It’s not Chipotle Mexican Grill Inc.’s (CMG) burritos that have short sellers licking their chops in satisfaction this week. No not the burritos. Rather, it’s the more than $261 million in windfall profits gobbled up by the short sellers after the fast food chain’s stock price plunged as much as 15% during trading on Wednesday. The price drop came after Tuesday’s poor Q3 earnings report, bringing short sellers’ total mark-to-market (MTM) profits for the year up to $303 million, according to CNBC.

Feasting on Chipotle

But while the short sellers’ were feasting, billionaire William Ackman, whose Pershing Square Capital Management hedge fund is Chipotle’s biggest investor, is likely feeling nauseous after his 10% stake lost about $145 million of value from the previous day, according to Reuters.

Chipotle’s stock price was up slightly at the end of trading on Thursday to $281.52, but down 25.39% year-to-date. (To read more, see: Chipotle Shares Still Melting, More Downside Risk.)

Short sellers aim to profit by borrowing shares of a company’s stock, selling them, then buying them back at a hopefully lower price and pocketing the difference as they return the repurchased shares to their lenders.

As bets against Chipotle rose by $238 million this month, overall short interest currently sits at about $1.76 billion, comprising nearly 20% of the company’s total outstanding shares, according to Reuters. The fast food giant is now the most-shorted stock in the U.S. restaurant sector, followed by Starbucks, McDonald’s, Domino’s Pizza and Darden Restaurants.

Poor Earnings

Despite Chipotle’s nationwide product launch in September of its new queso, the restaurant disappointed analyst estimates on numerous fronts. Adjusted earnings per share (EPS) came in at $1.33 instead of the expected $1.63; revenue was reported at $1.13 billion as opposed to the expected $1.14 billion; and same-store sales grew just 1% instead of the 1.2% expected growth, according to a separate article by CNBC.

With mixed support for the new queso, reports of an outbreak of a norovirus in July at its restaurant in Sterling, Virginia, likely weighed on sales. This summer’s episode is not the first foodborne illness incident for Chipotle, as numerous outbreaks have occurred since 2015. (To read more, see: Chipotle Stock Falls to Critical Support After Illness.)

The effects of Hurricane Harvey as well as a data breach earlier in the year, in which hackers stole some customers’ credit card data, also likely played a factor in producing weaker than expected revenues.  

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