Chipotle's next CEO is going to inherit a ton of problems

Hollis Johnson

Chipotle’s next CEO is going to inherit a ton of problems.

The company said in November that it is searching for a new CEO to replace Steve Ells, the founder of the chain, who will step down once the company finds a suitable person to fill the role. Ells will still remain at the company as an executive chairman.

Wall Street will be watching the search for a new CEO closely. “We would prefer to see a world-class operator with a skill-set required to restore profitability,” Brian Bittner, an analyst at Oppenheimer, said.

Bittner has maintained the company’s “Perform” rating given that Chipotle has delivered $US1.9 million in sales per unit, which is still above average, despite lower-than-expected traffic in the last two years.

Yet he said that he needed to see more drastic changes from the company in order to push the shares sustainably higher. “The biggest catalyst we require is a line of sight into a meaningful earnings revision cycle,” Bittner said.

That change may be ushered in with the new chief executive. Wall Street analysts expect an overhaul to Chipotle’s menu and practices, from changing food-sourcing standards to adding breakfast items and drive-thru lanes.

But UBS analyst Dennis Geiger said that he sees no salvation in sight for the fast food company, even with a new CEO. He said that perceptions of the brand remain low, and will not likely change soon, while competition will remain high and unit growth will stay low as the chain has to contend with sluggish same-store sales and depressed margins.

“Chipotle online customer reviews indicate a continued decline in scores since 2010 to historic lows,” Geiger wrote in a note to investors. “We remain concerned about deteriorating review trends & potential implications for the trajectory of sales.”

Geiger downgraded the stock to “Sell” from “Neutral.” He lowered his 12-month price target to $US290 per share from $US345 per share.

Chipotle’s stock was down 3.12% on Thursday afternoon at $US314.55 per share. It was up 7.41% for the year.

Read more about how Chipotle’s missteps.

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