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Chipotle CEO plans marketing blitz, closing up to 65 stores

Stock MarketsJun 27, 2018 08:03PM ET
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2/2 © Reuters. FILE PHOTO: The logo of Chipotle Mexican Grill is seen at a restaurant in Paris 2/2

By Alana Wise and Uday Sampath Kumar

(Reuters) - Chipotle Mexican Grill Inc (N:CMG) said on Wednesday the chain will shut up to 65 underperforming restaurants and revamp its marketing under Chief Executive Officer Brian Niccol, but many questions remain unanswered about what to expect under the new leadership.

Chipotle's share price has risen more than 80 percent since Niccol's hiring was announced in February and as the company focused on how to increase online sales.

Chipotle will add "in-app" delivery of its products to about 2,000 restaurants by the end of the year and launch a long-awaited loyalty program in 2019, executives said on a call with investors on Wednesday.

Executives did not say whether fast-casual dining menu items such as quesadillas and nachos would be added to the menu, and they brushed aside a question about international plans, saying they would focus on "aggressive growth" in the United States.

Shares fell 3.1 percent to $443 in after-hours trade after few details were delivered on how the beleaguered burrito maker would innovate its business model and improve its digital service.

"There are some key areas they really did not address, notably international strategy," Maxim Group analyst Stephen Anderson said.

"Also capital allocation, particularly in regard to share buybacks and potential discussion for a dividend. I still think it will happen but it is probably going to be about a year or two away," Anderson said.

Executives said costs from corporate restructuring would cause the chain to take between $115 million to $135 million in charges, including about $50 million to $60 million in the second quarter. The chain will close 55 to 65 restaurants.

Chipotle also said it would launch a customer loyalty program in 2019 and is exploring offering $2 tacos with a drink as part of a proposed "happy hour." The announced changes come as the troubled burrito chain seeks to recover after a rash of food safety lapses dragged on the brand.

After outbreaks of E. coli, salmonella and norovirus were linked to its restaurants in 2015, the company's share price plummeted as diners retreated and rival chains grew their numbers through wider offerings and clever promotions.

While Chipotle made its name as a pioneer of "real" ingredients, critics of the fast-casual chain have complained that its menu offerings have grown stale.

Niccol, the former chief of Yum Brands Inc's (N:YUM) Taco Bell who spearheaded the popular "Doritos Locos Tacos" and $1 Nacho Fries prior to joining Chipotle in March, is on track to bring some new flair to the chain's menu. Earlier this month, the company announced it is testing five new items, including quesadillas and nachos, at its test kitchen in New York.

Analysts and investors expect Niccol to steer the company in a more modern direction, including through technology improvements, menu expansion and potentially opening the brand up to franchising.

Analysts on average expect Chipotle's retail sales to grow 8.4 percent in 2018, following 15 percent growth in 2017 and a 13 percent drop in 2016, according to Thomson Reuters data.

Chipotle CEO plans marketing blitz, closing up to 65 stores
 

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