Chipotle’s New CEO Gets Welcome Gift as Sales Top Estimates

(Bloomberg) -- Chipotle's new top executive got some breathing room to overhaul the burrito giant.

Chipotle Mexican Grill Inc. reported first-quarter same-store sales on Wednesday that topped analysts' projections, just seven weeks after Taco Bell's former chief executive officer, Brian Niccol, took the helm. The results sent the shares up as much as 11 percent in late trading in New York.

The chain announced a change to its management last year -- longtime leader and founder Steve Ells would step down as CEO, though remain chairman. Now investors are tuned in to how Niccol plans to reverse a prolonged slump following E. coli and norovirus outbreaks, along with a number of other issues including a hacker attack.

“While the company made notable progress during the quarter, I firmly believe we can accelerate that progress,” Niccol said in a statement. “This path to performance will be grounded in a strategy of executing the fundamentals while introducing consumer-meaningful innovation.”

Same-store sales, a closely watched measure, climbed 2.2 percent in the first quarter. Analysts estimated an increase of 1.3 percent, according to Consensus Metrix. The company reiterated its guidance for low-single-digit growth in comparable sales for this year.

Chipotle stock rose as high as $375.79 in after-hours trading in New York. The shares had already gained 17 percent this year through Wednesday's close.

Results were helped by higher average check at Chipotle's restaurants, which included the benefit of menu price increases taken during the past year, the company said. Revenue was $1.15 billion, matching projections.

Buybacks

The company's board also approved spending up to $100 million for share buybacks. Management expects to open 130 to 150 new restaurants this year.

While the results are positive, Will Slabaugh, an analyst at Stephens Inc. said he remains concerned about traffic trends at the chain. Before Niccol's arrival, Chipotle tried to bring back customers with an ad campaign featuring a member of the Wu-Tang Clan, as well as with discounts, new foods and an improved mobile app. Those measures have seen limited success, so Wall Street is eager to see the new approach.

“While we view the recent hire of Brian Niccol as a positive for the company's turnaround efforts, we believe meaningful changes/initiatives could be multiple quarters away,” Slabaugh said in a note after the company released results.

On a conference call, Niccol said he would consider adding drive-thrus and franchising stores, along with heavier menu testing -- options Chipotle hasn't leaned on in the past.

Menu Innovation

Niccol may also look to more menu innovations. At Taco Bell, a chain known for indulgent items and new fare offered only for a certain time, he saw success courting customers with Doritos Locos Tacos and nacho fries. Chipotle has recently tried selling frozen margaritas, quinoa and salads with an avocado-citrus dressing.

Last month, the company added another Taco Bell veteran, Chris Brandt, to lead its marketing efforts. He is in charge of restoring the chain's image following the illness outbreaks, and other hiccups including the data breach. Analysts have said the 2,400-location chain may need to spend more on traditional advertising to bring customers back.

--With assistance from Brandon Kochkodin

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net.

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder, Lisa Wolfson

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