(Adds details on customer traffic, context on industry, byline)
By Lisa Baertlein
Feb 6 (Reuters) - Chipotle Mexican Grill Inc said on Tuesday the number of visitors to its restaurants fell in the fourth quarter and would continue to decline through the middle of the year, sending shares of the burrito chain down 5 percent.
Chipotle has been fighting to lure back old customers and entice new ones to its restaurants since a series of food safety lapses in 2015 that crushed its sales and reputation. Instead, customer traffic fell about 3 percent in the fourth quarter.
The purveyor of made-to-order burritos raised prices by roughly 5 percent in 2017, out of step with many national fast-food chains trumpeting low-price “value menu” deals. McDonald’s Corp, which has been gaining marketshare, intensified the pressure in January with a new $1, $2, $3 menu.
Those price hikes contributed to a slightly better-than-expected rise in fourth-quarter sales at established restaurants, but the company’s expectations for customer visits, also known as traffic, sent Chipotle’s stock down $15.33 to $289. Its stock hit a high of more than $742 in 2015, before E.coli, salmonella and norovirus outbreaks sickened hundreds of U.S. customers.
Chipotle’s latest earnings performance is likely to test investor patience, especially that of its largest one Pershing Square Capital Management, a $9 billion hedge fund run by William Ackman that has a 10 percent stake in the chain.
Under pressure from Ackman and other investors, Chipotle has revamped its board and management, strengthened its food safety and gave away millions of dollars in free food. In November, founder and Chief Executive Steve Ells said he would step aside after failing for two years to rescue sales and the company’s reputation.
Sales at Chipotle restaurants open at least 13 months rose 0.9 percent for the fourth quarter as lower traffic figures partially erased the gain from menu price increases.
To tackle declining footfall and weak sales, executives outlined plans to launch a loyalty program at mid-year and to redesign restaurants to accommodate mobile orders, delivery and catering.
Net profit was $43.8 million, or $1.55 per share.
Excluding a 21 cent per share gain related to U.S. tax changes, Chipotle beat Street’s profit view by 2 cents, according to Thomson Reuters I/B/E/S.
Restaurant level operating margin increased to 14.9 percent, up from 13.5 percent a year earlier, but still significantly lower than peak margins of 28 percent.
Revenue jumped 7.3 percent to $1.1 billion, to match Wall Street’s view.
Chipotle forecast 2018 same-store sales in the low single-digit percentages and said it would open 130 to 150 new restaurants.
It estimated an effective tax rate for 2018 of between 30 and 31 percent, versus the 39 percent it previously expected.
The lower tax rate would result in savings of $40 million to $50 million in 2018. It plans to invest more than one-third of those savings in employee benefits, including one-time cash bonuses of up to $1,000 for crew and managers.
The chain is still searching for a new CEO to replace Ells, who has been alone at the helm since co-CEO Monty Moran was ousted in 2016. (Additional reporting by Svea Herbst-Bayliss in Boston; Editing by Susan Thomas)