When Chipotle Mexican Grill Inc. reports fourth-quarter and full-year results Wednesday, it will be almost a year since it named Chief Executive Brian Niccol to head the fast-casual restaurant company.
Investors have already voted “Si!” to changes wrought by the former top executive at Irvine-based Taco Bell Corp.
Shares of Chipotle (NYSE: CMG) traded at about $251 on Feb. 13 last year and a $7 billion market cap, the day before Chipotle said Niccol would become its chief executive.
After steadily rising, Chipotle shares dipped in December like the broader market, falling below $400. Chipotle in December was the Business Journal’s “Company to Watch” in restaurants this year.
Since Christmas Eve, the shares have been on a tear and have more than doubled in a year.
As of last week, they traded around $533 and a $14.8 billion market cap.
Niccol has added $7.8 billion in value since the chain named him to the post.
Chipotle could be the “greatest turnaround the industry has ever seen,” Howard Penney, a former top-ranked industry analyst by Institutional Investor, said last April.
Niccol’s draw is his reputation as a great executive, said Penney, an analyst at Hedgeye Risk Management LLC in Connecticut.
“People want to work for him,” Penney said in interview last week. “People like that attract talented people.”
Hiring Spree
Since Niccol took over, he’s hired four C-level suite executives with experience that includes Taco Bell, Starbucks Corp., Panda Restaurant Group Inc. and Danone North America.
He also convinced the company to swap its base from Denver to high-end environs near Newport Beach’s Fashion Island, alongside the headquarters of prominent Wall Street firms like Pacific Investment Management Co.
Chipotle took two floors at 610 Newport Center Drive, where it now employs about 200 employees.
The move vaulted Chipotle into the top tier of local public companies and made it the second-largest restaurant operator based here, ranked by annual systemwide sales, according to Business Journal data.
At $4.5 billion in sales, it trails only Taco Bell, which had about $9.7 billion in sales in 2017.
It doesn’t hurt that Orange County is home to 39 restaurant chains, including trendsetters like In-N-Out Burger Inc., and other growing chains that include Habit Restaurants Inc. (Nasdaq: HABT) and BJ’s Restaurants Inc. (Nasdaq: BJRI).
Since the company is reporting this week, its spokesperson declined to comment.
Free Guac!
The company’s shares reached an all-time high around $750 in 2015 before it stumbled into health-related issues that included numerous reports of customers becoming sick.
Niccol is only the second chief executive in Chipotle’s 25-year history, taking over from founder Steve Ells, who is now executive chairman.
Niccol began making changes immediately.
Two weeks after starting March 5, he named Chris Brandt chief marketing officer. He had a similar role at Taco Bell where he oversaw a $375 million annual marketing budget and a 130-person team.
The duo rejiggered promotional dollars in the last weeks of Chipotle’s first quarter, contributing to a 7.4% jump in revenue to $1.1 billion and a same-store sales increase of 2.2% for the April 25 report—Niccol’s first as chief executive.
Shares climbed 24% in the session after that report.
A delivery deal with DoorDash debuted five days later—in time for Cinco de Mayo, and with free delivery for the first week to get things rolling.
Ten days later Chipotle announced a 700% increase in delivery orders.
Marketing kept up its timely targeting through last year with an esports sponsorship involving gaming phenomenon Fortnite, discounts for nurses, students and veterans, scratch-and-sniff stickers, and a deal on National Avocado Day—free guac!
New “lifestyle bowls” that include Keto, Paleo, Whole30, and Double Protein debuted in January.
Food Glorious
Chipotle began to emphasize “real ingredients” and “sustainability” to combat foodborne illness issues—a big concern three years ago that hammered its revenue and reputation, and a more limited crisis last summer—and to ratchet down an earlier initiative to source local food.
Chipotle’s first-ever Rose Parade float in Pasadena this year was built around a giant red tractor, ridden by growers and suppliers of the chain’s food, and covered with 200 pounds of chili flakes for the tractor; ground onion seeds, cumin, cloves, oregano and bay leaves for the tires; a hundred pounds of white rice for lettering; and a hundred pounds of lemons hanging from trees, along with displays of corn, rice, cilantro, avocadoes and of course chipotle chilies.
It’s not all marketing, though.
Lifestyle bowls, for instance, are only available via Chipotle’s app, which grows business while cutting the in-store lines and drives dollars to the DoorDash delivery deal.
It made other savvy moves such as a program to boost new farming methods and food waste and recovery practices.
It bypassed sponsoring pricey College Bowl games while still hitting football fans with free delivery.
Analyze This
Following the April earnings report, revenue kept rising, more than 8% apiece in the second and third quarters.
For its report on Wednesday, analysts are expecting $4.83 billion in 2018 sales, which implies a 7.9% climb over 2017’s revenue.
Nine out of 25 analysts on Nasdaq’s website recommend buying the shares, including four who raised their call in December. Still, another 16 rate them either a hold or a sell.
After Chipotle execs ran an investor conference in January, Robert W. Baird & Co. Senior Research Analyst David Tarantino noted an “upbeat tone” and saw a “promising pipeline” of sales initiatives including digital sales and delivery.
He has a “bullish longer-term outlook” for Chipotle to return to $2.5 million average sales per restaurant, up from about $2 million now. Baird is projecting $12.10 EPS for the coming year, up from its 2018 estimate of $8.60.
“Why not $3 million?” per store, Penney said, adding that $25 a share in profit is possible in the next three years.
“Stocks anticipate. Over the next year or two you’ll see significant improvement in financial performance,” he said.
“Chipotle could be the next Chipotle.”
