Chipotle Mexican Grill Inc says food-safety fallout will lead to its first-ever quarterly loss

Chipotle Mexican Grill Inc.’s food-safety crisis has taken an unwanted milestone to the beleaguered restaurant chain: its first quarterly loss as a public company.

The company, which saw sales fall for a minimum of the 3rd straight month in February, now expects a loss of revenue of US$1 a share or more in the first quarter, according to an argument Tuesday. Higher paying for marketing and food safety, including increased waste from discarding ingredients, is weighing on profit, Chipotle said. The chain had previously predicted a break-even quarter.

Customers happen to be slow to return to Chipotle following multiple foodborne-illness outbreaks last year, even as the organization has handed out coupons for free burritos. Same-store sales tumbled 26 per cent in February, plus they haven’t shown much recovery in the first two weeks of March. Sales would have been even worse in February whether it weren’t a leap year, which added an extra day to the month.

The sales numbers indicate Chipotle faces an extended route to recovery, according to Asit Sharma, an analyst in the Motley Fool.

“Consumers have a level of distrust or reluctance to embrace the company,” he said. “Chipotle is discovering that it is indeed able to now slowly move the needle on sales, however the marketing and promotion expense necessary to pull customers in is greater than expected.”

The shares fell as much as 5.9 percent to US$473.11 in Ny on Wednesday. The stock had lost 25 % previously Twelve months.

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Safety Director

Chipotle named a professional director of food safety on Tuesday, hiring Jim Marsden, a former professor in Kansas State University’s Animal Science and Industry Department. The organization is revamping its food-safety protocols and has vowed to create its restaurants the safest in the market. Chipotle expects the new safety measures to increase its food costs by a couple of percentage points. Still, the chain reiterated that it can restore its profit margins as sales improve.



Chipotle has been reeling in the crisis since early November, when the Cdc and Prevention announced an investigation into an E. coli outbreak. That brought attention to previous foodborne illnesses earlier around. A norovirus flare-up then struck in December, sickening scores of university students in Boston and additional tarnishing Chipotle’s name.

Boston Restaurant

Chipotle shares took a fresh hit last week once the company closed a different restaurant in the Boston area after employees there got sick. There have been no reports of customers falling ill in that case, though it further hampered demand. The company said sales have been improving prior to the situation was publicized, but dipped 27 per cent the 2nd week of March as the news brought more negative focus on the chain.

Last month, the company said hello received a second subpoena from the U.S. Attorney’s office for the Central District of California that expanded the scope of the previously announced investigation. The probe initially centered on a norovirus outbreak at a single restaurant in California, but now relates to “company-wide food safety matters dating back Jan. 1, 2013.”

The crisis has cut into the pay of Steve Ells and Monty Moran, the company’s co-chief executive officers. Each saw his compensation fall by more than 50 per cent this past year, with Ells coming in at US$13.8 million and Moran at US$13.Six million, based on a current filing. The organization said last month that reduced stock awards because of its executives had added 31 cents US a share to earnings in the fourth quarter. The organization saved another US$17 million on reduced bonuses.

The fallout from the crisis has been wide-ranging for a company once noted for intense brand loyalty and explosive sales growth. Its shares plunged 30 per cent this past year, using the crisis wiping out a lot more than US$10 billion in market price. Same-store sales fell 15 per cent within the fourth quarter, the first quarterly drop for Chipotle like a public company. That included a 30 per cent decline in December that was followed by a 36 percent plunge in January. With February’s drop, Chipotle is going to a second straight negative quarter.

“It’s likely to take more time than executives probably reckoned even a couple of months ago to reach previous sales levels,” Sharma said.

Bloomberg News