Chipotle Mexican Grill Inc.’s food-safety crisis has taken an unwanted milestone towards the beleaguered restaurant chain: its first quarterly loss as a public company.
The company, which saw sales be seduced by a minimum of the third straight month in February, now expects a loss of US$1 a share or more in the first quarter, according to a statement Tuesday. Higher spending on 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 this past year, even while the organization has passed out coupons for free burritos. Same-store sales tumbled 26 per cent in February, and they haven’t shown much recovery within the first two weeks of March. Sales would have been a whole lot worse in February whether it weren’t a leap year, which added an extra day towards the month.
The sales numbers indicate Chipotle faces a long route to recovery, according to Asit Sharma, an analyst in the Motley Fool.
“Consumers have a level of distrust or reluctance to embrace the brand,” he explained. “Chipotle is finding that yes, it is able to now move the needle on sales, however the marketing and promotion expense necessary to pull customers back in is greater than expected.”
The shares fell around 5.9 percent to US$473.11 in Ny on Wednesday. The stock had lost 25 % in the past Twelve months.
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Safety Director
Chipotle named an executive director of food safety , hiring Jim Marsden, an old professor in Kansas State University’s Animal Science and Industry Department. The organization is revamping its food-safety protocols and it has vowed to make its restaurants the safest in the market. Chipotle expects the brand new safety measures to increase its food costs by about 2 percentage points. Still, the chain reiterated that it may restore its income as sales improve.
Chipotle continues to be reeling in the crisis since early November, once the Cdc and Prevention announced a study into an E. coli outbreak. That brought focus on previous foodborne illnesses earlier in the year. A norovirus flare-up then struck in December, sickening lots of university students in Boston and further tarnishing Chipotle’s name.
Boston Restaurant
Chipotle shares took a fresh hit a week ago when the company closed another 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 had been improving before the situation was publicized, but dipped 27 percent the second week of March because the news brought more negative attention to the chain.
Last month, the organization said it received another subpoena in 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 pertains to “company-wide food safety matters dating back to Jan. 1, 2013.”
The crisis has reduce the pay of Steve Ells and Monty Moran, the company’s co-chief executive officers. Each saw his compensation fall by a lot more than 50 per cent last year, with Ells coming in at US$13.8 million and Moran at US$13.6 million, according to a current filing. The company said last month that reduced stock awards for its executives had added 31 cents US a share to earnings in the fourth quarter. The company saved another US$17 million on reduced bonuses.
The fallout in the crisis has been wide-ranging for an organization once known for intense brand loyalty and explosive sales growth. Its shares plunged 30 per cent last 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 as a public company. That included a 30 per cent decline in December that was accompanied by a 36 per cent plunge in January. With February’s drop, Chipotle is headed for a second straight negative quarter.
“It’s going to take more time than executives probably reckoned a couple of months ago to reach previous sales levels,” Sharma said.
Bloomberg News
