Chipotle investors see low-hanging fruit for new CEO

By Lisa Baertlein

LOS ANGELES (Reuters) - Chipotle Mexican Grill Inc's (CMG.N) incoming Chief Executive Brian Niccol has some low-hanging fruit to pluck when he takes the helm at the troubled U.S. burrito seller on Monday, investors told Reuters.

The former Taco Bell CEO is tasked with turning around the chain, which has struggled to return to red-hot growth after a sales and reputation-crushing string of food safety lapses in late 2015.

Its annual revenues are only slightly higher than pre-crisis levels, even after it added hundreds of new restaurants and gave away millions of dollars in free and discounted food.

"They definitely need to get the customer back on board," said Josh Blechman, director of capital markets at Exponential ETFs, which on Feb. 28 had 2,500 Chipotle shares in a portfolio that tracks American Customer Satisfaction Index (ACSI).

The chain's stock closed at $313.26 on Thursday, off nearly 60 percent from its all-time high in July 2015.

Chipotle's ACSI was 83 in 2015, fell to 78 in 2016 and recovered slightly to 79 last year.

Chipotle spokesman Chris Arnold declined to comment for this article, saying the company would not speculate about what moves Niccol will make.

Chipotle has shuffled executives, revamped its board and shuttered underperforming ShopHouse Asian Kitchen and Tasty Made restaurants since activist investor William Ackman became its single largest shareholder with a 10 percent stake in September 2016.

Analysts say Niccol, known for his menu and marketing prowess, could quickly refresh Chipotle's limited menu by, for instance, adding quesadillas, nachos or breakfast, and tap his professional network to strengthen its ranks.

Chipotle, which used its "Food with Integrity" tagline to build a following, disappointed investors in September 2016 when it reinstated marketing chief Mark Crumpacker months after he was charged with multiple counts of cocaine possession.

Crumpacker pleaded guilty to cocaine possession in January 2017. Prosecutors agreed to dismiss his case if he got treatment for a year and stayed out of trouble.

Reinstating Crumpacker was "so off brand," said Kit Yarrow, a consumer psychologist at San Francisco's Golden Gate University.

"Crumpacker may have to be replaced," said Ivan Feinseth, who oversees investment strategy and research at Tigress Financial Partners in New York City. Tigress funds do not own Chipotle shares, but Feinseth said he is looking to buy on a dip.

The Denver-based Chipotle has been remotely managed since the December 2016 departure of co-CEO Monty Moran. Niccol will be based at headquarters, Arnold said.

Steve Ells, Chipotle's founder, chairman and outgoing CEO, and Crumpacker work from Manhattan. Chief Financial Officer Jack Hartung is based in Chicago.

"If you're going to build a team, the team has got to be there," Feinseth said.

"That's something they can look into. That's low-hanging fruit," Blechman said.

(Reporting by Lisa Baertlein in Los Angeles, Editing by Rosalba O'Brien)