What Should Concern Chipotle Investors The Most? The Pace Of Sales Trends

Analysts at BTIG held on to their Neutral rating on Chipotle Mexican Grill, Inc. (NYSE: CMG) after meeting with the restaurant chain's head of investor relations and treasury, Mark Alexee. The firm's Peter Saleh maintains a Neutral rating on Chipotle's stock with no assigned price target.

Saleh's main takeaway from the meeting was that the casual fast food restaurant chain is "rethinking" aspects of strategy and operations. The company is also pursuing various sales drivers that management previously shunned as being "un-Chipotle" such as menu innovation (salads, dessert, margarita, quesos) and TV advertising.

Some of these changes could provide long-term benefits to Chipotle the fact is any initiatives won't be enough to offset the near-term impact from last month's food scare incident, the analyst continued. Specifically, sales trends in July before the norovirus incident were positive by 3 to 4 percent but immediately following the outbreak, same-store sales trends weakened by roughly 550 basis points to a negative low-single digit.

Chipotle's management believes that it can recover only half of its lost sales within a few weeks once the food scare incident can be confirmed to be over, Saleh added. But the remaining half of sales usually takes another year to recover.

"This commentary would imply that the lasting impact from this latest norovirus incident could be 250–300 bps for the next 12 months, assuming that this historical pattern holds," Saleh emphasized.

Bottom line, the analyst is recommending investors stay on the sidelines until "we have greater confidence in sales trends and the initiatives mentioned above take hold."

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