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Holly LaFon
Holly LaFon
Articles (8832)  | Author's Website |

CEO Steps Down at Ackman’s Chipotle

Market, Ackman respond positively

November 30, 2017 | About:

Chipotle (NYSE:CMG) CEO Steve Ells announced Nov. 29 that he would step down at the company he founded in 1993.

Ells will stay on as executive chairman as the company launches a search for a CEO with experience in turnarounds, something the company needs after seeing its stock plunge 54% in the past three years. Chipotle said the next CEO will have to “address the challenges facing the company, improve execution, build customer trust and drive sales.”

Outgoing CEO Ells issued upbeat comments on the transition in a statement.

“Bringing in a new CEO is the right thing to do for all our stakeholders. It will allow me to focus on my strengths, which include bringing innovation to the way we source and prepare our food,” he said.

“I am confident that this will allow us to deliver value for our shareholders, and provide rewarding opportunities for our employees,” he added.

Chipotle’s shares have been pummeled since 2015 when several restaurants reported outbreaks of food poisoning, spreading trepidation about the safety of eating at its fast-casual locations. Shares of the rapidly growing company once topped $740 but have traded in the high $200s this year, near a six-year low.

The market lauded the move, as shares have popped 2.3% on the announcement to trade for $304.37 Thursday afternoon.

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Bill Ackman (Trades, Portfolio) entered Chipotle’s scene in the third quarter of 2016 and has an approximate estimated loss of 23% based on calculations of the average buy prices for the quarters he bought shares. The holding is 17.35% of his long portfolio, representing roughly 10.2% of the company, and worth $887.3 million.

“We fully support Steve’s decision. We remain excited as ever about the future of the company,” Ackman’s Pershing Square told Fox Business.

Chipotle’s revenue had begun to recover this year, with second quarter revenue at its highest since the third quarter of 2015. The third quarter, however, marked its second largest sequential decline since the food scare of 2015 but was still up year over year. Chipotle reported 8.8% revenue growth from last year, owing mainly to more store openings. Sales at existing stores rose only 1% as the company opened 38 new restaurants and closed three.

Net income was $19.6 million, or 69 cents per diluted share, compared to $7.9 million, or 27 cents per diluted share.

Ackman seemed to believe that the stock price will recover once people understand how much improvement the company is making, he said in a third quarter letter.

“We believe the [stock price] volatility is driven by the fact that the value of the company is highly dependent on investors’ estimates of future growth, average unit volumes, and store margins,” he said.

"When these investor estimates change, the associated discounted cash flow calculations lead to widely varying estimates of intrinsic value, which ultimately drive the stock price. If the company begins to show progress on these metrics, we would expect the stock price to respond accordingly to the upside.”

About the author:

Holly LaFon
I'm a financial journalist with a master of science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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