LDN - Business

Wall Street lukewarm on Chipotle's new 'queso' amid customer scorn

[September 23, 2017] By Lisa Baertlein

LOS ANGELES (Reuters) - Chipotle Mexican Grill Inc's <CMG.N> new "queso" cheese sauce is going over better on Wall Street than on Twitter, where one person called it a "crime against cheese."

Chipotle has been fighting to return to its former industry-leading sales growth since a series of 2015 food-safety lapses that also hammered its share price, which remains down more than 55 percent.

Seeking to address the "boredom" cited by "lapsed defectors" who formerly had been frequent visitors to the burrito chain, Chipotle granted diners' No. 1 request and added queso to menus nationwide on Sept. 12.

Some Twitter reviews savaged Chipotle's queso, calling it "gritty" and "a crime against cheese," while others dubbed it "tasty."

Since Sept. 12, "we have witnessed shorts covering/trimming exposure, despite the mixed reviews of the recent queso offering," said Matthew Unterman, director at S3 Partners, a financial analytics firm.

Despite investors becoming less bearish on the company, almost 17 percent of Chipotle's float, or shares available for trade, have been sold short. With more than $1.45 billion at risk betting against the shares, it is the No. 1 short in the restaurant sector, Unterman said.

Chipotle's stock fell slightly earlier this week as Twitter users criticized the orange-colored dip and topping, but they rebounded to trade slightly up for the week at $315.20.

"Although we acknowledge reviews of the queso launch have been mixed, we believe queso is off to a respectable start," Maxim Group analyst Stephen Anderson said in a note.

Based on weekly visits to Chipotle's NEXT test kitchen in Manhattan, which debuted queso this summer, Anderson continues to believe that 10 percent to 15 percent of customers will order it.

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Chipotle Mexican Grill's new "queso" cheese topping pictured in San Francisco, California, U.S. September 18, 2017. REUTERS/Noel Randewich

William Blair analyst Sharon Zackfia called queso "a neutral to potentially positive wild card" for Chipotle shares after sales checks at a handful of Chicago restaurants before and after the national launch.

Those checks suggested that queso was added to about 30 percent of orders, with about one-third of those sales replacing guacamole, Zackfia said.

Research firm M Science analyzed credit card transactions and said Chipotle's queso test in hundreds of Southern California restaurants appeared to boost sales in the state and, to a lesser extent nationally, during the August test.

"The question is whether it lasts," said Troy Li, an M Science senior analyst.

Goldman Sachs analyzed social media "buzz" and said the negative comments "suggest few customers will become repeat consumers" and that queso would have limited benefit to same-store sales during the quarter.

Chipotle will begin advertising support for queso next week. Spokesman Chris Arnold said the company continues to see results that back its decision to roll out queso to its roughly 2,300 U.S. restaurants.

Billionaire investor William Ackman, Chipotle's largest shareholder, defended queso on CNBC this week, citing positive reviews from his office mates: "I'm beginning to believe that Twitter is filled with a bunch of Chipotle short-sellers."

(Additional reporting by Noel Randewich in San Francisco; Editing by Lisa Shumaker)

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