Chipotle Mexican Grill, Inc. (CMG) Is Its Own Worst Enemy


Chipotle - Chipotle Mexican Grill, Inc. (CMG) Is Its Own Worst Enemy

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In all my now-too-many years as a financial journalist, not once have I borrowed anything of Shakespeare’s to concisely make a point. Aside from sounding corny, doing so would be painfully cliche. Yet, as I mull the latest news from Chipotle Mexican Grill, Inc. (CMG), I find there’s no other choice but to rip off a bit from Shakespeare’s Hamlet:

Chipotle Mexican Grill, Inc. (CMG) Is Its Own Worst Enemy

“The lady doth protest too much, methinks.”

Apparently late last year, right when the company was neck-deep in its E. coli headwinds, Chipotle’s attorneys saw fit to deliver a 24-page diatribe to the Centers for Disease Control, complaining the CDC had mishandled the whole thing and unnecessarily spooked the public.

The end result? Among other things, a 30% dip in last quarter’s revenue and a swing to the company’s first quarterly loss (at least as a publicly traded organization).

Perhaps if Chipotle wanted to do itself and CMG stock a favor, the best thing it could do would be taking its lumps and moving on, giving people a chance to forgive and forget … as they have in the past. Complaining to the CDC for just doing its job the same way it has done it for decades now reeks of guilt, as does giving away free burritos.

In other words, Chipotle may just want to shut up.

Chipotle Cries Foul, But …

The E. coli outbreak linked to Chipotle began in November. By December, the CDC was on top of the situation, though the moving-target nature of any such outbreak meant several more updates were in the cards as the agency worked to pinpoint the cause, or causes. As the investigation progressed though, the Centers for Disease Control preemptively suggested tainted meat wasn’t apt to be the source, as vegetarians had also been infected.

It was a relatively benign statement from the CDC, and never intended to be an official finding — just an observation.

The response from CMG was anything but benign, however. The 24-page complaint claimed that observation was “patently inaccurate.”

As for how any detail that’s only categorized as “probable” can be “patently inaccurate” is beyond me. And yet, that’s not the eyebrow-raising aspect of Chipotle’s response letter. Most alarming is lead attorney Bryant Messner’s complaint that the CDC was actively updating its investigation’s results at the agency’s website, even when there was no “ongoing threat” of further outbreak.

No ongoing threat?

There’s simply no way of knowing for sure when the threat is over, and the Dec. 21 date of Messner’s letter was certainly far too soon to assume it was safe to give any sort of all-clear signal.

Regardless, Messner’s letter also criticized the CDC for failing to acknowledge that some of the latter cases in the review of the outbreak hadn’t recently eaten at CMG. Yet, the Dec. 4 update plainly said, “Of the three most recent illnesses reported in November, only one ill person, whose illness started on Nov. 10, reported eating at Chipotle Mexican Grill in the week before their illness began.”

And it’s at this point it becomes clear … Chipotle has been and continues to throw spaghetti against the wall, desperately hoping at least enough of it will stick enough to restore sales.

The last thing any company wants to do in such a situation is look and act desperate. Humble and repentant? Yes. Desperate? No.

Bottom Line for CMG Stock

I still stand by my April 28 comment:

CMG is only a buy for the true long-termer, based on the strength of the concept and its food value. Chipotle should be able to recover sooner or later, even though its leadership seems to be stumbling over itself in the meantime.”

Until the company starts playing more offense than defense though, by demonstrating real quality and safety improvements, rather than gimmicks, CMG stock will struggle to begin that long-term rebound.

Indeed, Chipotle may have wanted to use the play it used after all the other food-borne illnesses linked to it since 2008 … do nothing. All of them were soon nothing more than fading memories, after the company let those memories die. The public will forgive and forget … if you let them.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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