It has been nearly a year since Chipotle Mexican Grill, Inc.‘s (NYSE:CMG) food poisoned more than 500 customers in 10 states. Most pundits figured it would be a momentary, albeit highly embarrassing, blip for an otherwise healthy company. Instead, CMG has yet to recover, and neither has Chipotle stock.
Turns out, the words “E. coli” and “Norovirus” linger in customers’ minds longer than some anticipated.
Since hundreds of CMG diners contracted one of those two debilitating infections brought on by food poisoning in the summer and fall of 2015 (the Norovirus outbreak was limited to one Chipotle in Boston, where 136 customers fell victim to it), Chipotle’s sales have gone completely south.
Here’s CMG’s sales growth in the three full quarters prior to its summer 2015 E. coli outbreak:
- Q4 2014: 7%
- Q1 2015: 5%
- Q2 2015:1%
And here are its sales numbers in the three full quarters since its E. coli outbreak:
- Q4 2015: -6.8%
- Q1 2016: -23.4%
- Q2 2016: -16.7%
That’s a pretty pronounced sales decline for CMG stock, and it has spilled into the bottom line too: Chipotle has failed to turn a profit in the first quarter for the first time ever.
Drops of 30% and 23.6% in same-store sales the last two quarters are perhaps most telling; it says that roughly a quarter of CMG’s once-loyal diners have gone away and stayed away.
Chipotle Stock Is Still Sick
Investors have followed suit. Chipotle stock has lost nearly half its value in the last year, falling from a near all-time-high of $750 a share last October to $427 now. At one point, CMG stock dipped as low as $388. This is from a stock that averaged an annual return of 56% from 2009 through 2014.
Analysts have insisted it’s only a matter of time before CMG stock turns things around. We’re still waiting for that turnaround, a year after most of the bad headlines surfaced.
Chipotle’s sales decline is expected to slow in the coming quarters, but top-line growth isn’t expected through at least 2017. Meanwhile, earnings per share aren’t supposed to return to their mid-2015 peak anytime soon; they were down 82% last quarter. Oh, and CMG stock is still technically overvalued at 63 times trailing earnings, even after a 40% drop-off in the last 12 months.
Frankly, I don’t see any potential catalysts for Chipotle stock on the horizon. The company has been pulling out all the stops to bring back customers: coupons, promotional discount, new food safety standards and an expanded menu. So far, nothing has worked.
Yes, CMG also owns and operates a series of ShopHouse SouthEast Asian Kitchens and Pizzeria Locales, neither of which has made its customers sick … at least that we know of. But those two chains are a small part of Chipotle’s overall business and growth.
Customers Haven’t Returned to CMG
Anecdotally, here’s what I know: there’s a CMG right near my house that opened up about five years ago. From the time it opened until the E. coli outbreak last year, I couldn’t go there — no matter the hour — without having to wait in line for at least 10 minutes. Sometimes the line was out the door. Now, I walk right in and exit with my food in about two minutes, even during the dinner rush at 6 or 7 at night.
Granted, that’s just one man’s observation. But I bet something similar is going on at the more than 2,000 Chipotles all around the country. Heck, I LOVE CMG and I didn’t return for about eight months after the first E. coli incidents were reported last July and August.
I still love Chipotle’s food. But I no longer love CMG stock. And while, barring any more reports of food poisoning, I don’t think Chipotle will plummet again the way it did in late 2015, I don’t see 2017 being much better than this year.
The food may be safer now, but Chipotle stock is still sick.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
