Article

Chipotle CEO: 'We still have much work to do'

Despite missing analysts' marks, CEO Steve Ells said he's as optimistic as he was when starting Chipotle nearly 24 years ago.

October 25, 2017 by Cherryh Cansler — Editor, FastCasual.com

Chipotle is hoping its turnaround strategy of elevating the customer experience is enough to put the once industry leader back on top.

The chain, this week, reported revenues were up 8.8 percent, to $1.3 billion, for third quarter ending Sept. 30. Comparable restaurant sales also increased 1 percent, but that is still slightly below the 1.1 percent increase Wall Street analysts expected, according to FactSet. 

Chipotle reported net income of $19.6 million (69 cents per share) which is up from $7.8 million (27 cents per share) over this time last year, but adjusted earnings came to $1.33 per share, far below the $1.56 per share analysts expected, according to Zacks Investment Research.

After the results hit, company shares, which were down 14 percent this year, fell $46.87 to $277.58 Wednesday morning.

Despite the earnings missing analysts' marks, CEO Steve Ells said he's as optimistic as he was when starting Chipotle nearly 24 years ago. 

"Since last fall when I acknowledged that many of our restaurants were not meeting my expectations, we have made incredible progress," he said Tuesday during an investors' call. "The guest experience is improving, and our crews are energized and engaged. 

"We still have much work to do, but we have the right team, the right strategy and a commitment to seeing it through. Our teams are excited, and ultimately, our customers are the ones who will benefit most."

Focusing on the experience
The chain, Ells said, has made a lot of progress toward improving the guest experience by simplifying operations, ongoing crew and manager training, improving the execution of digital ordering, increasing marketing and improvements in customer sentiment and a continued focus on serving safe, wholesome and delicious food.

"Despite several unusual impacts during the quarter, including the impact of hurricanes, we maintained our focus and saw some encouraging signs," he said. "Our leadership remains focused on setting the foundation for future growth, and we are confident in our teams' ability to deliver against those plans," he said.

The chain, Ells said, eliminated dozens of needlessly complex measures and tasks, freeing up more time for training, hiring, marketing and customer service. 

"And we restructured our bonus program for restaurant managers and field leaders to focus on five key metrics that are easily understood and that are within the control of our managers and field leaders," he said. "We're already seeing this translate into decreased turnover, better customer service scores, better digital sales support, labor efficiencies and improvements in other key performance metrics. We anticipate that we will see continued improvements in these areas over time."

Focusing on digital ordering
Ells said the company is stepping up to support the increase in digital orders. 

"Through the first quarter, our online sales have increased 53.5 percent over the prior year, and we have set all time digital ordering records. Much of this improvement is related to the implementation of our smarter pickup times technology, which dynamically assigns pickup times based on transaction volumes in conjunction with our teams' commitment to providing accurate and on-time digital orders."

Chipotle now fulfills digital orders from a second dedicated make line in the back of each of restaurant led by crews specifically trained to prepare digital orders. 

"Orders on the second make line do not impact throughput or our ability to provide an excellent experience on the main service line, Ells said. "We're excited about the incredible potential of digital ordering and confident in our teams' ability to fulfill these digital orders."

Outlook
For the full year 2017, management expects:

• Comparable restaurant sales increases of about 6.5 percent.
• Restaurant openings slightly below the low end of the previously disclosed range of 195 to 210
• An estimated effective full year tax rate of approximately 39.1 percent

For 2018, management expects:

• 130 to 150 restaurant openings.
• An estimated effective full year tax rate of approximately 39 percent.

About Cherryh Cansler

---

Cherryh Cansler is VP of Events for Networld Media Group and publisher of FastCasual.com. She has been covering the restaurant industry since 2012. Her byline has appeared in Forbes, The Kansas City Star and American Fitness magazine, among many others.

Connect with Cherryh: