Burrito blues: Chipotle stock plunges

Shares were priced so high that any bump in the road could take them down.

By Kim Peterson Jul 20, 2012 12:58PM
Updated 4:25 p.m. ET

Chipotle Mexican Grill
(CMG) shares plunged 21% Friday after the longtime market darling missed revenue expectations on slowing sales.

At least four brokerages cut price targets on the stock, and Goldman Sachs (GS) booted Chipotle from its "conviction buy" list. Other restaurant chains that have seen similarly hot growth in recent years were also hit. Buffalo Wild Wings (BWLD) closed down 3.5%, and Panera Bread (PNRA) fell nearly 4%.

Post continues below.
Chipotle closed Friday at $316.98 after falling to a low of $309.01. The stock reached the $440 mark earlier this year, an astonishing rise from $40 in late 2008. Shares had been pushed up to unrealistic levels, leaving them primed for a fall.

But Chipotle's quarter wasn't actually that bad. The company just couldn't meet the high expectations Wall Street placed on it after years of rocketing growth. Same-store sales were up 8% -- what chain wouldn't love growth like that? -- but analysts wanted to see a 10.1% gain.

Profit rose 61% to $81.7 million, or $2.56 a share. That was far, far better than the $2.30 per share analysts had expected.

Revenue grew 21% to $690.9 million, but analysts were looking for $707.3 million.

Then Chipotle's executives used the "s" word -- slowdown -- in a conference call to discuss the quarter. "We were humming along nicely in the first quarter. We were humming along nicely in April. And then we saw a slowdown," chief financial officer John Hartung said. "It's pretty broad based. It's not a significant slowdown, but it is a slowdown."

Chipotle, along with the overall restaurant sector, finds itself stuck in that painful intersection of slowing consumer spending and rising food costs. If consumer spending continues to drag, expect Chipotle's same-store sales to take further hits, Raymond James analyst Bryan Elliott wrote in a client note.

Another analyst, Andy Barish at Jefferies, worried that same-store sales growth had peaked. "We are concerned about the company's lack of organic sales-driving initiatives," he added, cutting his price target on the stock to $305 from $362, according to Reuters. The stock was downgraded by Janney Capital Markets and Deutsche Bank.

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65Comments
Jul 20, 2012 1:57PM
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Since the crack down on ilegal immigrants on Chipotle the service has been terrible!!!! I'm sorry but substituing people who wanted to work and worked hard for lazy teenagers will do that to a company. I used to go there at lunch time during the week, no matter how long the line was, I got out there in 10 minutes, now i go during the weekend off time, 3 people in front of me and it takes 30 minutes. The service is in the same direction as their stocks.
Jul 20, 2012 3:23PM
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No wonder our economy is screwed up.  A company continues to grow and show a profit and they downgrade it. 
Jul 20, 2012 4:13PM
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Apparently Chipotle's prices are not uniform throughout the country as I have certainly never paid $10 for a burrito there.  Apparently some people don't know what a burrito is reading a few of the other comments.  My advice would be if you don't like it don't eat there.  As for the stock that is a different story.  Over heated stock pulls back because starry eyed analysts think growth potential is unlimited.  You wonder sometimes how people who are supposed to be so smart are actually so stupid.

Jul 20, 2012 3:15PM
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I don't know about anyone else, but the quality of the Chipotle by our house has been going down, and quickly.  I used to never be able to pass up Chipotle when we got it at work, now I pass it up almost every time....
Jul 20, 2012 4:03PM
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When I worked at chipotle and they told us to give smaller portions ( tap the spoon so most of the product would fall off before it reached your burrito.) and streach the food ( put water in the sour cream).

Im glad they finally started getting in trouble for employing illegals.

Jul 20, 2012 3:07PM
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i dont know but 20$ for 2 burritos  really?? little pricey  they are good though gotta give em that
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Chipotle is great, but honestly, who wants to spend $10 on a burrito when you can get something cheaper someplace else or even make it yourself. I understand the entire initiative to be greener and eat organic and so forth, but there has to be some sort of exposure to the cost of these materials as well. Middle class Americans aren't just going to start spending this kind of money when the economy isn't thriving as it should
Jul 20, 2012 3:55PM
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chipotle is the only fast food resturant that serves real food and thats why ppl go there. not factory farm garbage. the prices are great. food is not a toy. its important and the prices are worth it. honesty of the animals and envirmoent as well as the consumers is whats most imporant. i dont like shadyness. i go to chipotle all the time.

Jul 20, 2012 3:55PM
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WIth the rapid growth of the Latino community in the U.S., if you like Mexican, Tex-Mex or Central American-ish cuisine, you no longer have to depend on some franchise to get your fix. Why do you think  Taco Hell almost exclusively caters now to  the buzzed teen and college-age demo in search of snackfood  at 3 AM?
Jul 20, 2012 4:39PM
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I've eaten at 1 chipotle and there food is pretty good. I watch them make my steak bowl and if they give me less meat or any other condiments I tell them I want more and they will give you a little extra. Also I go right before they close so they will give you more because they don't want to have any left over after they close. Plus if you order a meal and a drink it will cost you around $10. No drink and it's under $8. There are no $10 burritos where I eat unless you add extras that cost more $ like guacamole. And you can't compare Chipotle to Taco Bell. Different quality of food all together.

Jul 20, 2012 3:10PM
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The fare at Chipolte is over-rated and overpriced.  Barely a cut above Taco Hell, it's a nightmare of a place to eat.  Shareholders were shocked and surprised when the stock rose from $40 only four years ago to more than $300, and those who were smart cashed in and never ever ate there!!!
Jul 20, 2012 3:39PM
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Chipotle is a great restaurant, if you like a burrito that is the size of a 6-inch sub sandwich filled 80% with rice, 10% meat, and the rest filler.  However, if you are smarter than a 5th grader, go elsewhere.
Jul 20, 2012 5:09PM
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Love Chipotle! My husband and I are on a gluten free eating regimen. Their salad is so filling and delicious and the fact that their food is fresh and their meat is antibiotic free, is great news!

 

Jul 20, 2012 5:15PM
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Chipotle has the worst Mexican food I have ever eaten
Jul 22, 2012 12:14AM
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LOL.  Analysts downgrade stock AFTER IT TANKS.  FRAUDS, all of them.
Jul 20, 2012 4:49PM
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I can probably be right in saying that people who eat in these types of establishments no matter how good it tastes are probably overweight.All types of health problems will occur if we let our children eat in fast food establishments.Lets face facts as we see parents too tired to cook,fast food will always be the substitube.
Jul 20, 2012 4:41PM
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with the proliferation of "mom and pop" mexican restaurants; who would ever dream of of eating at a chain mexican fast food joint as in taco bell or chipotle? my wife and i patronize a local restaurant in this city that is attempting to revitalize its downtown. in three or so years, we've seen nothing but a success. the place is always packed, the food is genuine, as the owners are mexicans, and the portions are overwhelming. the servers aren't local, who cares as to their origin and the place is clean, friendly and seemingly, here to stay.   
Jul 21, 2012 12:27AM
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This is just another Krispy Creme Story. How do you justify the P/E multiple and the price of the stock. Just compare this company to someone like MacDonald or Starbucks. The number of store's the number of employee's the number of countries its in world wide. Look beyond the hype, the food, the experience, feel good its organic and this is just another stock ripe for short sellers. 
Jul 20, 2012 4:59PM
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When I lived in Portland Oregon, 8 years ago, I couldn't get enough of Chopile Grill...I loved their mouthwatering steak....actually I loved it all! Then I relocated moved to Washington state, and I was a disappointed that there wasn't a CG anywhere in the town I was living in. So 4 years when later I moved to Phoenix Arizona and I was ecstatic to see my favorite restaurant! I had to have a burrito bowel a.s.a.p.! I went to 3 locations at separate times. The first two was alright, although there was something missing. There wasn’t that KICK that sparked my taste buds... but I kept eating. But the last CG I dined at, the one in Surprise, I noticed that the beef was grisly... chewy.  I spent longer than necessary chewing just one piece beef. But I kept eating, hoping my next bites would get better....nope. I went again a couple weeks later thinking things would be better, hoping I could get back to that flavor that hooked me in Portland...nope. I don't know, but something about the last two visits of trying to eat chewy beef....turned me off. I mean just thinking about it makes me feel like… Ugh!  

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