What is in this article?:
- Analysts: Chipotle faces long road to recovery
- A focus on bringing customers back
Company plans marketing blitz next week to welcome customers back
A Chipotle unit in Boston was closed in December amid a local illness outbreak.
Wall Street analysts warned of a tough road ahead for Chipotle Mexican Grill Inc. in reports on Wednesday despite attempts by company executives to focus on plans to entice customers back to restaurants with a “near zero” risk of foodborne illness.
In a call with analysts on Tuesday following a dismal fourth-quarter and full-year report, Chipotle founder, chairman and co-CEO Steve Ells outlined what was a very challenging end to fiscal 2015, during which multiple foodborne illness outbreaks had customers running scared from the brand.
After same-store sales slid 14.6 percent for the Dec. 31-ended quarter, including a 30-percent drop in December alone, Chipotle said same-store sales declined even further in January, with a 36-percent drop, which was blamed in part on bad weather and tougher comparisons, but also on negative headlines tied to the foodborne illness crisis.
On Monday, the Centers for Disease Control and Prevention declared an end to two lingering E. coli outbreaks that sickened 60 people in 14 states, although a cause was not found for either outbreak. A report in the Wall Street Journal citing unnamed sources indicated that Chipotle officials at one point suspected contaminated Australian grass-fed beef, but the CDC said it was too difficult to pinpoint one culprit given that the menu is made up of dishes with multiple ingredients that are mixed or cooked together.
Regardless of the cause, Ells said the company is eager to move forward with comprehensive new food-safety protocols designed to bring the risk of foodborne illness to “near zero,” and an aggressive marketing campaign set to launch in mid February that aims to welcome customers back to what he described as a better Chipotle.
“The events of the last few months have shown us we need to do better,” Ells said. “I am confident Chipotle will emerge as a stronger company than we were before our recent challenges.”
Tempering the forward-looking plans was news that a federal criminal investigation of Chipotle’s food-safety practices at one restaurant in California was broadened considerably to include restaurants company-wide going back three years.
Monty Moran, Chipotle co-CEO, did not elaborate on the investigation, but said it was likely tied to federal laws regulating the sale of “adulterated” food.
“I think they’re just wanting to make sure that everything we did was on the up and up,” Moran said.
In reports, some analysts said the wider criminal probe is not likely to impact Chipotle’s attempts to recover.
“The wheels of justice turn slowly,” said Joe Fersedi, restaurant and grocers analyst at ITG Investment Research. “So even if authorities ultimately determine that the company had conducted itself in a way that challenges the company’s core brand of ‘food with integrity,’ we would presume that such a determination would occur, if it ever occurs, well after the company has rebuilt its relationship with the customers lost over the last three months.”
Steven Anderson of Maxim Group, however, wrote that the investigation could spark another descent in Chipotle’s stock price, which has dipped below $400 in recent weeks from its high of $758 over the past year. In midday trading Wednesday, Chipotle’s stock price was down nearly 4 percent, to $458.02.
“Although we believe that management’s more aggressive food safety stance may mitigate any unfavorable verdict, we still caution that such a verdict may lead to another bout of negative headline risk, and thus downside for Chipotle shares,” he wrote.