In Wake of E. Coli Outbreak, Chipotle May Have Another Scare to Contain

Amid a growing number of E. coli cases stemming from visits by people to certain Chipotle (CMG – Get Report) locations in Washington State and Oregon, the popular burrito joint may have another scare to contain.

That is, investors continuing to flee its stock should the company miss its sales guidance for the full year as consumers across the country avoid one of their favorite lunch and dinner spots due to health concerns. Shares of Chipotle are already down about 6% this week as the E.Coli news has gained nationwide attention, hinting investors are worried about fourth quarter sales trends. And they should be.

As Chipotle points out in its annual report, “instances of food-borne illnesses, real or perceived, whether at our restaurants or those of our competitors, may subject us to liability to affected customers, and could result in negative publicity about us or the restaurant industry that adversely affects our sales.”

Chipotle’s full year guidance calls for a same-store sales increase in the range of a low to mid-single digit percentage. For the nine month period that ended Sept. 30, Chipotle’s same-store sales have increased 5.5%.

Consumers voicing concerns about eating at Chipotle on Twitter suggest the restaurant chain may be currently dealing with sluggish sales more broadly.



“Certainly there will be a short-term sales impact, say over the next month, given the attention and social media buzz — consumers don’t tend to think of food safety issues until they actually happen,” said David Henkes, vice president at food industry research firm Technomic.

But Henkes added that “I don’t think there will be a longer term impact as Chipotle has built up a nice reservoir of goodwill among people who believe in its food with integrity mission and they have responded proactively to the latest incident.”

Not helping Chipotle’s attempt to reach its sales goals for the year is that sales prior to the E.Coli outbreak, which were first reported last Saturday, were somewhat lackluster. The company admitted on an Oct. 20 earnings call with analysts that sales in October had been “very, very choppy” and cooled in August and September following a burrito giveaway promotion in July.

Chipotle did not return a request for comment on the status of its sales guidance. In a statement from Chipotle founder and co-CEO Steve Ells on Tuesday, no mention was made of current sales trends or financial guidance. “The safety of our customers and integrity of our food supply has always been our highest priority,” said Ells, adding, “We work with a number of very fresh ingredients in order to serve our customers the highest-quality, best-tasting food we can. If there are opportunities to do better, we will push ourselves to find them and enhance our already high standards for food safety.”

Ells’ comments come on the heels of more people reporting E. coli symptoms following recent visits to several Chipotles in Washington State and Oregon. On Saturday, the number of E. coli cases in the two states stood at 22 but that has since increased to 37.

In Oregon, the number of confirmed cases increased from 3 on Saturday to 12 on Tuesday, with at least eight of those people becoming ill after eating at a Chipotle. Meanwhile, health officials in Washington State reported six new confirmed cases of E. coli, bringing the total sickened in the outbreak in the state to 25. A Washington State health official said 23 of the 25 people ate at Chipotle restaurants.

A total of 43 of Chipotle restaurants, or about 2.3% of its total U.S. locations, remain closed in Oregon and Washington. According to Chipotle’s statement on Tuesday, it’s taking multiple measures to correct any problems at the closed locations. Specific actions underway include conducting additional deep cleaning and full sanitization of the restaurants in the area, replacing all food items in the restaurants closed, and batch testing some ingredients before resupplying.

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