April 25, 2018 / 8:17 PM / in 6 months

Chipotle restaurant sales beat Street, CEO cites 'recovery story'

LOS ANGELES (Reuters) - Chipotle Mexican Grill Inc (CMG.N) on Wednesday reported sales at established restaurants and profit for the first quarter that beat expectations, and new Chief Executive Brian Niccol told investors that the beleaguered burrito chain has begun its turnaround.

Chipotle shares jumped 10.5 percent in after-hours trading.

Chipotle is “clearly a recovery story in the U.S.,” Niccol said in his first conference call with analysts and investors, after taking over as CEO on March 5.

Wall Street is hungry to learn details of Niccol’s strategy for putting Chipotle’s sales slump from food safety lapses behind it and adding flair to a menu that has grown tired.

FILE PHOTO: The logo of Chipotle Mexican Grill is seen at a restaurant in Paris, March 7, 2016. REUTERS/Charles Platiau/File Photo

Niccol, the former chief of Yum Brands Inc’s (YUM.N) Taco Bell, is known for launching hot new menu items, such as $1 Nacho Fries shortly before he made the leap to Chipotle.

Sales at Chipotle restaurants open a least 13 months rose a better-than-expected 2.2 percent in the first quarter, with menu price increases again offsetting declines in customer visits.

Net profit jumped almost 29 percent to $59.4 million, or $2.13 per share, handily beating analysts’ average estimate of $1.57 per share, according to Thomson Reuters I/B/E/S.

Chipotle has struggled since outbreaks of E.coli, salmonella and norovirus that were linked to the chain in 2015, and despite millions of dollars in free food giveaways it failed to win back diners.

Niccol said “Mission One” is to make the brand more visible with messages that remind diners what makes the chain different.

He brought in a Taco Bell alum to replace long-time Chipotle marketing chief Mark Crumpacker. And the chain has also already made some “simple pivots” on messaging - releasing punchy and light-hearted ads focusing on Chipotle’s “real” ingredients such as grilled adobo chicken, freshly made chips and hand-mashed guacamole.

On the operational side, Chipotle set new goals for cutting food and packaging waste and linked executive compensation to sales and margin growth at restaurants.

Other opportunities include adding new meal occasions - more likely late-night than breakfast in the near term - tweaking menus to broaden appeal, and increasing access through delivery, catering and mobile ordering, Niccol said.

Selling the chain’s 2,441 restaurants, something some investors advocate, is not on the table.

“We see no need to go down that path right now,” Niccol said.

Chipotle shares are up about 35 percent since Feb. 13, when the company announced Niccol’s hire. They are trading at a price-to-earnings ratio of 54, more than double that of McDonald’s Corp (MCD.N) and Starbucks Corp (SBUX.O), according to Thomson Reuters data.

The 10.5 percent jump in Chipotle shares in extended trading on Wednesday brought them to $373.50. Still, they remain far below their all-time high of more than $742 in the summer of 2015, just months before news of the food poisoning outbreaks that sickened hundreds of U.S. customers and unmasked operational weaknesses at the former high-flying chain.

Reporting by Lisa Baertlein in Los Angeles; Editing by Leslie Adler

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