Restaurants

Chipotle shares up about 4% as sales improve, investors shrug off light earnings forecast

Chipotle stock rises on improving sales
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Chipotle stock rises on improving sales

Chipotle shares rose nearly 5 percent Tuesday after the burrito chain reported a smaller decline in same-store sales during the fourth quarter.

Sales at Chipotle's established restaurants fell 4.8 percent during the fourth quarter, thanks to a lift in November and December. After plummeting 20 percent in October, comparable sales improved in the final two months of the year, as the chain faced easier comparisons from the prior-year period.

Chipotle's same-store sales slipped just 1.4 percent in November, and increased 14.7 percent in December.

A highly publicized E.coli outbreak sent the company's results in a tailspin in October 2015. Since then, the stock has dropped nearly 50 percent. Chipotle had previously told investors that comparable sales would fall in the low single digits during the fourth quarter.

The restaurant chain also reported sales and an earnings forecast for the three-month period that came in short of Wall Street's expectations.

During the three-month period, Chipotle's overall sales rose to $1.04 billion, from $997.5 million a year ago. However, that was below Wall Street estimates for $1.05 billion.

The burrito chain was saddled with higher-than-anticipated expenses during the quarter, due to increased spending on promotions and advertising. It also incurred higher food costs due to the rise in avocado prices.

The company expects to earn 50 cents to 58 cents a share, which is well below the consensus estimate of 96 cents.

Nomura-Instinent analyst Mark Kalinowski anticipates that promotional spending and advertising costs will remain issues for the company in 2017. He lowered full-year estimates for 2017 and 2018 by 60 cents each, to $8.40 and $12.40, respectively.

Chipotle has continued to struggle to move on from a string of high-profile foodborne illness outbreaks despite marketing and promotions, including a three-month loyalty program called Chiptopia. These efforts helped swing the company back to profitability, however, they were a bit shy of analysts' expectations.

Investors hope a board shakeup could help spark a turnaround for the company. In December, Chipotle named four new members to its board, including two aligned with Bill Ackman's Pershing Square, which took a nearly 10 percent stake in the company last year.

Both CtW Investment Group and Amalgamated Bank had previously criticized the Denver-based company for having an insular board that lacked racial and gender diversity. Critics also said the board doesn't have enough experience in the restaurant industry. These investors own a large stake in the company and have been instigating for changes.

Three of the incoming board members have food or restaurant industry experience and one has legal expertise.

(UPDATE: This story was updated to include recent stock activity and further background on developments at Chipotle.)