Chipotle to close up to 65 stores, revamp menu under new CEO

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(Reuters) – Chipotle Mexican Grill Inc (CMG.N) will shut up to 65 underperforming restaurants as it revamps the menu and marketing under new Chief Executive Officer Brian Niccol, executives of the burrito maker promised on Wednesday.

FILE PHOTO: The logo of Chipotle Mexican Grill is seen at a restaurant in Paris, France, March 7, 2016. REUTERS/Charles Platiau/File Photo

Niccol and his team in a much-anticipated call with investors, who have driven shares up more than 80 percent since Niccol’s hiring was announced in February, focused on how the once high-flying chain could raise so-called digital sales. Chipotle will add in-app delivery to about 2,000 restaurants by the end of the year and launch a long-awaited loyalty program in 2019.

Executives did not say whether fast-casual dining menu items such as quesadillas and nachos would be added to the menu, and they brushed aside a question about international plans, saying they would focus on “aggressive growth” in the United States.

Shares fell about 3 percent to $443 in after-hours trade after executives said the changes would cause charges of $115 million to $135 million, including about $50 million to $60 million in the second quarter. The chain will close 55 to 65 restaurants in the process.

Chipotle also said it would launch a customer loyalty program in 2019, as the troubled burrito chain seeks to right course after consumer fatigue and a rash of food safety lapses dragged on the brand.

The company said it would begin testing the program in the second half of this year.

After outbreaks of E. coli, Salmonella and norovirus were linked to its restaurants in 2015, the company’s share price plummeted as diners retreated and rival chains grew their numbers through wider offerings and clever promotions.

While Chipotle made its name as a pioneer of “real” ingredients, critics of the fast-casual chain have complained that its menu offerings have grown stale.

Niccol, the former chief of Yum Brands Inc’s (YUM.N) Taco Bell who spearheaded the popular “Doritos Locos Tacos” and $1 Nacho Fries prior to joining Chipotle in March, is on track to bring some new flair to the chain’s menu. Earlier this month, the company announced it is testing five new items, including quesadillas and nachos, at its test kitchen in New York.

Analysts and investors expect Niccol to steer the company in a more modern direction, including through technology improvements, menu expansion and potentially opening the brand up to franchising.

“Rather than rush into breakfast, CMG will focus on daypart expansion… with selective new menu introductions. We think nachos and frozen margaritas will make the initial cut for new menu items, but quesadillas will not,” Maxim Group analyst Stephen Anderson wrote in a Tuesday research note.

“CMG recently announced plans to move its headquarters to Newport Beach, CA from Denver, CO. We believe the move could be used to attract additional talent from Taco Bell.”

Reporting by Alana Wise in New York and Uday Sampath in Bengaluru; Additional reporting by Peter Henderson in San Francisco and Caroline Hroncich in New York; Editing by Lisa Shumaker

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