Large Investor Registers Chipotle Shares, Could (But May Not) Sell

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Published: March 4, 2017 8:20 am

Last Updated: January 12, 2020 2:16 pm

Another investor may have become tired of the mess at Chipotle Mexican Grill Inc. (NYSE: CMG). William A. Ackman’s Pershing Square has filed papers that would allow for the sale 2,882,463 shares. Regardless of the eventual disposition of the shares, the S-3ASR is hardly a vote of confidence.

The filing does not force the sale of the shares, but it does allow Ackman to sell them. Pershing does not give a timetable, and there is a case they would not sell at all. However, the document does show “Percent of Outstanding Common Stock Beneficially Owned After Sale of Shares” at zero.

Chipotle trades 1 million shares a day, so, depending of the rate at which the shares are sold, it may not affect share price. But the fact that such a prominent investor would consider selling his shares is telling. As recently as two weeks ago, Ackman’s filing of his holding for the fourth-quarter showed, according to MarketWatch:

There were no major surprises in activist hedge-fund manager Bill Ackman’s fourth-quarter filing on Tuesday, which showed his Pershing Square Capital boosted its stake in burrito chain Chipotle Mexican Grill … and pared its holdings of Valeant Pharmaceuticals …. As previously disclosed, Ackman bought more than 2.3 million shares of Chipotle in the fourth quarter, the filing showed, bringing his stake to 2.882 million shares, or 9.96% of the company, as of Dec. 31. Pershing Square and Chipotle reached a settlement in December that gave the fund two seats on restaurant chain’s board.

Wall Street was disappointed with the restaurant company’s fourth quarter:

Overview for the fourth quarter of 2016 as compared to the fourth quarter of 2015:

Revenue increased 3.7% to $1.0 billion

Comparable restaurant sales for the month of December increased 14.7% and declined 4.8% for the full quarter

Restaurant level operating margin was 13.5%, a decrease from 19.6%

Net income was $16.0 million, a decrease from $67.9 million

Diluted earnings per share was $0.55, a decrease from $2.17

Opened 72 new restaurants

The numbers indicate that the turnaround at Chipotle has a long way to go.

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