More than a year after several hundred people got sick eating at its restaurants, Chipotle Mexican Grill may -- or may not -- be making a comeback. It depends on how you look at it.
By one set of numbers, the restaurant chain is bouncing back. Revenue stopped falling in the second quarter and the company turned a small profit after recording its first-ever loss the previous quarter (http://quotes.wsj.com/…). By the end of the second quarter, a spokesman said, Chipotle had recovered 40% of its lost sales (http://tiny.cc/…).
But compared to the same quarter a year ago, revenue fell 17%, same-store sales sagged 24% and net income plummeted to $26 million from $140 million (http://tiny.cc/…). According to a survey by the Wall Street house Morgan Stanley, 25% of Chipotle's customers have stopped going or aren't going as frequently (http://tiny.cc/…).
Chipotle's stock is down more than 40% from its high last October. Even so, it boasts a price more than 60 times earnings in the last 12 months and 40 times projected future earnings. That's the highest price-earnings ratio of any publicly traded restaurant company (http://on.mktw.net/…).
That the stock could fall so far yet remain so expensive testifies to how high Chipotle was flying before it inflicted salmonella, norovirus and e-coli on its customers. Prior to its food-safety crisis, Chipotle was a cult stock almost on a par with Apple. The company had a magic touch. Millenials loved its burritos. They also loved its marketing, which combines promises of "food with integrity" with artful social-media attacks on conventional agriculture (http://tiny.cc/…). To many on Wall Street, Chipotle's growth prospects seemed almost unlimited.
If hedge-fund wizard Bill Ackman is right, Chipotle will fly high again. Ackman disclosed in early September that his firm, Pershing Square Capital Management, has bought a 9.9% stake in the company, worth about $1.2 billion. Chipotle, he says, "has a strong brand, differentiated offering, enormous growth opportunity, and visionary leadership (http://tiny.cc/…)."
Ackman's optimism baffles stock analyst Paul Westra. "We cannot fathom Pershing's operational or mathematical investment thesis," he says (http://on.mktw.net/…). Another analyst, Howard Penney, puts his view of Chipotle even more starkly: "Management doesn't know what they're doing (http://tiny.cc/…)." He thinks the stock has another 50% to fall.
On Main Street and Wall Street both, then, opinion on Chipotle is sharply divided. Depending on who is talking, the company is either on the cusp of a comeback or years away from turning things around. Time will tell.
The targets of Chipotle's attack marketing have enjoyed watching their competitor squirm, as I wrote a few months ago in "Want Sanctimony With Those Burritos? (http://tiny.cc/…)" It's easy to sympathize with them. When a company boasts of food integrity but ignores food safety, its comeuppance justifiably elicits smirks.
Competitors may even be tempted to think that a reputation built on food integrity will have an especially hard time recouping from doubts about food integrity. That's possible, but there's a more disquieting way to look at it: If a company with as much brand equity as Chipotle has a hard time coming back, how much harder will it be for others?
Either way, the lesson for the food and agriculture industry seems simple and basic. However you make or market your food, never, ever, make your customers sick. As Benjamin Franklin is said to have said, "It takes many good deeds to build a good reputation, and only one bad one to lose it."
Urban Lehner can be reached at email@example.com
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