Chipotle to Report First Quarterly Loss Since IPO

03/16/2016 9:33 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

After announcing another double digit decrease in sales, Chipotle Mexican Grill expects to report its first quarterly loss since going public and Michael Berger, President of Technical420.com, expresses doubt about the company’s ability to maintain a premium valuation.

There is no such thing as a free lunch and Chipotle Mexican Grill, Inc. (CMG) is having a tough time learning that.

In mid-January, the restaurant chain announced a free burrito giveaway in an attempt to bring customers back. Their strategy, however did not work.

Expects to Report First Quarterly Loss

CMG has fallen more than 3% during pre-market trading after the company announced that sales were down 26% in February. CMG expects to report a loss for the first quarter as it works to recover from a series of food scares.

CMG previously said it expected its earnings per-share to be around break even for the period. Now, the company expects to report a loss of at least $1.00 per share. This would mark the first quarterly loss for the company since it went public in 2006.

We expect to see CMG report a loss closer to a $1.50 per share as sales actually recovered during February. In January, CMG saw sales decline by 36%!

Promotional Costs Continue to Increase

CMG has not said how many burritos it has given away and we expect to see the company continue to offer promotions in light of another store closing in Boston.

CMG does not report earnings until late April and we expect to see margins compress after accounting for the higher costs associated with its marketing strategy, promotions, and tightened food safety procedures.

Recovery Will Take Time

It is going to take more than one free burrito for Chipotle to gain back the trust of its loyal following. The company used to receive a premium valuation from Wall Street for having a cult like following. Chipotle faces a long road to recovery because bringing back those loyal customers is going to take time and CMG’s stock price is going to suffer.

If free food is the backbone of Chipotle's strategy to lure back its top customers who dine at least 25 times a year and account for up to 20% of sales, then the company is in more trouble than Wall Street thinks.

By Michael Berger, President and Founder, Technical420.com

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