The Worst Fast Casual Stocks of 2016

By Daniel B. Kline Markets Fool.com

While many restaurant chains proved resilient in a market where growth proved hard and the total number of people eating out declined, two fast casual chains were not able to keep pace.

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The first company,Chipotle(NYSE: CMG), suffered due to its high-profile food safety scandal and a customer base that has been very slow to forgive. The second, Noodles & Company (NASDAQ: NDLS), simply saw itself get lost among the competition, suffering not because customers chose to eat at different restaurants, but because in many cases potential customers chose not to eat out.

Both Chipotle and Noodles & Company saw major drops in their share price in 2016. Going forward into the new year, both also have big plans to turn things around.

Image source: YCharts.com.

What went wrong at Noodles & Company?

As you can see from the chart above, Noodles & Company had a rough year. Its shares opened the year at $9.61 and closed on Dec. 23 at $4.55, a 52% drop in value. The company also abruptly lost its longtime CEO in July when Kevin Reddy stepped down.

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Reddy, who led the chain since 2006, was not necessarily forced out, but he left after the company said it expected same-store sales to be down 0.9% at company-owned units and down 2.1% at franchised restaurants. That followed a Q1 when same-store sales were flat for company-owned restaurants and down 0.5% at its franchises.

The chain has been losing money as well reporting steady losses all year, including a $9.8 million shortfall in Q3, the most recent quarter it has reported on. That number is actually flat from the third quarter in 2015, so at least the loss has stabilized. Interim CEO and CFO Dave Boennighausen believes the pieces are in place for a turnaround.

"Despite the results of the third quarter, I am convinced that we are making important progress, implementing strategies to increase operational consistency, enhance our menu, and improve our profitability," Boennighausen said. "While the opportunity for substantial improvement in our financial performance will take time, we are seeing steady progress in our top-line results and are positioning the company to improve long-term shareholder value."

Image source: YCharts.com.

Chipotle had a lousy year

The Mexican eatery was hit with a series of E. coli outbreaks beginning in July 2015 and the company's stock price was hurt throughout 2016 as diners simply did not come back. Chipotle shares began 2016 at $468.70 and closed on Dec. 23 at $389.77, a 16% drop.

That's not actually quite as big a fall as you would expect given that the company has steadily reported major drops in sales. In Q3 alone, the most recent quarter it has reported on, the company saw revenue drop by 14.8% and comparable restaurant sales fall by 21.9%. Year to date through nine months the company has seen revenue drop by 18.1% and same-store sales decrease by 24.9%.

Despite all of those red numbers, CEO Steve Ells sees a better year ahead.

"We continued to make steady progress in our sales recovery during the third quarter," Ells said. "We are earning back our customers' trust, and our research demonstrates that people are feeling better about our brand, and the quality of our food."

Ells, who became the company's sole leader in mid-December after co-CEO Monty Moran stepped down said 2016 was "a year of reinvestment," and noted that he expects "to further recover sales and improve our economic model to create long-term shareholder value" going forward.

2017 can only get better

Both Chipotle and Noodles & Company are likely happy to see 2016 end. Any year in which you underperform and lose a CEO counts as one you're counting the days until the end of.

Both companies have different paths back to success. The noodle chain needs to find a clear identity in a crowded market. Chipotle, on the other hand, needs to simply convince people that its problems are behind it. Neither one has an easy road, but both have shown some small steps toward making 2017 a better year.

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Daniel Kline has no position in any stocks mentioned. He is crushed by the news of Carrie FIsher's passing. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.