Shares of Chipotle Mexican Grill (CMG) jumped in morning trading after the company announced it had begun to search for a new chief executive officer. Once the search is compete, Chipotle founder Steve Ells said he will focus primarily on innovation. Chipotle has faced several foodborne illness outbreaks since 2015.
CEO SEARCH: Chipotle founder and current chairman and CEO Steve Ells will step down as CEO and transition to the role of executive chairman, the company said on Wednesday. The restaurant chain's board has formed a search committee to help find a new chief, Chipotle said. Directors Robin Hickenlooper and Ali Namvar, as well as Ells, are on the committee, the company noted, adding that recruitment firm Spencer Stuart will also assist in the search. In a statement, Ells commented that "It is clear that we need to move faster to make improvements," and "bringing in a new CEO is the right thing to do for all our stakeholders." Ells said the transition will allow him to focus on his strengths, "which include bringing innovation to the way we source and prepare our food." Chipotle lead independent director Neil Flanzraich commented that "Steve made the decision, and the Board agreed, that now is the right time to identify a new CEO who can reinvigorate the brand and help the company achieve its potential. We are committed to recruiting a world-class CEO for this incredible opportunity."
WHAT'S NOTABLE: Chipotle has struggled to regain customers following numerous outbreaks of foodborne illnesses since 2015, including norovirus, salmonella and E.coli. Earlier this month, Jeremy Jordan, one of the stars of the television show "Supergirl," blamed the burrito chain for an illness that hospitalized him. Chipotle responded to Jordan's claims, saying "We take all claims seriously, but at this time we can't confirm any link to Chipotle." Chipotle said last month that its third quarter performance was hurt by a data security breach, Hurricanes Harvey and Irma and high prices of avocados.
ANALYST COMMENTARY: William Blair analyst Sharon Zackfia downgraded Chipotle Mexican Grill to Market Perform from Outperform following the CEO search news, saying that while a new chief may accelerate the company's turnaround longer term, the move likely signals that Chipotle's trends remain under pressure and creates more near-term uncertainty. Stephens analyst Will Slabaugh, who has an Equal Weight rating and $300 price target on Chipotle shares, said the change will present an opportunity for positive change but also adds an element of risk to the proposed 5% price increase that he thinks is already being factored into most estimates in the consensus view. SunTrust analyst Jake Bartlett believes a change in leadership will be welcomed by investors, as the news is positive for both Chipotle's turnaround efforts and the stock.
PRICE ACTION: Chipotle is up 4% to $297.66 in morning trading, though shares are still down about 21% year-to-date.
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