July 21, 2016 / 8:37 PM / 3 years ago

Chipotle sales miss as food freebies fail to lure diners

(Reuters) - Chipotle Mexican Grill Inc (CMG.N) reported a bigger-than-expected drop in quarterly comparable sales as food giveaways and enhanced safety measures failed to bring back diners shaken by a string of food-borne illnesses last year.

Signage for a Chipotle Mexican Grill is seen in Los Angeles, California, United States, April 25, 2016. REUTERS/Lucy Nicholson/File Photo

The restaurant chain has given away millions of free burritos and other menu items such as guacamole and chips to revive sales growth after outbreaks of E. coli, salmonella and norovirus linked to its outlets put off customers.

The company also launched its first-ever loyalty program in July and added chorizo, a spicy chicken and pork sausage, to its menu.

In a sign the efforts may be starting to pay off, Chipotle reported an uptick in comparable sales in July.

Still, shares were down 2.1 percent in volatile after-market trading on Thursday as investors focused on the slow pace of recovery.

Profit for the second quarter ended June 30 slumped 82 percent, while sales were down 16.6 percent.

“While it has only been a few weeks since Chiptopia (loyalty program) launched, we are pleased to see that July sales comp trends have already improved by 200 to 300 basis points,” Co-CEO Steve Ells said.

Analysts, however, said it was too early to conclude that a sales recovery was underway.

“I still think they have a long way to go ... don’t think they have anything to cheer about,” Maxim Group analyst Stephen Anderson said, adding there was little visibility into the next few quarters.

Company executives said on a post-earnings call that it was very likely that Chipotle would launch a new loyalty program after “Chiptopia” ends in September.

The company’s net income slumped to $25.6 million, or 87 cents per share, in the second quarter ended June 30, from $140.2 million, or $4.45 per share, a year earlier.

Sales at restaurants open at least 13 months fell 23.6 percent, more than the 20.6 percent drop expected on average by analysts polled by research firm Consensus Metrix.

Revenue fell 16.6 percent to $998.4 million, down for the third straight quarter.

Analysts on average had expected earnings of 93 cents per share on revenue of $1.05 billion, according to Thomson Reuters I/B/E/S.

The stock has lost more than a third of its value since food safety woes surfaced in October that led to the closure of dozens of Chipotle’s restaurants.

Reporting by Sruthi Ramakrishnan in Bengaluru; additional reporting by Lisa Baertlein in Los Angeles; Editing by Saumyadeb Chakrabarty and Don Sebastian

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