Chipotle’s Sales, Stock Price Nosedive Amid E. Coli Outbreaks; Mexican Food Chain to Survive Health Disasters?
Mexican grill food chain company Chipotle is currently facing some serious challenges in terms of sales and stock prices. In just two-and-a-half months, the once-booming restaurant's sales and stock prices plummeted. The decline came in the wake of the E. coli and norovirus outbreaks linked to their products.
Due to the outbreaks, Chipotle was warned that its same-store sales could nosedive this quarter. The expected drop of between 8 percent and 11 percent will be the first time in the company's history. But according to JPMorgan analyst John Ivankoe, this quarter's decline is just the beginning for a long slide for the burrito chain, noting that the decline will be for at least the next five quarters through September 2016, Business Insider reported.
The company's sales and stock prices decline was largely attributed to the prolonged negative impact of the health disasters to the brand. To date, there have been 53 people in nine states that got sick because of dual E. coli outbreaks, and 47 of those victims have confirmed eating at Chipotle before their illnesses began. And to make matters worse, the company was also recently hit with a norovirus outbreak at their Boston branch, which sickened over 150 customers.
Chipotle, however, has committed to improve and make major changes to its food preparation and testing to ensure safety.
"Since this issue began, we have completed a comprehensive reassessment of our food-safety programs with an eye to finding best practices for each of the ingredients we use," Chipotle spokesman Chris Arnold said. "We are confident that we can achieve a level of food safety risk that is near zero."
So, can Chipotle survive these health disasters? WND noted that some analysts still believe that the Mexican food chain will rebound from its drastic fall and investors will be rewarded.
"We still think the business ultimately will rebound and believe patient investors can be rewarded in owning CMG, but the lack of visibility related to the timing/trajectory of the recovery prevents us from taking a more constructive near-term stance on the stock at this stage," Baird Equity Research's David Tarantino said.
Peter Saleh of BTIG Equity Research, on the other hand, believed that investors should see the current drop as a buying opportunity.
"While we are frustrated by the continued negative news flow regarding the E. coli outbreak, we believe the company has taken the appropriate steps to guard against future incidents," he said. "We expect there could be some additional sales volatility following the most recent update but believe a pessimistic financial case is already largely reflected in the shares at the current price."
Meanwhile, Chipotle still has some serious health concerns to address. Following the closure of its 53 restaurants in Washington and Oregon due to E. coli outbreak in October, a separate and unrelated norovirus outbreak was reported in Boston just weeks ago. And CDC is currently probing another E. coli outbreak possibly connected to Chipotle's Midwest locations. With these issues keep coming, it's no surprise shares and stock prices have plunged to multiyear lows this 2015.
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