Chipotle Mexican Grill, Inc. ( CMG ) stock could be in even more trouble than we thought, if that's possible. That, apparently, is good news for both McDonald's Corporation ( MCD ) and Starbucks Corporation ( SBUX ).
Source: Mike Mozart Via Flickr
According to newly released data from the local search and discovery app Foursquare, Chipotle customers are reluctant to return to the burrito chain after a series of food safety crises at restaurants across the country.
How reluctant? Foursquare expects Chipotle to report a horrendous 30% slump in same-store sales when it reports first-quarter results on April 26. That's twice as bad as the already miserable 14.6% SSS hit Chipotle took in Q4 .
Call me crazy, but I won't be buying CMG stock before earnings. (Or after earnings, for that matter.) The data paints an ugly picture for CMG investors - and a somewhat rosier picture for investors in MCD, SBUX and Whole Foods Market, Inc. ( WFM ), as it turns out.
CMG Can't Stop the Bleeding
First of all, let's address the source of these data points. I tend to think of Foursquare as a silly social media app people use to overshare with the world about where they're eating or drinking or getting their nails done. Not particularly my cup of tea, and not traditionally a very useful tool to CMG stock owners.
But you gotta give credit where credit's due, and Foursquare is intelligently using its data to draw real-life, practical conclusions. And its data pull is actually pretty impressive:
"At Foursquare, we have a trove of anonymous and aggregate data on where people go, based on the 50 million people who use our apps (Foursquare and Swarm) and websites monthly. Many users passively share their background location with us, which our technology can match up with our location database of over 85 million places, giving us clear insight into natural foot traffic patterns."
Foursquare data doesn't lend itself to flattering conclusions for CMG stock. They show Chipotle foot traffic declining 23% year-over-year, which Foursquare thinks will translate to a 30% SSS decline. Using Chipotle's reported SSS from January (-36.4%) and February (-26.1%), redeemed coupons and proprietary Foursquare data, the 30% decline was reached.
Chipotle also publicly reported its weekly sales for the first 10 weeks of the quarter, helping Foursquare develop this chart of traffic and SSS trends:
Click to Enlarge This chart spells out the challenges facing CMG stock pretty unequivocally.
Looking further into the numbers, Foursquare also determined where these hungry hungry former Chipotle patrons went. The answer? Former parent company MCD, coffee (and increasingly snack) giant SBUX, and to a lesser extent, organic grocer Whole Foods.
The data also shows that loyal Chipotle customers were actually 25% less likely to return to the restaurant than other customers. That's a big deal, says Foursquare, because "losing 2-3 loyal customers is the equivalent of losing about 10 other customers."
Bottom Line on Chipotle Stock
Although Foursquare sees the recent easing of same-store foot traffic losses as a positive, I'm not so optimistic. The quantified exodus of customers - and loyal ones at that! - I see as toxic to CMG stock.
Wall Street's expecting a bad Q1: Analysts see sales falling 20.1% and a loss per share of 90 cents. Not only do I think results will likely miss consensus, I think the recovery will be slower than expected. After all, swinging from losses of 90 cents per share to EPS of $1.58 in Q2 (on a revenue slump of just 7.5%) seems more than a little optimistic.
And folks, let's not forget that A) The source of the outbreaks still hasn't been identified, and B) Chipotle shares trade at 29 times earnings and 33 times forward earnings.
While I don't think restaurant stocks in general offer great value nowadays, if they must have exposure to the industry then investors are likely better off putting their money where their bellies are. That means ditching CMG for the likes of MCD, SBUX and even WFM, none of which are seeing customers flee them en masse.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at@divinebizkidor email him at email@example.com.
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