iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
23,431 Blog Posts

Chipotle CFO: ‘We Bottomed in January. We Believe Our Customers Will Come Back’

The Chipotle CFO, John Hartung, is a smart man. He’s probably a great CFO and an even better merchant of Mexican styled chicken sandwiches. However, he has no idea how deep the rabbit hole goes, in regards to his brand being tarnished due to the recent spate of ecoli related illnesses, born out of his restaurants. Truth is, none of us know how Chipotle will end up, or where the stock will be in 6-12 months from now.

But this is what we do know. The stock is off by almost 50% since the outbreak occurred. Sales have plummeted to the tune of 30%, while costs have risen. The company is intent on leveraging into this maelstrom by opening up another 220 stores and also buying back $750 million worth of its stock.

For the quarter, the company lost $26 million, compared to netting $122 million the year prior.

Due to the share buybacks and operating losses, the companies cash position has dwindled to $250 million.

As of Q1 of 2016, the company had purchased $641 million worth of stock at an average cost of $463, for an unrealized loss of around $64 million.

cmg

 

Management is making a huge gamble with shareholder money, pretending they know what’s in store for the share price and gambling on whether or not another ecoli outbreak will be reported in one of their stores. Should that occur, this stock is going to get absolutely poleaxed. Why on earth is management taking on so much risk, when they themselves don’t even know the root causes of the contamination?

If they want to open another 220 stores, which will underperform by all historical CMG metrics, they should refrain from tossing money into a flaming barrel of garbage by buying back shares.

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12 comments

  1. feat

    Once people started substituting, they realized that yes, life does go on without Chipotle. Their biggest barrier is figuring out how to get FOMO back in their burritos.

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  2. NON Solo

    what happened with our index futures?

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  3. stockslueth

    I don’t expect this to move higher for a while. Who is going to buy enough to push it higher with these things in front of it?

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  4. mx2101

    Based on what I see around here, I agree with an earlier comment on this topic- the older customers are gone, leaving those under 35 or so.

    Despite the fact the health problem could be upstream, I suspect older folks see this as an irresponsible young person problem . i.e. low wage kids cannot be counted on to practice consistent food safety when it is necessary.

    This compares to other fast food places where food is frozen and far less can go wrong.
    By comparison, I understand In-n-Out pays decent money for a manager to provide “adult supervision”.

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    • The Maven

      I cannot heap enough praise on this comment.

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      • Marc David

        “low wage kids cannot be counted on to practice consistent food safety when it is necessary.”

        Herein Lies the failure to see the root cause. It’s a supply issue… not a low wage kid who can’t practice food safety directions.

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      • feat

        Empirical claims require empirical evidence my friend.

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  5. matt_bear

    When the hell did company metrics start mattering again? If the bots want to send this stock higher, they will.

    Why do people keep doing stock buybacks?

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    • btn

      Because:
      1) it’s much easier than actually increasing earnings,
      2) debt is cheap, and
      3) investors respond to buybacks like eager lemmings – even when that buyback blows a hole through real cash assets in exchange for overpriced stock.

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  6. skulduggery

    A store’s being built I’m my area, Del. Co. Pa., for the first time. Strangely enough, I plan to try it and piss in botulism’s face.

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