Chipotle CEO Steve Ells does not mince words when he talks about the year that was 2016.
"It was indeed a challenging year for us," he told a packed Orlando ballroom at the ICR Conference last month. "It was the most challenging we’ve ever faced in our 23-year history."
The company's latest set of earnings results reinforce this view: Chipotle reported Thursday afternoon that, compared to 2015, its revenue dropped 13% in 2016 and its full-year comparable store sales fell a whopping 20%. Its net income was slashed to $22.9 million from $475.6 million in 2015 with full-year earnings per share seeing a similar drop: 2016 earnings per share came in at 77 cents, compared to 2015's $15.10 per share.
Its fourth quarter results were not much prettier: Fourth quarter revenue came in at $1.03 billion, up 3.7% year-over-year but coming in under the $1.04 billion Wall Street consensus. Net income for the quarter plummeted to $16 million, down from $67.9 million in the year-ago quarter and resulting in earnings of 55 cents per share. The per-share earnings figure marks a fraction of the $2.19 in earnings per share reported in the year-ago quarter and missed the analyst consensus by two cents a share.
Comparable store sales fell 4.8% during the quarter. On a month-by-month basis, Chipotle said that comp store sales fell 20.2% in October, 1.4% in November and increased 14.7% in December; the November and December sales figures benefited from easier comparisons with the company's results from the same time in 2015, the year the food-borne illness outbreaks occurred.
Though Chipotle received a clean bill of health from the CDC in February of 2016, its sales and profit were slammed throughout the rest of the year. Ells, however, is confident about what 2017 holds.
“Returning to our roots of what originally made Chipotle great has helped refocus all of our strategies toward the guest experience. In the upcoming year we intend to continue to simplify and improve our restaurant operations, utilize creative marketing to rebuild our brand, and further the roll-out of our digital sales efforts," Ells said in a statement Thursday.
In a call with analysts and investors Thursday afternoon, Ells highlighted the improvement he's seeing in the company's same-store sales comparisons. "I feel good about the comp trends," he said, going on to note that, "most importantly, we’re doing this with very little promo. We’ve weaned ourselves off of promo. Most of the improvement was we're going up against a softer comp."
Looking ahead to 2017, Chipotle said that it is targeting comparable restaurant sales increases "in the high-single digits," and that it will open 195 to 210 new restaurants.
In a phone interview Thursday morning, AB Mendez, a senior research analyst and portfolio manager at Frost Investment Advisors in San Antonio, said that despite the company's struggles, he too is bullish on its long term potential. "I think for me there’s still a meaningful gap in quality of experience, relative to anything else in same price range," he said. "I think Chipotle has a great management culture, is differentiated from the competition, and has the luxury of having created the category."
Mendez also thinks that the burrito chain shouldn't be too worried about its core consumer defecting to other fast-casual brands, especially those they may have discovered while taking a break from Chipotle during the height of the food-safety issues. "My feeling is people have tried other things, and some of those consumers will never come back to same frequency," he said. "But my belief is that’s less than 5% [of the customer base], a very small sliver of core consumer."
Following the release of the earnings results shares of Chipotle, which closed Thursday's regular trading session up 0.7%, yo-yo'ed in and out of negative territory in the after-hours session. The stock is currently down 0.8%. Year-over-year, shares are down 10.1%.
