Chipotle just admitted its biggest mistake

Chipotle Mexican Grill, Inc. (NYSE: CMG) is starting to look like a case study in mismanagement.

Since a series of foodborne illness outbreaks in 2015 that were arguably the result of misplaced priorities, the stock has fallen nearly two thirds. The E. coli crisis was exacerbated by management's reluctance to apologize and its attempt to blame the customer backlash on the media and CDC reporting methods. The company's marketing efforts since then have ignored customers' underlying food safety fears, and management has even admitted that in-store operations are subpar. 

Its recent earnings report was a stinker across the board. Same-store sales came in at just 1% following a 21.9% drop the year before, and EPS was down more than 85% from two years ago.

But one key number mostly flew under the radar.

The burrito chain said that it would open just 130-150 restaurants next year, well below the 195-210 clip it had aimed for this year and the 240 restaurants it opened last year. It hasn't opened that few restaurants since at least 2011. Unbelievably, the year after Chipotle got clobbered by the E. coli crisis, the company opened a record number of stores. 

New store openings have been a distraction for the company.

RELATED: Check out Chipotle through the years:  

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Chipotle restaurants through the years
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Chipotle restaurants through the years
DENVER, CO - FEBRUARY 9: Steve Ells, 32, owner of the Chipotle Mexican Grill restaurant chain, in front of one of his stores at 32nd & Lowell Blvd. in Denver, Colorado on Monday, Feb. 9, 1998. (Photo by Hyoung Chang/The Denver Post via Getty Images)
Exterior of the Chipotle restaurant on Wisconsin Ave. NW Washington, D.C. (Photo by Michael Williamson/The Washington Post/Getty Images)
GLENVIEW, IL - DECEMBER 02: Activity is seen near the order-counter area inside a Chipotle restaurant December 2, 2005 in Glenview, Illinois. McDonald's Corp., owners of 92 percent of Chipotle, are preparing its Mexican-style eateries for an initial public offering. (Photo by Tim Boyle/Getty Images)
CHICAGO - JANUARY 26: The Chipoltle Mexican Grill logo is painted on the door of one of the Chain's restaurants in the trendy Bucktown neighborhood January 26, 2006 in Chicago, Illinois. McDonald's spin-off of the restaurant chain ended the day with the Initial Public Offering (IPO) closing at $44, double its opening price. It was the best opening day gain by a U.S.-based IPO in more than five years. (Photo by Scott Olson/Getty Images)
UNITED STATES - JANUARY 26: Workers prepares meals at Chipotle Mexican Grill in West Bloomfield, Michigan on Thursday, January 26, 2006. Chipotle Mexican Grill Inc.'s shares more than doubled on the first day of trading after McDonald's Corp. took the fast-growing chain public. (Photo by Jeff Kowalsky/Bloomberg via Getty Images)
DENVER, CO - JANUARY 26: The original Chipotle restaurant at 1644 E. Evans Ave in Denver, shown here on Jauary 26, 2006. (Photo by Cyrus McCrimmon/The Denver Post via Getty Images)
A Chipotle burrito in it's signature aluminum wrap on Friday, February 12, 2010. Burrito was that the original location on E. Evans Ave. Cyrus McCrimmon, The Denver Post (Photo By Cyrus McCrimmon/The Denver Post via Getty Images)
Chipotle burritos at the original location on E. Evans Ave. Bryan Sawyer who eats about 3 times a week at the Chipotle eats a steak black bean burrito on Friday, February 12, 2010. Cyrus McCrimmon, The Denver Post (Photo By Cyrus McCrimmon/The Denver Post via Getty Images)
Gregory Rec/Staff Photographer: -- Kyle Braley stirs a tomatillo green chili salsa at Chipotle Mexican Grill in South Portland on Monday, December 13, 2010. The popular restaurant chain, which serves naturally-raised beef, chicken and pork, has its grand opening today. (Photo by Gregory Rec/Portland Press Herald via Getty Images)
A pedestrian walks into a Chipotle Mexican Grill Inc. location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
The Chipotle Mexican Grill Inc. logo is displayed on a paper bag at a location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
Chipotle Mexican Grill Inc. employees prepare food at a location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
A steak burrito is arranged for a photograph with a drink and bags of chips at a Chipotle Mexican Grill Inc. restaurant in Hollywood, California, U.S., on Tuesday, July 16, 2013. Chipotle Mexican Grill Inc. is scheduled to release earnings data on July 18. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
A employee sprinkles cheese on a burrito at a Chipotle Mexican Grill Inc. restaurant in Hollywood, California, U.S., on Tuesday, July 16, 2013. Chipotle Mexican Grill Inc. is scheduled to release earnings data on July 18. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
Employees prepare lunch orders at a Chipotle Mexican Grill restaurant at Madison Square Park in New York, U.S., on Wednesday, Jan. 29, 2014. Chipotle Mexican Grill Inc. is expected to release earnings figures on Jan. 30. Photographer: Craig Warga/Bloomberg via Getty Images
Employees prepare lunch orders at a Chipotle Mexican Grill restaurant at Madison Square Park in New York, U.S., on Wednesday, Jan. 29, 2014. Chipotle Mexican Grill Inc. is expected to release earnings figures on Jan. 30. Photographer: Craig Warga/Bloomberg via Getty Images
MIAMI, FL - MARCH 05: A Chipotle restaurant is seen on March 5, 2014 in Miami, Florida. The Mexican fast food chain is reported to have tossed around the idea that it would temporarily suspend sales of guacamole due to an increase in food costs. (Photo by Joe Raedle/Getty Images)
A Chipotle eatery in the Financial District of Manhattan NYC viewed from the outside looking in shows the interior design as well as people eating & talking, & also reflects the urban building from across the street in the upper left corner of the window
NEW YORK CITY, NEW YORK, UNITED STATES - 2015/10/18: Restaurants in USA: Chipotle Mexican Grill Chipotle Mexican Grill, Inc. is a chain of restaurants in the United States, United Kingdom, Canada, Germany, and France, specializing in Mission burritos and tacos. (Photo by Roberto Machado Noa/LightRocket via Getty Images)
NEW YORK, NEW YORK -- FEBRUARY 8: A sign sits in the window of a Chipotle restaurant on Broadway in Lower Manhattan telling customers the restaurant is closed until 3 p.m. on February 8, 2016 in New York City. The Mexican food chain is closing stores for lunch nationwide for a meeting on food safety following a number of E. coli outbreaks. (Photo by Andrew Renneisen/Getty Images)
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Pace yourself

Here's how CEO Steve Ells addressed this change on the recent earnings call:

And yet, opening up new stores is a big distraction. You have to start thinking about hiring people months and months in advance. You've got to train people in advance of the opening. You sometimes are taking people from existing restaurants to staff a new restaurant. Turnover of a new restaurant often is high. You hire people and they didn't know what they signed up for, and so the turnover is very high. So, it's a distraction in a lot of ways.

The decision seems to be motivated by a retraining program being guided by new Chief Restaurant Officer Scott Boatwright, but that approach is much different from Chipotle's attitude following the E. coli outbreak. At that time, management responded to a question about slowing down store openings by saying "[i]t never occurred to us" to curtail store openings.

But Chipotle clearly made the wrong decision in going ahead full speed following the E. coli crisis, and that decision is further evidence of the company's overconfidence in its recovery, which is seen in its consistent inability to apologize to its customers. As Ells explains, opening new stores is hard, much harder than running mature restaurants where everyone and everything is in place. It's worth remembering that Chipotle does not franchise, so the company is responsible for all of its store openings.  

As a likely result of not scaling back store openings sooner, Chipotle's operations became unacceptable late last year, according to Ells' own admission. He blamed slow-moving lines, dirty tables, and poorly stocked drink stations for the company's poor sales recovery. The company was simply trying to do too much at once, and the decision to open a record number of stores last year is even more perplexing considering the brand was in the dumps. A new Chipotle location, after all, is going to be much more productive if people are no longer worried about getting E. coli there. Management should have taken the time and effort to get lapsed customers back in the door before plowing full-speed ahead with expansion. 

Too little, too late

Slowing down store openings so the company can improve training and operations is the right move, but I fear it's too late to matter for investors. The recovery is essentially over -- the company reported just 1% same-store sales growth in its most recent quarter, and queso has been a clear disappointment. Improving operations alone may not be enough to bring back lapsed customers.

Chipotle may never return its pre-crisis level of performance, and the stock would now have to nearly triple to regain the losses over the last two years. Slowing down store growth and working on operations is the right move, but at this point, the company needs something bigger to boost sales and turn the stock around.

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