Chipotle Mexican Grill, Inc. CMG declared in a recent filing that its sales have taken a severe hit post the E.coli outbreak. This follows the announcement by the U.S. Center for Disease Control and Prevention (CDC) that four additional E.coli infection cases were found linked to Chipotle. The infection has affected several customers across nine U.S. states.
Also, the fast casual chain has withdrawn its earlier announced 2016 comps outlook in the wake of the current volatile trends. Chipotle added that future sales prediction is difficult as it depends on further developments and other announcements from health authorities.
Shares of the company fell nearly 8% in the after-hours trading session on Dec 4 following these announcements. Moreover, shares have plunged about 23% in the past two months as authorities began investigating the outbreak.
Q4 Outlook
Chipotle confirmed that sales have been ‘extremely volatile’ during the quarter as a result of its association with the outbreak. While the company reported low-single digit growth in comparable restaurant sales (comps) for October, last month comps were down 16%.
Negative publicity due to the E. coli infections is expected to continue to hamper the company’s top line. For the current quarter, Chipotle expects comps to decline 8%-11%.
Chipotle expects non-recurring expenses of $6 billion – $8 billion. These expenses include costs to replace food in certain restaurants and other costs incurred to test food samples. The company expects operating margins in the 22%-24% range, substantially below the year-ago quarter level of 26.6%.
Earnings for the quarter are expected to be between $2.45 and $2.85 per share. This is substantially lower than the Zacks Consensus Estimate of $4.12 per share as well as $3.84 per share reported in the comparable quarter last year.
The company, however, announced that it is taking stricter measures to provide safer food to its customers. Some recent measures include high-resolution testing of ingredients and providing specialized training to staff to maintain food standards.
Share Buyback
Chipotle announced that its board has authorized repurchase of its shares worth $300 million. This is in addition to its earlier announced $1 billion buyback authorization.
Zacks Rank & Stocks to Consider
Chipotle currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering from the restaurant industry are Jack in the Box Inc. JACK, BJ's Restaurants, Inc. BJRI and Shake Shack Inc. SHAK. All these stocks sport a Zacks Rank #1 (Strong Buy).
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