It finally looked like Tex-Mex eatery Chipotle Mexican Grill, Inc. (NYSE:CMG) had shaken off the adverse impact of its late-2015 E. coli debacle. And then, something came along to remind consumers — and owners of CMG stock — that Chipotle’s problems are anything but in the past.
On Tuesday, the corporation temporarily closed a Sterling, Virginia, location in response to reports that several patrons who had recently eaten there had contracted the norovirus.
Details are still sketchy, but the evidence gathered thus far is damning enough in itself. Investors are now forced to wonder if it’s even possible for Chipotle Mexican Grill to separate itself from food-safety concerns.
Here We Go Again
If it seems oddly familiar, it may be because it was only in October 2015 that Chipotle was found to be the source of a major E. coli outbreak that ultimately infected more than 50 people in nine different states. That helped accelerate what would be a nearly 50% rout in CMG stock that was initially triggered by disappointing Q3 earnings in mid-October.
While it may be a flippant extreme to chalk it up to “it happens,” in Chipotle’s defense, its insistence on serving up fresh ingredients means its sources its food as locally as possible. Such an arrangement makes oversight and inspection difficult, if not impossible.
To its credit, CMG went through a major overhaul to combat food-borne illness as much as possible. But it didn’t do itself any favors on other fronts. Namely, rather than fix the mistake and ask for forgiveness, Chipotle’s legal team opted to somehow blame the Center for Disease Control for the poor publicity of the matter.
This go-around is different than the 2015 nightmare, though.
This time, the culprit appears to be norovirus, which is a distinctly different bug than E. coli … not that the difference makes it any more reassuring to consumers. Norovirus is primarily spread because of poor hygiene, particularly when it comes to bathroom usage.
To date, at least 13 customers of the Sterling store are known to have developed an illness after eating there on July 14 or 15. Chipotle was pegged as the source after several of them posted an update at www.iwaspoisoned.com and the common thread was determined.
The company’s PR team responded just as unapologetically and as oblivious as it had in the past, commenting, “The reported symptoms are consistent with norovirus. Norovirus does not come from our food supply, and it is safe to eat at Chipotle.” This ignores the fact that unwashed hands make it anything but safe to eat at its restaurants.
If Chipotle can’t maintain hygiene in Sterling, Virginia, there’s no absolute assurance other units can.
Looking Ahead for CMG Stock
Chipotle eventually worked through the problems from the 2015 E. coli outbreak, though it wasn’t easy or quick. Quarterly revenue still is rolling in lower than levels normally seen before the fourth quarter of 2015.
The company has made the turn, though, posting sequential revenue growth in three of the past four reported quarters. Earnings clearly are on the mend as well. It has been an ugly, hard-fought recovery.
But now, the fragile rebound has been at least partially unraveled.
In Chipotle’s defense, there’s nothing stunningly unusual about norovirus or E. coli within the food-service industry. Sometimes things are just impossible to contain, even with the most stringent of in-store standards. Chipotle’s popularity also makes its stumbles high-profile gaffes, simply because so many patrons pass through its stores on any given day.
On the other hand, these food-poisoning scares are becoming a little too frequent and a little too publicized to not take a lingering toll on the company’s bottom line. Remember, Chipotle was also the source of a norovirus outbreak in Boston that infected 120 college students in December 2015, and in 2008, 180 Kent State students were sickened after eating at one of the chain’s nearby units. That same year, one of its San Diego stores spread hepatitis A to at least 20 customers. There are more instances on top of those.
With this latest batch of news, CMG stock holders as well as consumers are understandably starting to wonder if the company’s risks are systemic, with infections something to reasonably count on. Each time it stumbles, the recovery phase gets longer and more expensive.
That’s anything but a compelling prospect to investors.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
