It was red for Chipotle stock and green for Starbucks, just like their logo colors, when a man left spicy for caffeine.
Starbucks stock soared 24% on August 13 when it announced it had poached Chipotle's CEO, Brian Niccol. Niccol had pulled the Mexican food chain's stock price up 800% within six years of his tenure. Unsurprisingly, Chipotle's stock price lost 12% after the announcement.
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Before joining Chipotle, Niccole worked for Taco Bell for over 12 years and was its CEO from 2015 to 2018.
In 2011, Niccol joined Taco Bell as Chief Marketing and Innovation Officer, shortly after the chain's seasoned beef was accused of lacking sufficient meat. Although the lawsuit was withdrawn, Taco Bell's demand for an apology backfired, keeping the allegations in the public eye, according to The New York Times.
As Taco Bell’s CEO, he revitalized the brand with social media initiatives like Snapchat Taco Lens, repositioning it as a youthful lifestyle brand.
“If you let the brand get old, you will die,” Niccole told the Los Angeles Times in 2015.
By the time Niccol left Taco Bell in 2018, he had transformed it with an innovative menu, creative marketing, and convenient digital ordering systems. He changed the slogan from “Think outside the bun” to “Live más,” making Taco Bell frequently the best-performing subsidiary of Yum Brands, which also owns Pizza Hut and KFC.
Niccole introduced drive-throughs and a digital loyalty program to Chipotle, which had struggled with scandals before his arrival, including the E. coli outbreak in 2015, a norovirus outbreak in 2017, and rodent sightings. The convenience of ordering food largely helped Chipotle regain its market share, especially during the COVID-19 pandemic when digital ordering took off.
“Right now, he’s considered to be almost the LeBron James or the Tom Brady or the Messi of the restaurant industry,” said Bernstein’s analyst Danilo Gargiulo, according to the Financial Times.
Chipotle reported shiny Q2 earnings amid market pressure
Chipotle Mexican Grill, Inc. (CMG) is a fast-food restaurant chain that specializes in bowls, tacos, and burritos, with about 3,500 stores as of June 30, 2024.
The company has shown resilience amid macro pressure so far this year. Chipotle’s same-store sales rose 11.1% in the second quarter, topping estimates of 9.2%. Traffic to its restaurants increased 8.7%.
Chipotle earned 34 cents per adjusted share in Q2, beating the 32 cents expected. Revenue of $2.97 billion also surpassed the forecast of $2.94 billion.
Meanwhile, its fast-food rival McDonald’s missed expectations on both EPS and revenue during the same quarter and reported declining sales.
Related: Chipotle CEO finally addresses biggest complaint from customers
"The second quarter was outstanding as successful brand marketing, including the return of Chicken Al Pastor, drove strong demand to our restaurants. Our focus and training around throughput paid off as we were able to meet the stronger demand trends," Niccol said in a press release.
Chipotle rolled out Chicken Al Pastor in March 2023, only to remove it a few months later. It made a comeback as a limited-time item in March 2024.
In the second quarter, Chipotle opened 52 new company-owned locations and one internationally licensed restaurant. The company maintained its mid- to high-single-digit growth forecast in same-store sales for the year and said it plans to open between 285 and 315 new restaurants.
Chipotle stock managers and analysts weigh in
Bill Ackman, one of Chipotle's top buyers, said in a shareholder letter that Niccol has put the restaurant chain on the path of "sustainable long-term growth."
"While we are disappointed to see Brian go, one of the measures of a great CEO is the company that he leaves behind. Brian has built an extraordinary team at Chipotle that we expect will not lose a step in his departure," Ackman said.
In the second quarter, Ackman trimmed his stake in Chipotle by 8 million shares, cutting his position by 22%. Despite this reduction, Chipotle remains Pershing Square’s second-largest holding, accounting for 17% of the portfolio.
Analysts from Evercore ISI and Baird have lowered Chipotle’s price target to $59 from $65 and $62 from $74, respectively, keeping an outperforming rating.
Evercore expressed high regard for Chipotle's "deep and talented" management, noting that losing one of the best executives has led them to lower their price target. However, they remain confident that Niccol has established a lasting culture at Chipotle.
Baird said they were slightly bearish on the stock following Niccol's departure. Given his exceptional leadership and crucial role in the company's success since becoming CEO in 2018, they believe his exit will likely impact investor sentiment in the short term.
On the other hand, Wedbush upgraded Chipotle to outperform from neutral with a price target of $58, up from $54.
Wedbush highlights the contributions of Scott Boatwright, who served as COO and will step in as interim CEO, and Jack Hartung, despite recently announcing his retirement as CFO, has decided to remain with the company.
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Wedbush believes Chipotle is “in a good place and in good hands” and that the company can sustain market share gains in a more challenging macro backdrop for restaurants.
Deutsche Bank views the 12% tumble in Chipotle stock as a buying opportunity. The firm has a buy rating with a $67 price target. The analyst believes that the appointment of COO Scott Boatwright as the Interim CEO "is a positive testament to the internal talent pool and should enable a smooth leadership transition," according to a note.
Chipotle stock traded around $51 on August 14.
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