Restaurants

Chipotle shares continue to nosedive on fears that customers won't come back

Key Points
  • Chipotle's stock has plummeted more than 17 percent since Tuesday when it posted fourth-quarter earnings that were only slightly better than expectations.
  • Cowen reports that foot traffic in February has been worse than the low levels seen in January.
  • The company said Tuesday it expects traffic will continue to decline through the middle of the year.
Source: Chipotle

Shares of Chipotle Mexican Grill continued to fall Friday as investors questioned whether the beleaguered burrito chain can draw customers to its restaurants.

Chipotle's stock has plummeted more than 17 percent since Tuesday when it posted fourth-quarter earnings that were only slightly better than expectations. Since then, shares have been hit by a number of stock downgrades, price cuts and reports that foot traffic in February has been worse than the low levels seen in January.

On Friday, shares were down more than 6 percent.

"If Facebook check-in's are indicative of traffic, data suggests trends deteriorated in the first week of February, ending the week below levels seen in January," Cowen analyst Andrew Charles wrote in a research note Friday.

Menu price hikes helped bolster Chipotle's sales in the fourth quarter, despite slowing foot traffic. The company said Tuesday it expects traffic will continue to decline through the middle of the year.

Cowen used Thinknum data, which compiled the number of "Were Here/Have Visited" check-ins on Chipotle's Facebook page, to determine how many people physically visited a Chipotle on a daily basis.

Charles determined that Chipotle posted a brief period of improvement in the first week of January, with Facebook check-ins down about 44.7 percent compared with the same period last year. He said that check-ins continued to deteriorate for the rest of the month, down 46.1 percent, 48.2 percent and 50.3 percent in the next three weeks.

In the first week of February, Charles reported that check-ins were down 54.5 percent.

"Proprietary survey data indicates the brand's quality as well as value perceptions are near trough levels both among the general population as well as the brand's core 18 to 34 year old consumer base," Charles wrote. "We are concerned upcoming efforts to drive sales are not enough to improve these measures" and meet investor expectations for same store sales.

Chipotle has struggled to regain customer confidence since a series of foodborne illness outbreaks caused diners to flee the restaurant chain two years ago. On Tuesday, the company said it was aware of these issues and was making strides to revitalize its reputation.

CEO Steve Ells said the company would be focusing on operational changes, digital innovation and restaurant renovations to enhance guest experience. The company plans to spend $45 million to retrofit second make-lines into existing and new restaurants, $50 million to upgrade interiors and exteriors of stores and $15 million to improve its IT infrastructure to help support its digital programs.