Hubris is killing Chipotle!
Management currently does not have the capacity to make the type of decisions needed to set this company on a new direction. The evidence to support this claim was seen on last night’s earnings call, where the management team put forth a plan to fix the company that came across as reactive and not well thought out.
The management team is still trying to hang on to the past and can’t come to grips with reality – Chipotle is just another restaurant company. More importantly, there were a number of times in the very brief Q&A section where they contradicted themselves and made little sense.
Last night, the emphasis was on accountability, operational improvements, technological advances, and reassurance that management was taking the correct steps to ensure that the health scare is completely behind them. It is going to be a long road to recovery for CMG, and the numbers reiterate this, with same store sales leading the charge, down (21.9%) vs CM (18.7%) and 2-year SSS has been (9.7%) for the past three quarters.
The path to $250 is still very clear.
Editor's Note
This is an excerpt from a research note written by Hedgeye Restaurants analysts Howard Penney and Shayne Laidlaw. To learn more about their institutional research ping sales@hedgeye.com.
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