Will Europe Be Key to Chipotle Stemming Its Falling Revenue?



Chipotle’s revenue growth

Since the E. coli outbreak in October 2015, Chipotle Mexican Grill’s (CMG) same-store sales growth has been falling. This led to negative revenue growth. In 2Q16, Chipotle posted revenue of $998.4 million—a fall of 16.6% from its 2Q15 revenues.

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Analysts’ estimates

To curb falling same-store sales growth at its restaurants, Chipotle Mexican Grill launched Chiptopia—a customer rewards program. It also introduced chorizo as a new menu item in July 2016. Along with these initiatives, the enhanced food safety procedures are expected to improve Chipotle’s same-store sales growth and raise its revenue for the next four quarters. Analysts expect Chipotle to post revenue growth of -9.4%, 10.7%, 24.5%, and 19.7% in 3Q16, 4Q16, 1Q17, and 2Q17, respectively.

However, the new revenue estimate of $4.4 billion in the next four quarters is 0.2% lower than the estimates made one week earlier. Softer growth in restaurants due to a slowdown in the US economy and customers’ continued skepticism about the quality of food being served at Chipotle could have prompted analysts to lower their revenue estimates for the next four quarters.

To counter the fall in its revenue growth, Chipotle is planning to expand its operations in Europe. Currently, its European operations include six restaurants in the United Kingdom, five in France, and one in Germany. The company appointed Jim Slater, a former managing director of Costa Coffee, as the managing director of its European operations.

Peers comparisons

In fiscal 2016, Chipotle is expected to post revenue of $4 billion—a fall of 10.3% from $4.5 billion in fiscal 2015. During the same period, Panera Bread (PNRA) and Shake Shack (SHAK) are expected to post revenue growth of 4.4% and 35.3%, respectively. Together, Chipotle and Yum! Brands (YUM) form 0.4% of the holdings of the Guggenheim S&P 500 Equal Weight ETF (RSP).

Next, we’ll look at analysts’ revised EPS estimates for Chipotle.


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