Chipotle Mexican Grill, Inc. (CMG) stock has been on a roller coaster throughout the last year, but the trajectory has been mostly one-sided. Shares are down 29% in the last year, and are off 40% from their peak around $760 last August.
I’ve been devoutly negative on CMG stock for some time now, and most of my pessimism has been not only overwhelmingly justified, but borne out in the market’s movements.
That said, an exclusive Reuters report published early this morning brings some news that I find overwhelmingly positive for Chipotle and its shareholders. It could actually be a game-changer for CMG stock.
The news is that Chipotle has brought on two very highly respected food safety experts in an effort to prevent future outbreaks of the sort it has experienced in recent months.
Let me tell you why I think that’s so important.
CMG Stock Needs a Boost of Confidence
We saw in Chipotle’s first-quarter numbers that consumers have yet to regain full confidence in Chipotle as a restaurant. Same-store sales were down about 30% year-over-year, a virtually unheard-of rate of abandonment.
CMG stock suffers from the same lack of confidence, except here, investors are the skeptics. As a loudmouthed critic myself, I can tell you that one of the core reasons I haven’t been able to endorse Chipotle stock in the wake of its crises is the perception that Chipotle wasn’t doing enough to solve the very food quality problems that crippled shares to begin with.
Today’s Reuters report tells a different story: Chipotle has brought on two pros to help it make sure these issues never happen again.
CMG hired David Acheson, a former U.S. Food and Drug Administration official and early critic of Chipotle’s handling of its food safety issues. The other hire? That would be:
“David Theno, a food safety consultant and former Jack in the Box executive who is credited with fixing food safety at the fast-food chain following a deadly E. coli outbreak in the 1990s.”
In my years of reporting on the stock market, these may be two of the best hires (on paper) that I’ve ever seen. I obviously can’t speak to the competency of either Mr. Acheson or Mr. Theno, but their resumes are each tailor-made to help engineer a CMG stock turnaround.
Jack in the Box Inc. (JACK) in particular is frequently cited when referencing Chipotle’s current conundrum. In 1993, Jack in the Box had an E. coli outbreak far worse than anything CMG stock owners have seen. Over 730 people were infected, many of them young kids, and four children, all under 7 years old, died from their infections.
In comes Theno, who was immediately appointed vice president of quality assurance and product safety at Jack in the Box. He swiftly instituted comprehensive hazard analysis and meat testing procedures that would yield no further outbreaks.
While I still wouldn’t bet the farm on CMG stock right now, and I think it needs to string together a few consecutive quarters showing a rebound in same-store sales, there’s no doubt today’s news is 100% positive for Chipotle shareholders.
Over the long-term, I feel more confident that the company can rebound from these (hopefully) temporary setbacks, but nothing is guaranteed. Let’s see how CMG’s new hires change food safety measures going forward — and if, after all this time, the company will ever discover how the outbreaks occurred to begin with.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
