Chipotle Mexican Grill, Inc. (CMG) has fallen mightily since October. After setting an all-time high of nearly $760 per share of CMG stock, Chipotle is now off almost 30% to just about $530 per share.
There are many reasons for this. The most recent earnings report from Chipotle stock was ugly, with rising costs causing lower margins and a miss on EPS targets. Investors in CMG stock have been fearful of this margin pressure over the last few years, and validation of those fears may mean the beginning of a trend of slowing earnings growth.
But that’s only the beginning of the trouble for Chipotle stock.
A bigger threat is the risk of serious brand tarnish to the restaurant that has tried so hard to cast itself as a fresh and healthy alternative to the standard fast-food fare.
CMG Stock Faces Supply Chain Concerns
I admit, it was some impressive sleight of hand to for Chipotle Mexican Grill, Inc. to turn the return of carnitas into a positive.
I mean, the serious shortfalls in quality control that led to the absence of the meat on menus in the first place was not a voluntary marketing move … but to hear CMG stock leaders tell it, it was all part of a clever scheme akin to the exclusivity of the McRib from McDonald’s Corp. (MCD) or actual ribs at Burger King Worldwide (BKW).
The truth is that carnitas disappeared because of problems with “animal welfare standards” at a key supplier about a year ago, not because of some well-planned product launch. And the worst part is that misstep seems to be only one of the first in a series of supply-chain problems over the last year.
That isn’t just bad news because of the obvious lost sales. It’s also bad because Chipotle stock has soared based on its powerful brand. The very idea of CMG is very much bound up in the fresh, healthy, responsible dining.
It’s bad enough that some consumers are questioning whether a 1,200-calorie burrito is actually the best lunch option. And increasingly, nearly $10 price tags on CMG menu items make it harder for consumers to justify their burrito cravings.
That makes the recent Chipotle E. coli trouble all the more disturbing, given the other problems with its claims of being fresh and healthy.
And when you throw in the earnings trouble and weak investor sentiment, it seems like Chipotle stock is really in trouble right now.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.
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