April 25, 2016 / 8:02 PM / a year ago

Chipotle's troubles might help Panera as both serve up reports

3 Min Read

The logo of Chipotle Mexican Grill is seen at a restaurant in Paris, March 7, 2016.Charles Platiau

SAN FRANCISCO (Reuters) - Wall Street expects little from Chipotle Mexican Grill Inc's (CMG.N) first-quarter results late on Tuesday as the burrito chain struggles to recover from a string of food-borne illness outbreaks. But its loss might be rival Panera Bread Co's PNRA.O gain.

Shares of Chipotle have dropped 38 percent since August after norovirus and E.coli outbreaks at some of its outlets led to a plunge in sales for the company, which markets its food as healthier than rivals'.

It has been handing out free burritos to win back diners, but analysts still expect it to lose money in the quarter ended March 30 and the next two quarters.

At least some customers steering clear of Chipotle appear to have gone over to fast-casual competitor Panera Bread, which has also increased its focus on healthy ingredients.

In December, 13.4 percent of Chipotle customers also visited Panera, up from 11.6 percent in September, the month before E.coli outbreaks linked to its restaurants, according to Placed, a market analysis firm.

That might have added some extra fuel to Panera's sales in the March quarter, analysts said.

"They have a similar geography, a similar number of stores, and it's a coincidence that worked out in Panera's favor that they really started hammering the whole idea of clean food and no artificial ingredients," said Maxim Group stock analyst Stephen Anderson.

"'Clean food' at Panera stands in contrast to the ongoing troubles at Chipotle," he said.

Chipotle's deeper-than-expected drop in February same-store sales did little to improve sentiment, and the company has warned it expects a loss of $1 or more per share for the first quarter.

First-quarter revenue on average is seen at $868 million, a drop of 20 percent from the year-ago quarter, according to Thomson Reuters data.

In contrast, Panera late on Tuesday is expected to report earnings of $1.50 a share on revenue of $674 million, which would be a 3.9 percent increase from a year ago.

On Monday, Chipotle's stock traded about flat at $442.62 while Panera rose 0.31 percent to $215.66.

Options traders showed a slight preference for defensive trades in Chipotle. Weekly contracts on the shares dipping below $420 by Friday were the most heavily traded. 

Chipotle's stock price has recently traded above 50 times expected earnings, its highest multiple since 2007, due partly to analysts cutting their forecasts for the company's results.

Panera trades at about 31 times expected earnings.

Additional reporting by Lisa Baertlein in Los Angeles and Saqib Ahmed in New York; Editing by Jonathan Oatis

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