Risk & Compliance

Food Safety Woes Bite Into Chipotle Sales

The restaurant chain expects a 14% drop in same-store sales for the fourth quarter and discloses it is under federal investigation.
Matthew HellerJanuary 6, 2016

Chipotle Mexican Grill disclosed Wednesday that a wave of foodborne illnesses linked to its restaurants had taken a larger-than-expected bite out of its sales and that it is facing a federal investigation.

Chipotle said in a regulatory filing that it expected same-store sales to be down 14.7% for the fourth quarter. It had previously projected a decline, Chipotle’s first quarterly drop as a public company, to be as much as 11%.

An outbreak of norovirus at a Chipotle restaurant in Brighton, Mass., during the week of Dec. 7 “worsened the adverse financial and operating impacts we experienced from an E. coli incident associated with a number of Chipotle restaurants in October and November,” the filing said.

Chipotle also said it had received a grand jury subpoena last month in connection with a federal investigation of a norovirus incident in August at a Chipotle restaurant in Simi V alley, Calif. “The subpoena requires us to produce a broad range of documents” related to the restaurant, the company said.

After declining 30% in 2015, Chipotle stock fell 5% Wednesday to close at $426.67, its lowest point in more than two years.

“The past few months have been a trying time for Chipotle,” the Washington Post said. “After years of sustained growth, and a seemingly flawless business, America’s darling fast food company has fallen on hard times.”

The crisis began last fall when Chipotle closed 43 restaurants in Washington state and Oregon after health authorities linked an E. coli outbreak to six restaurants in the region. Illnesses contracted at Chipotles were then reported in seven more states, including Illinois, Pennsylvania and Maryland.

The Brighton, Mass., outbreak sickened at least 80 students at Boston College. Boston health officials cited the restaurant for improper handling of poultry and the presence of a sick employee.

Chipotle now estimates that fourth-quarter earnings will range from $1.70 to $1.90 a share, compared to analysts’ estimates of $2.49 before Wednesday’s announcement. It also warned that “Future sales trends may be significantly influenced by further developments.”