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Will Chipotle's (CMG) Food Safety Practices Improve Sales?
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On Jun 14, we issued an updated research report on Chipotle Mexican Grill, Inc. (CMG - Free Report) .
The company posted mixed first-quarter 2016 results, wherein loss was narrower than the Zacks Consensus Estimate while revenues missed the mark. This was the company’s first quarterly loss since its IPO in 2006.
Food-Safety Issues & Other Risks
Chipotle has been reeling under negative publicity related to the E. coli and norovirus outburst since end-2015. As a safety measure, the fast casual chain was forced to close several outlets. Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to Chipotle’s sales.
Thus, given the negative publicity related to these food-borne illnesses, Chipotle’s popularity among health-conscious diners is likely to decline further. The company thus expects both earnings and revenues to remain under pressure in the near term.
Moreover, Chipotle intends to roll out a number of marketing and promotional initiatives to bring back customers to its stores and the costs associated with these will continue to impact profitability. Also, implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may further continue to keep profits under pressure.
Turnaround Efforts
Nonetheless, the company’s efforts to maintain its market position through expansion plans coupled with various sales and technology driven initiatives bode well.
Notably, Chipotle is leaving no stone unturned to lure back customers to its restaurants. The company has undertaken an inclusive assessment of its food safety programs and practices to ensure the quality and safety of food.
Chipotle is also focusing on developing new food safety protocols and emphasizing on internal training programs to make sure that its employees are aware of the company’s standards for food safety and handling.
Meanwhile, the company’s aggressive unit expansion strategy is expected to accelerate same-store sales. With the resurgence in consumer confidence, management has accelerated unit openings and expects unit growth in the range of 220 to 235 outlets in 2016.
Moreover, offering of free burritos, buy one get one deals and menu innovations should further aid the company in gaining back customers.
Stocks to Consider
Chipotle currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Papa John's International Inc. (PZZA - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and The Wendy's Company (WEN - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
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Will Chipotle's (CMG) Food Safety Practices Improve Sales?
On Jun 14, we issued an updated research report on Chipotle Mexican Grill, Inc. (CMG - Free Report) .
The company posted mixed first-quarter 2016 results, wherein loss was narrower than the Zacks Consensus Estimate while revenues missed the mark. This was the company’s first quarterly loss since its IPO in 2006.
Food-Safety Issues & Other Risks
Chipotle has been reeling under negative publicity related to the E. coli and norovirus outburst since end-2015. As a safety measure, the fast casual chain was forced to close several outlets. Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to Chipotle’s sales.
Thus, given the negative publicity related to these food-borne illnesses, Chipotle’s popularity among health-conscious diners is likely to decline further. The company thus expects both earnings and revenues to remain under pressure in the near term.
Moreover, Chipotle intends to roll out a number of marketing and promotional initiatives to bring back customers to its stores and the costs associated with these will continue to impact profitability. Also, implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may further continue to keep profits under pressure.
Turnaround Efforts
Nonetheless, the company’s efforts to maintain its market position through expansion plans coupled with various sales and technology driven initiatives bode well.
Notably, Chipotle is leaving no stone unturned to lure back customers to its restaurants. The company has undertaken an inclusive assessment of its food safety programs and practices to ensure the quality and safety of food.
Chipotle is also focusing on developing new food safety protocols and emphasizing on internal training programs to make sure that its employees are aware of the company’s standards for food safety and handling.
Meanwhile, the company’s aggressive unit expansion strategy is expected to accelerate same-store sales. With the resurgence in consumer confidence, management has accelerated unit openings and expects unit growth in the range of 220 to 235 outlets in 2016.
Moreover, offering of free burritos, buy one get one deals and menu innovations should further aid the company in gaining back customers.
Stocks to Consider
Chipotle currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Papa John's International Inc. (PZZA - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and The Wendy's Company (WEN - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>