Will Slower Sales Force Chipotle to Open Fewer New Locations?
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Even though same-store sales are down 20% or more at Chipotle Mexican Grill (NYSE: CMG) following last year's foodborne-illness outbreaks at a number of the chain's locations, its executives have been clear that they intend to continue growing the company briskly.
Chipotle has opened 116 restaurants so far this year, which is about half of its total planned openings for 2016, Co-CEO Monty Moran explained on its second-quarter conference call last month. The company also has a strong pipeline of real estate locations under consideration, Moran went on to note.
But while Moran reiterated his claim from the first quarter that Chipotle doesn't intend to throttle the pace of new restaurant openings, he also seemed to leave room for that possibility. You can get a sense for this view by comparing the language he used on the different calls.
Here's what Moran said in prepared remarks on the company's first-quarter conference call:
And here's a selection from Moran's much lengthier prepared remarks on the same topic in the second quarter:
Moran then proceeded to say:
If you cut through the jargon, Moran's point is that Chipotle will now be more selective when it comes to picking new locations. Most importantly, as opposed to opening restaurants in new areas, it will favor tried-and-true markets with the "strongest track record of opening sales."
The impact from the strategic shift will thus primarily be on where Chipotle opens new stores, and not on how many it opens. That, at least, is the burrito chain's story right now.
You'd be excused for being skeptical. As I've written recently, since the start of its troubles last year, Chipotle's balance sheet has been under siege. Its cash is down 70% from the third quarter of last year, while its cache of investment securities has contracted by 40%.
If these trends continue, Chipotle will have little choice but to temper its growth targets. This wouldn't be a positive sign for investors, but it also isn't the end of the world, as Chipotle's top priority is righting its current ship, not building new ones.
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John Maxfield owns shares of Chipotle Mexican Grill. 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.