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Social media might be holding down Chipotle as hits continue

Wednesday, October 26, 2016 22:31
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(Before It's News)

In reporting its latest quarterly financial results, Chipotle Mexican Grill ended up again showing how its economic recovery is coming slower than many expected. And one financial expert says social media is to blame for the hurt the fast casual restaurant is still experiencing after making about 500 people sick in 11 states last year.

Chipotle Tuesday reported a plunge in third quarter earnings due to the past year’s multiple incidents of food poisoning. In reaction, its stock Wednesday fell more than 9.2 percent to $368.02 per share, less than half of its pre-outbreak high.

And while many newspapers headlined Chipotle’s report as “food safety woes take toll,” one expert thinks Chipotle’s problem is social media, not the financial press.

“It increasingly looks like outbreaks of foodborne illness are much harder for a chain to overcome in the social media era,” financial expert Don Burrows writes in InvestorPlace. “Intuitively, at least, it makes sense. And every time CMG struggles with same-store sales, it adds more anecdotal evidence to the case.”

Burrows says “the critical retail metric” for Chipotle is “same store” sales, sometimes called “comparable restaurant” sales. For those stores, open at least a year, Chipotle said third quarter sales were down 21.9 percent.

Chipotle can point to a slightly improving trend because same store sales were off 30 percent in the first quarter and 24 percent in the second quarter. Projections call for a return to positive same store growth in the “low single digits” in 2017. The fourth quarter comparison will be interesting because it will be measuring against the time last year when many Chipotle units were experiencing illnesses and/or were closed for a time.

Steve Ells, founder, chairman, and co-CEO of the Denver-based restaurant group, said the company’s third quarter figures contain signs of “steady progress” at winning customers back and helping people feel better about the brand.

It’s net income for the third quarter was $7.8 million, down dramatically from last year’s $144.9 million for the same period. Per share earnings of 27 cents this year for Q3 compared with $4.59 a year ago. The market plunge was likely due to failure to meet analysts expectations of $1.60 per share.

Revenue is off 14.8 percent over the year to $1 billion during the quarter when 54 new restaurants were opened, and only one closed. Chipotle restaurant openings are planned to total 220 this year and between 195 and 210 in 2017.

Since the six outbreaks it experienced last year, Chipotle has been investing in both food safety and marketing programs. Analysts say it has won back most of its most loyal customers, but still have problems with customers on both coasts who have other fast casual options.

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Source: http://www.foodsafetynews.com/2016/10/social-media-might-be-holding-down-chipotle-as-hits-continue/

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