Billionaire hedge fund manager Bill Ackman strategically reduced his stake in Chipotle Mexican Grill Inc. (NYSE:CMG) just before the restaurant chain's recent stock selloff and CEO departure.

Ackman's move comes at a critical juncture, suggesting his knowledge of Chipotle's business dynamics gave him an edge over the broader market.

What Happened: The restaurant chain, known for its burritos, is witnessing the worst quarter in more than four years.

Since July 1, Chipotle's share price has declined by 17%, setting it on course for its worst quarter since the first quarter of 2020, when it fell 22%.

Despite Chipotle reporting stronger-than-expected revenue and earnings last quarter, the market's reaction to the results was negative, with the stock falling 1.9% on the day after as the company's management chose to hold steady its annual guidance and signaled potential near-term pressures on margins.

On Aug. 13, the restaurant chain took a significant hit, plunging 7.5% — its worst single-day drop in over a year —following the announcement that Brian Niccol, the CEO credited with much of Chipotle's recent success, would be leaving to take the helm at Starbucks Inc. (NYSE:SBUX).

Chipotle's Chief Operating Officer Scott Boatwright was named Interim CEO.

Ackman Adjusts: According to the latest 13F filings, Ackman's Pershing Square Capital Management, L.P. sold 8.38 million shares of Chipotle during the second quarter of 2024. That's a 23% reduction in his overall position compared to the end of the first quarter.

The shares were sold at an average price of $60.40, locking in substantial gains before the market downturn. Chipotle shares delivered a robust year-to-date performance of 37% through the end of June. It marked seven consecutive months of gains until April.

Ackman first invested in Chipotle back in 2016. He acquired a $234.8 million stake that represented 4.3% of his overall portfolio at the time. Since then, he steadily increased his position. This culminated in a $2.1 billion stake at the end of the first quarter 2024. Chipotle remained his largest holding until it was overtaken by Hilton Worldwide Holdings Inc. (NYSE:HLT).

Chipotle's weight in Pershing Square's portfolio decreased from 20.1% to 17.33% between the first two quarters of 2024.

The timing of this adjustment proved to be impeccable, as the restaurant chain's stock has since experienced a notable decline

Still, the average purchase price of all Chipotle shares owned by Pershing Square is $8.72. When compared to the current market price of $52, the return on investment has been nearly 500%.

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