Willingness to eat at Chipotle increasing; sentiment bottomed in Jan - William Blair

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A survey released late Thursday appears to show the worst may be over for Chipotle, with consumers showing more willingness to eat at the chain as negative sentiment from the company's E. coli scare fades.

"It appears that sentiment bottomed in January, with willingness to eat at Chipotle increasing after the company's digital coupon for a free entrée spurred improved traffic in the latter half of February," William Blair & Co. analyst Sharon Zackfia said in a research note.

William Blair has conducted monthly surveys of about 800 adults since November 2015, when the E. coli outbreak and food-safety concerns were impacting traffic. Chipotle's stock is down 18 percent since November, although it has retraced some of its losses, with the stock up 9 percent so far this year.

Last month, Denver-based Chipotle Mexican Grill reported revenue for the fourth quarter fell nearly 7 percent from a year ago. It said the downturn reflected a nearly 15 percent decline in comparable restaurant sales due to publicity during the quarter surrounding the food-borne illness incidents at a number of Chipotle restaurants.

The Return of Chipotle?
The Return of Chipotle?

According to Zackfia's note, the survey "suggests that Chipotle's recovery process has begun."

That's not to say all of Chipotle's troubles are behind it.

Analysts at Sterne Agee believe customer counts have regressed following the highly promotional mid-February period.

"As such, we believe it is likely that March will show a sequential deceleration in traffic trends versus February, which could be disappointing to the Street."

Chipotle is also facing a criminal probe at one of its Southern California locations, stemming from a norovirus outbreak last summer. On Jan. 28, the company also was served with a subpoena as part of a larger investigation.

Also, awareness of the E. coli outbreak remains high, at 80 percent since January, compared with 50 percent in early November, according to the William Blair survey.

The survey found that the number of people who are indicating a change in eating patterns at Chipotle since the food-safety outbreak "has been slowly but steadily improving." And while there remains a high "percent of rejecters," there's been a turn in sentiment and the chain's "regaining lost customers."

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