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Chipotle Announces Strategic Initiatives to Boost Growth

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In a bid to accelerate growth and drive its shareholder value, Chipotle Mexican Grill, Inc. (CMG - Free Report) announced strategic initiatives. The company will not only shut down 65 underperforming restaurants but has also laid down few plans to drive sales.

Moreover, it plans to focus on digitization and modernization of the restaurant for enhancing customer experience. Brian Niccol, chief executive officer of Chipotle said “We believe our digital business has a long runway for growth and ultimately can be a multi-billion-dollar business.” The company will also launch a long-awaited loyalty program in 2019 to attract more customers.

Additionally, Chipotle will consolidate its employee in two office locations and recruit experienced talents in major areas like marketing, CRM, menu innovation, digital, data analytics as well as human resources. Niccol also stated that “I can easily see a future where Chipotle more than doubles the business to $10 billion in revenue.”

We believe these strategic initiatives will result in non-recurring charges not only in the second quarter of 2018 but also over the next several quarters. Total costs from restructuring are likely to be in the range of $115-$135 million.

Currently, this Zacks Rank #3 (Hold) company is prioritizing its e-Commerce program to regain customer confidence as a part of its digital innovation. Chipotle is aggressively trying to make digital ordering more appealing and efficient for its restaurants, in order to drive digital sales and regain customers. To this end, the company has redesigned and simplified its online ordering site, enabled online payment for catering, online meal customizations and collaborated with several well-known third-party providers for delivery.

Impressive Price Performance

In the past six months, Chipotle’s shares have gained 58.8% against the industry’s decline of 1.3%. Furthermore, the company’s increased focus on food safety, and various sales-building and strategic initiatives are major positives amid a tough economic environment characterized by high costs and stiff competition.

Chipotle also had a good share of negative publicity throughout 2016 due to an issue pertaining to food-borne illnesses, which surfaced toward 2015 end. As a safety measure, the company was forced to close several outlets. Ever since, this fast-casual Mexican chain has been undertaking strategic actions to restore its economic model as well as regain customer trust. To this end, Chipotle discarded its earlier co-CEO model and recently appointed former Yum! Brands' (YUM) executive, Brian Niccol, as its new CEO. Niccol’s expertise in restaurant operations, digital technologies and branding has significantly boosted Chipotle’s first-quarter earnings.

Key Picks

Some better-ranked stocks from the restaurant space include Wingstop (WING - Free Report) , Dine Brands (DIN - Free Report) and Domino’s (DPZ - Free Report) . While Wingstop and Dine Brands sport a Zacks Rank #1 (Strong Buy), Domino’s carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Wingstop, Dine Brands and Domino’s earnings for 2018 are expected to grow 13.5%, 23.1% and 55.2%, respectively.

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