Chipotle's (CMG) back -- and it is back right on time. That's right, the company reported fantastic numbers Wednesday night, a colossal 6.1% comparable-sales number, coupled with healthy margins, including the persnickety labor costs that have bedevilled all fast food outlets these last few months.
It's been a long road back from the food-borne illness woes that plagued the chain -- first beginning in the summer and winter of 2015 and then, again in the summer of 2017. Those incidents crushed the comps and, of course, the stock, which traded as low at $250 back in February of last year.
It's a tour de force comeback -- and yet, in many ways, the move is right on time. You see, the American people are a forgiving and forgetful lot, if you give them time.
In 2015, a wave of e-coli issues hit Chipotle Mexican Grill stores in Oregon and Washington, and the chain had to close a large number of stores while it got a handle on the situation. It thought the problems were solved, but then in December of 2015 there was an outbreak of norovirus in Boston that caused a second wave of discontent and another drop in comparable-store sales.
And then in July of 2017 another norovirus incident struck a Virginia Chipotle, associated with lax employee sick rules. That came about the same time as a cellphone video of rodents falling from the ceiling of a Dallas Chipotle.
That was enough for the company -- and one year ago it brought in outsider Brian Niccol from "competitor" Taco Bell to be CEO, replacing founder Steve Ells, who had stepped down the previous November. I put quotes around competitor, because Chipotle, which I have interviewed for years through their fabulous CFO, Jack Hartung, always made it clear that Chipotle couldn't really be put in the same sentence as Taco Bell. It does not consider Taco Bell a competitor, given the huge number of preservatives in its burritos to keep them "fresh," another word deserving quote marks.
The change at the top, a brilliant one, and time, healed all wounds. What's incredible to me is that when I researched the other two restaurant incidents of note -- the infamous Jack in the Box e-coli incident in 1993, where 171 people were hospitalized and four people died, as well as the Taco Bell e-coli incident in 2006, where 53 people were sickened -- it took 18 months for traffic to bottom and then turn up, too.
Now, I am not taking anything away from Niccol. The man is a whiz. He's attacked negligent safety. He's fixed slow throughput. He's addressing drive-through. He's starting a loyalty program. He's got labor costs under control like no other chain, although burgeoning sales can make that happen.
His gross margins are up a staggering 210 basis points and the 6% comp shows an incredible flocking back to the chain, as only 2% came from increased transaction prices. Compare that to McDonald's (MCD) , which had a meager 2.3% comp-store gain in the U.S. and a 190 basis point DECREASE in margins.
It's a remarkable turn.
I find Niccol's strategies -- the big-think redo of the chain as a place of dazzling innovation -- and his tactics -- the blocking and tackling of running a good chain -- to be exemplary and a large part of the stock's run.
But Father Time gets some credit, too. The people forgot. They are back. And they seem to love Chipotle more than ever.
