Chipotle Chokes On E-Coli ,"Rescinds" Guidance, Expects Up To 11% Collapse In Q4 Sales

  • The bad news - CDC says Ecoli has been discovered in 9 states owing to Chipotle
  • The reaction - Chipotle rescinds previous outlook, sees Q4 Comps down 8%-11%
  • The silver-lining - $300 million buybacks - so BTFD you fools!!

One wonders how much of the plunge in sales took place before the E-coli scare was unveiled several weeks ago, and how much of this 8K was goalseeked to explain "other", far bigger problems with the company?

 

From CMG Filing:

This report is filed to provide an update regarding the impact of the recent E. coli incident associated with Chipotle Mexican Grill restaurants.   The incident has had an adverse impact on financial and operating results thus far during the fourth quarter of 2015.

This report is also filed to announce that our Board of Directors has authorized additional repurchases of Chipotle common stock, with a total aggregate purchase price of $300 million, exclusive of commissions.
 
E. coli Incident Impact
If recent sales trends continue (as discussed below),  we anticipate for the fourth quarter 2015:

  • Comparable restaurant sales to be in a range of -8% to -11% (negative)
  • Non-recurring expenses during the fourth quarter of 2015 in the range of $6.0 to $8.0 million
    • The estimate of non-recurring expenses includes costs to replace food in select restaurants, lab analysis of food samples and environmental swabs, and retaining expert advisory services related to epidemiology and food safety; it does not include any estimate for legal claims and related expenses. 
  • Restaurant level operating margins of 22% to 24%
  • Diluted earnings per share in the range of $2.45 to $2.85
  • No impact to anticipated new restaurant openings during the fourth quarter of 2015

We are also rescinding our previously-announced 2016 outlook for comparable restaurant sales increases.  In light of recent sales trends and additional uncertainty related to the E. coli incident, we cannot reasonably estimate 2016 comparable restaurant sales at this time.
 
Sales Trend Detail
Sales trends during the quarter so far have been extremely volatile.  October comparable restaurant sales were positive in the low-single digit range.  When we announced the closure of 43 restaurants on November 3,  company-wide comparable restaurant sales dropped for the ensuing few days to approximately -20%.  The severity of the national impact was temporary, and when we announced the re-opening of restaurants in Oregon and Washington on November 10, 2015, comparable restaurant sales over the next several days quickly improved to approximately -9%.   On November 20, 2015 the U.S. Centers for Disease Control and Prevention (CDC) announced four additional cases linked to the same E. coli incident; following this announcement and related negative publicity, daily comparable restaurant sales trended down to approximately -22%.  Over the past five days, comparable sales have gradually improved to an average of approximately -16%.  For the full month of November, comparable restaurant sales were -16%.
If these sales trends continue, we believe comparable restaurant sales could be in a range of -8% to -11% for the three month period ending December 31, 2015.   Future sales trends may be significantly influenced by further developments, including potential additional announcements from federal and state health authorities.
 
Food Safety Commitment
As a restaurant company, nothing is more important to us than serving our guests food that is delicious and safe to eat.  Since this incident began, we have significantly increased our efforts to ensure that our teams are adhering to all of our food safety protocols, reassessed all facets of our food safety programs — from the farms that provide the ingredients we use, to the restaurants where we serve our customers — and made a number of improvements to help ensure that our food is as safe as it can be.  Among the new or enhanced programs we have put in place include high-resolution testing where a series of DNA-based tests ensure the quality and safety of ingredients before they are shipped, end-of-shelf-life testing to be sure quality specifications are maintained throughout the shelf life of an ingredient, continuous improvement throughout our supply chain based on test results, and enhanced internal training to ensure that our teams understand and  adhere to all of our food safety standards.  Collectively, we believe these changes will put us at the forefront of the restaurant industry in terms of food safety practices.    No Chipotle employees have been identified as having E. coli at any time during this incident, and we continue to serve more than 1 million customers on a daily basis.
 
Share Repurchase Authorization
This report is also filed to announce that our Board of Directors has authorized repurchases of Chipotle common stock with a total aggregate purchase price of $300 million, exclusive of commissions.  This repurchase is in addition to previously announced repurchase authorizations totaling $1.0 billion.  The Board’s authorization of the repurchase program may be modified, suspended or discontinued at any time.