Chipotle is Giving Away Millions of Free Burritos to Lure Back Wary Customers

Chipotle bosses will now see pay linked to share-price performance
Provided by MarketWatch

In an effort to accelerate a recovery from E. coli outbreaks that pushed share prices to low points in recent months, Chipotle Mexican Grill Inc. has given away millions of burritos and says it will offer millions more.

Chipotle   received 5.3 million requests for free burritos over about five hours when every restaurant was closed on February 8, a “rain check” to customers who couldn’t purchase food, Chief Creative and Development Officer Mark Crumpacker told attendees at the Bank of America Merrill Lynch Consumer and Retail Tech Conference.

“[T]hat was about 14,000 per minute at peak,” said Crumpacker, who said the company had anticipated 2.5 million participants. The company saw a 67% redemption rate, he said.

Of course, giving out free burritos isn’t free. In an after-hours regulatory filing posted on Tuesday, Chipotle said it will incur higher-than-expected expenses during the quarter, in part due to marketing and promotions.

Executives noted that there weren’t any new costs incurred, and “everything that we’re seeing in the first quarter is largely confined to the first quarter.” More importantly, they’re having the desired effect.

“[W]e bring customers into the restaurant via a free burrito offer, our restaurants will be full, we would remind people about what an authentic Chipotle experience really feels like, what a full restaurant feels like, again, and then they would return and pay for their burrito and that’s happening,” said Chief Financial Officer Jack Hartung.

Another free burrito promotion is already underway, with six million to 10 million direct mail offers already in the market and a total of 21 million planned. The company expects redemptions to be lower for the promotion, which ends May 15.

Though the company did provide a weak outlook in the filing, and suffered a setback with the most recent news of ill workers in Boston, executives expressed confidence that all signs are pointing in a positive direction. With customers coming back, even if it’s for a free burrito, executives believe that trust is slowly being restored.

“We recognize that this will take some time, however, but we we’ve always taking the long approach, and we’re pleased the recovery is off to a good start, said Chief Executive Steve Ells. “We’re also confident that our strategy for the full year including our use of aggressive marketing and promotions activities will help welcome customers back.”

Though wary, analysts were largely in agreement, mostly maintaining their stock ratings and price targets.

“While still volatile week to week, the directional trend is net positive,” said Barclays analysts in a Tuesday note. They rate the stock equal weight with a $450 price target.

“Chipotle’s announcements contain several negative data points and read-throughs; however, we come away from the announcements feeling cautiously optimistic about the outlook for an intermediate-term same-store sales recovery,” BMO Capital Markets analysts wrote in a Wednesday note. Analysts rate the stock at outperform with a $550 price target.

SunTrust Robinson Humphrey maintained its buy rating, but raised its price target to $550 from $520.

“Although February same-store sales and first-quarter 2016 earnings per share guidance are lower than estimated, we expect investors to take a longer-term view on valuation given recovering (albeit slowly) sales,” analysts wrote.

Chipotle shares are trading at nearly $502 Wednesday afternoon. Shares are down 26.2% for the past 12 months, but up 4.4% for the year so far. The S&P 500 is down 1.5% for the year to date.

Written by Tonya Garcia of MarketWatch

(Source: MSN)

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