Chipotle Mexican Grill Inc (NYSE: CMG) had a tough couple of years. CMG stock went from one of the hottest new-wave fast-food companies to a struggling behemoth that many were worried wasn’t going to pull out of its nose dive.
CMG is known for its made-fresh products with high-quality ingredients at a reasonable price. And that reputation brought it a huge amount of business because it tapped into two things that millennials and Gen Zers love: quality-sourced ingredients and curated products.
The problem was, CMG was growing so fast that management was deaf to some of the problems that seemed to be occurring with increasing regularity — tainted ingredients.
It was becoming commonplace that stores were being shut down across distribution channels — locally and regionally — for issues with tainted produce. Most of the time, the lettuce was showing up with salmonella or listeria, which after a while started to damage the company’s image as a pro-environment healthy alternative to “factory” fast food.
CMG Stock Finally Addresses Its Issues
In 2016 and 2017, management finally was forced to come to grips with the issue before CMG lost control of its brand completely. Late last year, they made the move to replace founder and CEO Steve Ells with a new CEO to recover some of the lost momentum.
And in the past year, it has worked.
CMG is up over 60% year to date and its Q3 earnings were solid, if not stunning. Much of the stock run is from depressed levels, so this kind of return may not be realistic every year, but it does look like new CEO Brian Niccol has the restaurant chain back on track.
Niccol has implemented a five-step plan to get CMG moving again:
- Become a more culturally relevant and engaging brand.
- Digitize the restaurant experience.
- Run great restaurants with great hospitality and throughput.
- Be disciplined and focused to enhance economic model.
- Build a culture that can innovate and execute across digital, access, menu and the restaurant experience.
What we saw in the Q3 numbers was encouraging signs that numbers 2 and 3 on this list were showing signs this plan is paying off.
First, digital orders are on the rise and CMG is putting in second lines in its restaurants so that there is a dedicated staff to expedite digital orders for pick up. This is already helping increase same-store sales.
Second, a price rise helped boost revenue. A 3.8% price rise helped boost same-store sales growth 4.4% for the quarter and revenue was up 8.6%. Sometimes, management is reluctant to raise prices when it’s handling brand issues, so this was a brave move that worked well.
Also, margins were growing. This is especially encouraging. And best of all, digital sales were up 48%, which shows that there is significant room for growth from this facet of the business.
Chipotle has a plan, it’s executing that plan and that plan is working. What’s more, a more confident consumer means that dining out is a more likely choice. And that is going to mean continued strength for CMG stock.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.