Please ensure Javascript is enabled for purposes of website accessibility

Chipotle's Apology Keeps Costing Shareholders

By Rick Munarriz - Feb 9, 2016 at 8:06AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The baron of burritos will pay for not being open yesterday for lunch in more ways than one.

If you're one of the people still clamoring for Chipotle Mexican Grill (CMG -0.04%) -- and that's saying something after seeing year-over-year comps plunge 30% in December and 36% in January -- you were out of luck for lunch yesterday. The fast-casual chain closed all of its restaurants until 3 p.m., taking that time to offer its employees safety training.

I was skeptical of the safety training then, and I remain skeptical of it now. It seemed like little more than a publicity stunt, something that it could have done earlier in the day.

"Given the high employee turnover in the dining industry, it won't be long before your burrito is being rolled by an assembly line that wasn't there that day," I wrote when the training session was originally announced.   

Hungry patrons approaching a shuttered Chipotle yesterday were greeted by a sign apologizing for the closure, offering a free burrito on a future visit for those texting the word "RAINCHECK" to the company.

There's no point in scrambling to score that free burrito now. The offer to claim the free meal ended at 6 p.m. yesterday. However, the offer did go viral. We live in a world of social media, and a lot more people than those who actually showed up to a local Chipotle were able to line up a free burrito from the comfort of their own smartphone.

Chipotle probably planned it that way, but it's obviously going to sting the bottom line. It not only had to forgo the peak lunchtime crowd yesterday, but now it'll be giving away a ton of free food that it will naturally have to pay for this quarter.

Chipotle had a rough holiday quarter, but Wall Street sees things getting a lot worse during the current quarter. Analysts see sales declining by 15.5% to $920.5 million for the first quarter, as brisk expansion will be no match for the sharp drop in comps that will make the fourth quarter's 14.6% drop seem like a small puddle.

Things are so much worse now because the fourth quarter benefited from a modest October before the publicity of the norovirus and E.coli outbreaks began to weigh on store traffic. November was tame compared to what followed in December and January. 

Analysts who were holding out for a profit of $4.61 a share for the first quarter just three months ago have trimmed that all the way down to $2.10 a share a week ago -- and just $0.36 a share now. If Chipotle continues to offer freebies to entice customers back, it wouldn't be a surprise to see Wall Street pros forecast a deficit for the quarter. In fact, a couple of them do already. 

The health scare appears to be over. Now it's time for Chipotle to restore the brand, and that will probably take longer than just getting through this lost quarter. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,306.80 (-0.04%) $0.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.