Chipotle Mexican Grill, Inc. CMG might just have something to rejoice after what has been a gloomy week. Reportedly, the company has received approval from regulators to open its restaurant in Boston's Cleveland Circle.
The Chipotle restaurant was closed since Dec 7, mainly due to a norovirus outbreak. The virus reportedly sickened around 136 guests, including 30 Boston College students and other customers.
The restaurant would be reopened soon and all the ingredients will be replaced. Also, fresh food products, raw meat and dairy products will be tested before being cooked.
Volatile Sales
Chipotle has been reeling under negative publicity related to the E. coli outbreak, which began in Oregon and Washington at the end of October. It later spread to nine states, including Illinois, Maryland, Pennsylvania, California, Minnesota, New York, Ohio, Oregon and Washington and was linked to the popular burrito chain. Over the past two months, shares of this fast causal chain lost nearly 20% of its value.
The company has already 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.
Earlier this week, the U.S. Centers for Disease Control and Prevention (CDC) announced that it was probing the restaurateur’s links with a new E. coli outbreak (with a rare DNA fingerprint) in three states – Kansas, North Dakota and Oklahoma.
Chipotle’s sales have taken a severe hit post the outbreak. Also, earlier this month, the restaurateur withdrew its 2016 comps outlook in the wake of the current volatile sales trends. Chipotle added that it is difficult to predict sales trends as a lot depends on the results of the probe by the health authorities.
Chipotle confirmed that sales have been ‘extremely volatile’ during the quarter due to its association with the outbreak. While the company reported low single-digit growth in comparable restaurant sales (comps) for October, last month comps declined 16%. Negative publicity is expected to continue to hurt the company’s top line. For the fourth quarter, Chipotle expects comps to decline 8–11%.
Our Take
The fact that Chipotle has used only healthy ingredients has long been its marketing strength and brought in more heath-conscious customers, despite its comparatively higher prices. However, the negative publicity associated with the norovirus incident would continue to hurt sales at its outlets.
Chipotle currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked restaurant stocks are Dave & Buster's Entertainment, Inc. PLAY, Jack in the Box Inc. JACK and Shake Shack Inc. SHAK. All these stocks sport a Zacks Rank #1 (Strong Buy).
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