Burrito chain Chipotle Mexican Grill Inc (NYSE:CMG) posted better-than-expected fourth quarter earnings on Tuesday night, but shares slumped after a bearish ‘sell’ note from US broker Stifel.
For the three months ended December 31, Chipotle saw revenues rise 7.3% to US$1.1bn, while comparable sales – a key industry metric – increased by 0.9%.
Revenues were in line with Wall Street expectations, while the sales figure was slightly ahead of forecasts.
Chipotle attributed the small beat to its decision to raise prices on most of its menu items at certain restaurants, which helped to boost average spend and balance out a fall in transactions.
The issue for analysts was the decline in traffic, a trend that Chipotle expects to continue over the next few months at least.
“We expect negative traffic to persist,” Stifel analyst Chris O'Cull wrote in a research note.
“The company seems to be relying on easier comparisons this summer, rather than any initiatives to reverse the trend. We believe improving traffic could prove especially difficult following the 5% menu price increase.”
O’Cull downgraded the stock to ‘sell’ from ‘hold’ and lowered his price target to US$250 from US$310.
Chipotle has struggled to regain consumers’ trust after a series of food-borne illness outbreaks a couple of years ago caused diners to flee.
In its earnings release on Tuesday evening, the company said it was aware of these issues and was making efforts to improve its reputation.
That said, same-store sales in 2018 are only expected to register low-to-mid single digit growth, an outlook that O’Cull said was “more bleak than anticipated”.
Chipotle shares lost 10.71% to US$271.74..