Tucked into a Chipotle Mexican Grill earnings call Wednesday that generated considerable enthusiasm among the investor base—its stock rose 24%—was this little nugget from CFO Jack Hartung:
“We also plan to carefully analyze underperforming assets during the second quarter,” he said. “These initiatives are intended to support and strengthen our economic model and set us up to execute our strategic plan and deliver long-term shareholder value.”
In English, this means that Chipotle plans to look at its restaurant base and determine whether some should be closed.
Hartung said that Chipotle would look at “something less than 100 restaurants,” meaning that it’s not a significant percentage of the Denver-based chain’s nearly 2,500 locations.
But it’s a reminder that the chain is in a more mature state than it was a few years ago, when Chipotle was a growth concept of the highest order and one of the hottest restaurant companies in the world. Mature concepts close restaurants from time to time.
It’s also in a “turnaround,” as CEO Brian Niccol said Wednesday. And turnarounds typically come with a certain number of closures. When sales are challenged and companies have new management, they are frequently more willing to close underperforming stores.
And in this case, there is concern at the company that some of the locations opened while Chipotle was in the worst of its food-safety-problems sales troubles may never get back on their feet.
In his comments, Hartung noted that the company opened some restaurants “during the tough period” that “got off to a slow start.”
Chipotle in this case will review companies that have negative cash flow.
“Our asset review is going to look at all the restaurants that are clear underperformers,” Hartung said. “We’re going to look at stores that are not cash flowing. Maybe we picked the wrong site. Maybe they got off to a wrong start and made a bad first impression, and it’s going to be difficult if not impossible to change that.”
To be sure, it’s important to note that Chipotle is still growing. Even if the company closes 100 restaurants this year, it will still add locations because the chain plans to add between 130 and 150 restaurants. The chain isn’t shrinking.
But it’s a stark reminder of how far the chain has come in the past three years.
Hartung said that the company would review each restaurant from a financial standpoint, a real estate standpoint and based on “what kind of first impression” the company made.
“Then we’ll make some very careful choices about what to do with the assets,” he said.