When are people going to recognize that Chipotle's (CMG) different, that it isn't going to lose loyalty over time and that the problems it has are short-term in nature? Sure, there are issues. The company looked like it was on the comeback trail with comparable sales for February starting to improve from the minus-30s in January to the mid-20s and still would have been if there wasn't a lone closing of a store because a few employees were sick.
The fact is, though, that its much-touted free burrito offer is working, with a 20%-30% redemption of coupons, according to the company, and that's, quite frankly, extraordinary. The company issues 21 million coupons and 5.3 million downloaded the offers, although it's been used by 2.5 million people so far. You've got until May 15 to use them.
The company also has incurred some legal costs related to a federal government investigation into the issues involving the original E. coli problem. Altogether, Chipotle's looking for a buck a share loss, far higher than some who thought the company could actually be making money this quarter.
OK, let's get some things straight: I don't know who in heck thought they would be making money with all of this bad news. I also have no idea how anyone thought they were going to recover overnight given the headlines of both the E. coli outbreak in the West and the norovirus outbreak in the East.
Also, given that Chipotle's adjusting from its classic farm-to-table strategy to something that is certainly more complex, sending some of the ingredients to a central location, making sure that E. coli is killed before sending it to stores in vacuum-packed containers, who could have ever thought that the expenses of the new system, including all sorts of training, wouldn't be sky high? Plus, the burrito giveaway alone could cost up to $60 million.
But you know what? You know who believes in Chipotle? First, management, including one of the best CFOs in the world, Jack Hartung, who announced that the company has repurchased about $787 million in stock since November and has another $250 million to buy.
And the others? The customers. I think the brand loyalty is amazing here and they take the long term: They'd rather risk short-term sickness vs. long-term health concerns from junk food. We may be short-term on Wall Street, but customers are clearly long-term in their approach to this fabulous company.
Plus, history is on Chipotle's side. In 2006, 71 people in five states got E. coli poisoning from eating at Taco Bell. While the comparable store sales fell nowhere near what Chipotle's did, hitting a minus-11% comp, the numbers started turning up less than a year later.
Twenty-three years ago, 600 people contracted E. coli poisoning from undercooked hamburgers at Jack-in-the-Box (JACK). Four children died and nearly 50 had acute kidney failure. Amazingly, Jack came back and it's alive and well, even as the company reported very disappointing sales last quarter despite having Qdoba going up against the hobbled Chipotle.
Does this mean you need to buy Chipotle's stock right here, as management is with its corporate buyback?
I have been recommending the purchase of Chipotle ever since it was $399 and then bounced back to the mid-$400s. I know the stock was down 30 in early trading, hitting $479, and there was the usual cat-calling at the extremely unfriendly @JimCramer on Twitter, but I said to buy it and then the stock cracks $500.
I just don't think you get much of a chance to buy something this high quality at this much of a temporary discount. Now, there is no hurry. It bounced back almost too easily. But I just want you to realize that all quick-serve companies are not created equally. This is the most responsible one on Earth, barring Shake Shack (SHAK), and if Taco Bell (YUM) and Jack can come back from far more serious incidents, I remain confident that this, too, shall pass.