Same-store sales growth
Same-store sales growth is driven by traffic and tickets. With our discussion on revenue estimates in the previous series, it should not be surprising that Chipotle’s (CMG) same-store sales growth, its primary revenue driver, is where we’ll see weakness. Customers can’t visit a closed store, so traffic and tickets will both be affected.
4Q15 and beyond
The above chart should not come as a surprise. As of January 25, 2016, Wall Street analysts estimate Chipotle’s 4Q15 same-store sales growth to fall to -14.6%, far from the estimated 2.9% before the E. coli event occurred.
Similarly, analysts have revised their estimates for the next 12 months downward. Over the next 12 months, analysts are estimating Chipotle’s same-store sales growth to come in at an average of -11.4% compared to 4.6% estimated three months ago. We’ve used data from the past three months, as it reflects all changes made following the company’s 3Q15 earnings.
A bigger concern is that people will avoid eating at Chipotle until everything settles down. It’s difficult to say how long it may take for people to forget or for negative perceptions to go away. Yum! Brands (YUM), for example, was negatively impacted by food safety issues in its China market. Five quarters after the incident, the company continues to struggle in the region.
McDonald’s (MCD) and Starbucks (SBUX) also have exposure to China, but they were not impacted as much. These companies can be accessed through the Consumer Discretionary Select Sector SPDR ETF (XLY), which invests about 10% of its portfolio in restaurant stocks.