October 25, 2018 / 8:20 PM / a year ago

Chipotle tops profit estimates as turnaround takes shape

(Reuters) - Chipotle Mexican Grill Inc (CMG.N) topped Wall Street profit estimates on Thursday, as newer menu items and a marketing blitz helped the burrito chain recover from a series of food-safety lapses that had kept diners away.

The logo of Chipotle Mexican Grill is seen at the Chipotle Next Kitchen in Manhattan, New York, U.S., June 28, 2018. REUTERS/Shannon Stapleton

Chipotle shares, up over 40 percent this year thanks to optimism around new CEO Brian Niccol’s plan to improve the company’s image, rose nearly 2 percent in extended trading.

Niccol has brought back popular items like chorizo and introduced a long-awaited loyalty program, limited-time items and food-delivery through a dedicated smartphone app as well as DoorDash.

“We are seeing strong interest from new and infrequent customers as well as frequent customers,” Niccol said of Chipotle’s mobile app, speaking to analysts on a conference call.

Sales through digital channels surged 48 percent in the quarter ended September, Chipotle said.

The company has also overhauled its marketing with increased use of social media channels and an ad campaign that draws attention to its use of “real” ingredients, aimed at health-conscious diners.

“Marketing did have an impact as we went on air and as customers start to see the commercials ... we did see an improvement in our sales,” Niccol said.

The once-popular burrito chain’s sales and shares are yet to fully recover since its restaurants were linked to E. coli and salmonella outbreaks in 2015 that sickened hundreds of people.

A new spate of food safety issues this July had added to Chipotle’s headaches.

However, the latest health-related incident at a single outlet that caused nearly 700 people to fall sick, did not have a lasting impact on sales, Chief Financial Officer Jack Hartung said on the conference call.

Sales at Chipotle restaurants open at least 13 months rose 4.4 percent in the third quarter, helped by price hikes, but fell short of Wall Street expectations of a 5.02 percent increase, according to Refinitiv data.

“The miss (was) widely known and expected,” Wedbush Securities analyst Nick Setyan said, adding that Chipotle was seeing some early success with its turnaround.

Net income roughly doubled year-over-year to $38.2 million, while restaurant-level operating margin climbed to 18.7 percent from 16.1 percent, as Chipotle kept expenses in check.

Excluding one-time items, Chipotle earned $2.16 per share, topping estimates of $2 per share.

Revenue rose nearly 9 percent to $1.23 billion, matching expectations.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Bernard Orr and Sai Sachin Ravikumar

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