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Chipotle: New Chiptopia Program Is Potentially Very Costly

Summary

Chipotle introduces another promotional program, which is potentially very costly.

Margin deterioration of at least 13 percent for customers participating in the program.

Potential Q3 EPS effects could be around $0.60 a share from the new program.

Introduction

Yesterday, Chipotle (NYSE: CMG) announced yet another promotional program in its attempt to rebuild store traffic after its food safety issues within the past year. Previous promotional programs of free burrito coupons and BOGO offerings (buy one, get one free promotions) have apparently not been effective in quickly rebuilding store traffic given that the company had announced that comp store sales were still down in the mid-20 percent range in the first three weeks of April.

Although no one knows what comps have been since the comments about April comps, consensus revenue estimates for the quarter imply that comps probably continued to be down at least 20 percent for the entire quarter. Since store visits and revenues are apparently not recovering to any meaningful degree, that is probably the reason for the company's new announcement yesterday.

As I will discuss in my comments about the significant margin effects from the new promotional program, such a margin damaging program is probably an indicator of CMG's desperation at this point to figure out ways to promote...


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