Down, But Not Out: Chipotle Returns To Profitability In Q2’16, Despite Weakness In Top Line

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CMG: Chipotle Mexican Grill logo
CMG
Chipotle Mexican Grill

Chipotle Mexican Grill (NYSE: CMG) released its June quarter earnings on 21st July, 2016. Although the top-line continued to suffer, Chipotle reported a return to profitability for the first time since the E.coli controversy.

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Chipotle’s revenues were down 17% on an annual basis, despite its efforts at re-branding itself and improving its reputation with initiatives like Food With Integrity. The company maintained a strict control over its operating expenses, improving them 2% y-o-y in absolute terms, helped by lower commodity prices. However, as a percentage of revenue, operating expenses continued to be higher, likely due to heavy spending on advertising and marketing campaigns that Chipotle has undertaken to restore its brand image.

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Earlier in the year, Chipotle had disclosed plans to grow its top-line through new store openings, and increasing store sales using promotional offers and reward programs. The comparable store sales data has been in the red for the company since a series of contamination events hit its outlets last year. However, Chipotle’s marketing efforts and decision to introduce a new menu item,”chorizo,” somewhat paid-off, as it saw a 5 percentage point improvement in comparable store sales growth in Q2’16.

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Furthermore, the company said it will be continue to concentrate on spending on promotional offers as it tries to win back its customers. The launch of Chiptopia reward program is a step in this direction. With more than 3.6 million participants and approximately 30% of all transactions occurring through Chiptopia, it is to be a big part of the company’s strategy, going forward.

 

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Chipotle Mexican Grill

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