Chipotle restaurant sales jump in December, stock follows

(Reuters) - Chipotle Mexican Grill CMG.N on Tuesday reported a jump in December sales at established restaurants, suggesting the worst may be over for the burrito chain that has struggled to recover from a string of food safety lapses.

A Chipotle Mexican Grill is seen in Los Angeles, California, U.S. on April 25, 2016. REUTERS/Lucy Nicholson/File Photo

Chipotle shares were up 5 percent at $414.85 after the Denver-based company said same-store sales for December surged 14.7 percent, compared with a 30 percent drop the year earlier.

Still, shares in the chain remain far below their all-time peak of nearly $750 hit in summer 2015 as the company works to fix customer service issues and other operational shortcomings masked by its rapid growth.

The strong December sales were not enough to salvage the fourth quarter, which recorded a 4.8 percent same-store sales decline to mark a fifth straight quarterly drop. In late 2015 Chipotle was linked to outbreaks of E. coli, salmonella and norovirus that sickened hundreds of people.

Executives speaking at an investor conference on Tuesday reiterated their call for same-store sales growth in the high single-digit percentages for 2017. They noted that Chipotle’s 2017 performance will be compared to last year’s dismal sales results, partly explaining the improvement.

Chipotle, which also announced a $100 million share buyback plan, estimated it would report a fourth-quarter profit of 50 to 58 cents per share on revenue of $1.04 billion.

“The Street appears pleased with December same-store sales returning to positive territory,” Instinet analyst Mark Kalinowski said in a client note.

Those sales gains are likely to be in the double-digit percentages again for January, compared with a 36 percent drop in the year-earlier period, Kalinowski said.

Chipotle’s sales swooned in November 2015 when the chain was linked to a multi-state E. coli outbreak, and went into free fall in December after at least 80 Boston College students were sickened by norovirus traced to a Chipotle restaurant.

The company was forced to apologize for food safety lapses and promised to prevent future illnesses.

It since has used free and discounted food to lure back diners. Plans to revive the business also include improving customer service, doubling down on worker training, debuting new digital ordering technology and introducing new menu items such as spicy chorizo sausage.

Under pressure from investors, Chipotle recently removed co-Chief Executive Monty Moran and again made founder Steve Ells sole CEO. It also named new board members following pressure from activist investor Bill Ackman.

Chipotle incurred higher-than-expected fourth quarter expenses due to minimum wage increases and higher spending on advertising and promotions. It also called out a spike in costs for avocados, the main ingredient in guacamole.

Executives said 2017 initiatives would include marketing focused on digital ordering as well as a new scripted television series for children. They also said Chipotle is cutting unnecessary costs by switching to napkin dispensers that reduce waste and being more efficient with food and labor.

Reporting by Sruthi Ramakrishnan in Bengaluru; additional reporting by Abhijith Ganapavaram and Lisa Baertlein in Los Angeles; Editing by Shounak Dasgupta and Meredith Mazzilli