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Chipotle giveaways may be key to recovery

A employee sprinkles cheese on a burrito at a Chipotle Mexican Grill restaurant in Hollywood, California.
Patrick T. Fallon | Bloomberg | Getty Images
A employee sprinkles cheese on a burrito at a Chipotle Mexican Grill restaurant in Hollywood, California.

Chipotle Mexican Grill's giveaways may have gained some traction ahead of the embattled chain's earnings Tuesday.

The restaurant, which had its earnings and stock price battered by an E. coli outbreak, has turned to freebies this year to bring back customers. Company watchers have been split on how much the promotions will help Chipotle recover.

Chipotle's shares have dropped more than 30 percent in the last year in the wake of food safety concerns. Last month, the restaurant said it expects a loss of $1 per share or more in the first quarter, driven by higher costs for food safety, legal and marketing efforts.

As Chipotle gets set to report Tuesday, one firm feels the promotions may be helping.

Forty-one percent of Chipotle customers who received a coupon visited the restaurant 3.8 times in the prior 30 days, compared with 1.4 times for the 59 percent of guests who did not receive a promotion, according to a Cowen and Company survey conducted in the first week of April.

Cowen, which has a "market perform" rating on Chipotle with a price target of $430 per share, said the survey leaves it "incrementally positive" on Chipotle's recovery. However, the firm noted that Chipotle's "most loyal customers" may use an "outsized amount" of the coupons, as a recent text promotion showed higher redemption rates than a direct mail effort.

The Wall Street Journal noted Cowen's results earlier Monday.

But not all company observers felt the freebies helped. In a March note, Credit Suisse analysts said the giveaways "have likely helped traffic in recent weeks, but at the expense of 'real' sales."