the frequency of their visit to Chipotle Mexican Grill restaurants respectively.
The negative sentiments regarding the consumption of food at Chipotle restaurants is estimated to continue with only very little customers still agreeing upon sticking to the brand and continue to consume food at its restaurants. The weaker customer sentiments for Chipotle Mexican Grill foods is believed to continue to hurt the company margins till it takes solid steps to revive the brand image.
The consumer sentiments regarding the Chipotle Mexican Grill food brand have improved and remained the same for 7% and 56% of the customers respectively with 37% of the key consumers highly disappointed with Chipotle food offerings over the last three months. The Mexican food company’s healthy food called “halo” has also taken a slight hit. However, the strategic company promotions such as, free guacamole is forecasted to bring back the departed customers and somewhat improve the brand image.
Although, January sales trend at Chipotle were disappointing still, the company’s strategic promotional initiatives and the key CDC ‘closure’ are believed to finally support Chipotle Mexican Grill in rebuilding trust with its key customers whose comparable-store sales fell 36% in January.
A sudden decline in sentiments for food intake at Chipotle Mexican Grill restaurants post the outbreak of negative news about Ecoli virus affected food of the fast food restaurant major is estimated to improve slowly and steadily, being further supported by the company’s strategic brand building efforts through promotional events and exciting offers.
Further, the Board of Directors at Chipotle Mexican Grill, Inc recently approved a strategic and an extra $300 million worth of share repurchase program above the earlier declared about $178 million of key share buyback program till January 31, 2016 which is in line with the company’s continued commitment towards delivering improved shareholder returns.
The global fast food market including foods such as, burgers, Sandwiches, Sea-Food, Asian/Latin American Food, Pasta/Pizza, Chicken, and others was valued at nearly USD 495.0 billion during 2014 and is projected to reach nearly USD 645.0 billion by the fiscal 2020, expanding at a CAGR of approximately 4.5% from 2015 till 2020.
The long-term growth prospects of Chipotle Mexican Grill seems well-established and being supported by the generally solid global fast food market growth which is estimated to deliver steady and sustainable long-term shareholder returns as visible from Chipotle’s extension of its share repurchase authorization for the quarter.
Overall, the investors are advised to “Buy” equity in Chipotle Mexican Grill, Inc. considering the company’s solid financial position with notable total cash of $663.20 million with no debt, encouraging the company to make future growth investments while returning steady and sustainable shareholder returns. The profit margin of 10.57% also seems attractive.
Published on Feb 25, 2016By Yaggyaseni Mittra