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Chipotle Tumbles to a 52-Week Low on Food-Safety Issues
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On Jun 14, shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) plunged to a 52-week low of $384.77, the lowest the shares have traded since Jul 2013, and eventually closed a little higher at $395.27. Slow recovery concerns and prolonged effect of food-borne illnesses continue to impact the stock, leading to a negative return of over 45% since mid-Oct 2015.
What’s Hurting Chipotle?
Chipotle’s performance has been largely hampered by the food-safety issues. The restaurant chain has been reeling under negative publicity related to the E. coli and norovirus outburst since end-2015. As a safety measure, the fast casual chain was forced to close several outlets. Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to Chipotle’s sales.
Thus, the negative publicity has affected Chipotle’s popularity among health-conscious diners tremendously. This has significantly hurt the company’s revenues in the past couple of quarters.
In fact, Chipotle withdrew its earlier announced 2016 comps outlook at the fourth-quarter 2015 conference call in the wake of the current volatile sales trends. Notably, comps decreased 29.7% in the first quarter of 2016 mainly because of lower sales at the company’s restaurants.
Meanwhile, Chipotle intends rolling out a number of marketing and promotional initiatives to bring back customers to its stores and the costs associated with these have already and will continue to impact profitability. Also, implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may further continue to keep profits under pressure.
Moreover, other restaurants have been working on providing customers with healthier food and innovative menu options in the fast casual restaurant space, intensifying competition for Chipotle.
Also, downward estimate revisions reflect pessimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2016 and 2017 moved south by 16.6% and 9% to $5.13 and $11.62 per share, respectively, over the last 60 days.
Our Take
The fact that Chipotle has been using healthy ingredients has been its marketing strength despite the high prices. With food-safety issues still looming large, Chipotle has its back to the wall.
The company’s efforts to gain back customers through the adoption of new food safety protocols, offers for free burritos, buy one get one deals and a few menu innovations seem to have lost impetus in the past few weeks. Thus, it appears that a turnaround is certainly not around the corner for this Zacks Rank #3 (Hold) stock.
Stocks to Consider
Better-ranked stocks in this sector include Papa John's International Inc. (PZZA - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and The Wendy's Company (WEN - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
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Chipotle Tumbles to a 52-Week Low on Food-Safety Issues
On Jun 14, shares of Chipotle Mexican Grill, Inc. (CMG - Free Report) plunged to a 52-week low of $384.77, the lowest the shares have traded since Jul 2013, and eventually closed a little higher at $395.27. Slow recovery concerns and prolonged effect of food-borne illnesses continue to impact the stock, leading to a negative return of over 45% since mid-Oct 2015.
What’s Hurting Chipotle?
Chipotle’s performance has been largely hampered by the food-safety issues. The restaurant chain has been reeling under negative publicity related to the E. coli and norovirus outburst since end-2015. As a safety measure, the fast casual chain was forced to close several outlets. Although these were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents dealt a severe blow to Chipotle’s sales.
Thus, the negative publicity has affected Chipotle’s popularity among health-conscious diners tremendously. This has significantly hurt the company’s revenues in the past couple of quarters.
CHIPOTLE MEXICN Price and Consensus
CHIPOTLE MEXICN Price and Consensus | CHIPOTLE MEXICN Quote
In fact, Chipotle withdrew its earlier announced 2016 comps outlook at the fourth-quarter 2015 conference call in the wake of the current volatile sales trends. Notably, comps decreased 29.7% in the first quarter of 2016 mainly because of lower sales at the company’s restaurants.
Meanwhile, Chipotle intends rolling out a number of marketing and promotional initiatives to bring back customers to its stores and the costs associated with these have already and will continue to impact profitability. Also, implementation of food safety practices has increased the amount of labor required to prepare and serve food, resulting in higher labor costs which may further continue to keep profits under pressure.
Moreover, other restaurants have been working on providing customers with healthier food and innovative menu options in the fast casual restaurant space, intensifying competition for Chipotle.
Also, downward estimate revisions reflect pessimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2016 and 2017 moved south by 16.6% and 9% to $5.13 and $11.62 per share, respectively, over the last 60 days.
Our Take
The fact that Chipotle has been using healthy ingredients has been its marketing strength despite the high prices. With food-safety issues still looming large, Chipotle has its back to the wall.
The company’s efforts to gain back customers through the adoption of new food safety protocols, offers for free burritos, buy one get one deals and a few menu innovations seem to have lost impetus in the past few weeks. Thus, it appears that a turnaround is certainly not around the corner for this Zacks Rank #3 (Hold) stock.
Stocks to Consider
Better-ranked stocks in this sector include Papa John's International Inc. (PZZA - Free Report) , BJ's Restaurants, Inc. (BJRI - Free Report) and The Wendy's Company (WEN - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>