Let the new CEO's magic work at Chipotle (CMG) , it's very likely to serve up savory long-term gains.
To say Wall Street is bullish on new Chipotle CEO Brian Niccol would be a gross understatement. Since the former Taco Bell wonderkid was appointed to the top job on March 5, Chipotle shares have been hotter than its Tomatillo Red-Chili Salsa, skyrocketing by 42%. In the eyes of the market, Niccol's ability to cut through the fast-food clutter at Taco Bell with real innovation is a template long overdue at Chipotle. Already, Niccol has unveiled six new menu items that should have been available at Chipotle five years ago (see quesadillas).
A lack of innovation is one of many reasons why I slammed Chipotle in the past. So to see Niccol make an instant impact is impressive. This is how Chipotle's once strong sales and profit margins will begin to reverse course. Next up on the innovation front: some form of limited breakfast menu (which would be the first ever for Chipotle).
Ultimately, this early product innovation is called giving the market an early taste of what could lay ahead for Chipotle under the leadership of Niccol and his new team (another win for the brand). The market will expect more of this boldness when Niccol holds a key call with Wall Street after the close on Wednesday. I will be talking with Niccol in the evening after the call for TheStreet -- I got to know him while he was at Taco Bell so am looking forward to reconnecting.
Wall Street is generally optimistic on what he may unveil.
"CEO is expected to provide more specifics to his vision and plan within five focused areas: grow sales, margins and restaurant counts; elevate the brand; build sustainable performance; foster a people-first, innovative culture; and deliver best-in-class financial performance," says Telsey Advisory Group analyst Bob Derrington.
Wedbush analyst Nick Setyan, a long-time restaurant coverage guy, thinks Chipotle will reveal it's closing at least 100 under-performing restaurants. Again, another long overdue move as Chipotle opened up in some weak spots toward the tail end of prior leadership.
Turning around Chipotle and living up to now much higher investor expectations won't be easy for Niccol & Co. But there is so much opportunity for Chipotle it borders on laughable. For example, Domino's Pizza (DPZ) now gets more than 50% of its sales from digital orders compared to a measly 9% for Chipotle. Just getting to 20% would be a major deal for Chipotle -- it not only gets the sales, but will help pull in lucrative data that it hasn't had in the past. That means better marketing and a chance at rebuilding the customer base for good.
Couple these opportunities with Wall Street's love for Niccol (which should last into year end, at least) and Chipotle could be one of the best consumer discretionary names to own over the next one to three years. Don't get spooked if there is a selloff on the news Wednesday evening, it's just part of the process.
