Chipotle lifts its sales forecast even as a lettuce-linked outbreak slows foot traffic

By Bill Peters

Mexican fast-casual chain acknowledges 'softening' traffic in the second half of July, but it's taking a rosier view of its full-year prospects

Chipotle reported second-quarter results on Wednesday, impressing Wall Street.

Restaurant chains have had a rough year, due to cautious consumers and this summer's cyclospora outbreak linked to iceberg lettuce. But Chipotle Mexican Grill on Wednesday said it was more optimistic about sales this year than it was three months ago.

The assessment from the Mexican fast-casual chain's executives came despite what they said was "a softening" in consumer foot traffic at restaurants through the second half of this month, as the outbreak sickened thousands of people in the U.S.

Chipotle's shares (CMG) climbed 6.4% after hours on Wednesday.

During the chain's earnings call on Wednesday, Chief Financial Officer Adam Rymer said traffic over that time slowed by "about 200 basis points," or around 2%. Chipotle said it was difficult to predict the duration of the outbreak, which has prompted restaurants to pull salads and other greens from menus. It's also driven a large lettuce recall.

Data from Placer.ai also said that as concerns deepened over the outbreak, Chipotle's traffic had suffered. However, the chain last week said "we don't believe the ingredients we source are associated" with the outbreak.

Chipotle on Wednesday said it expects full-year same-store sales to increase in the "low single-digit range," when measured by percentage change. In April, management said it expected those sales to be roughly flat.

In justifying that more upbeat outlook, Chipotle's executives said they still liked their sales momentum overall. Items like honey chicken and cilantro lime sauce proved to be popular. Executives said they continued to push higher-protein offerings and test catering services. Chipotle still expects to open around 350 to 370 restaurants this year, with plans to open new ones in areas like Mexico City and Seoul in the months ahead.

The company has seen positive results from new equipment in restaurants like produce slicers and three-pan rice cookers, intended to make service quicker and easier. Chipotle also said it was bringing back "mystery shoppers" - generally, people posing surreptitiously as customers - to offer more feedback to restaurant crews.

During the second quarter, which ended on June 30, Chipotle's revenue rose 9.3% to $3.35 billion, compared with FactSet estimates for $3.33 billion. Same-store sales rose 2.2%, above forecasts for a 1.4% gain.

Chipotle reported adjusted earnings per share of 33 cents, the same as what the company reported a year ago but a penny above Wall Street's forecasts.

-Bill Peters

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07-29-26 2016ET