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Chipotle in 2016 Isn't Taco Bell in 2006

By Rick Munarriz - Jan 5, 2016 at 9:05AM

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The burrito baron kicks off 2016 the way it wrapped up 2015 -- on a sour cream note.

I took advantage of the thinning crowds at Chipotle Mexican Grill (CMG 1.06%) again on Sunday night. It may be bad news for shareholders, but the E. coli and norovirus outbreaks have made it a lot easier for me to satisfy my barbacoa bowl or carnitas burrito fix.

To my dismay, the lettuce bin was empty at the end of the assembly line. Chipotle was out of leafy greens, and not in the "we'll have some in a moment" kind of temporary outage that one typically experiences as employees quickly prep fresh fixings. This particular Chipotle had run out of lettuce earlier in the night, and that was the end of that.

It was disappointing to see the former fast casual darling fall short on the experience as a customer, but then I got excited for Chipotle shareholders. Did this particular Chipotle run out of lettuce because it had been busy during the holiday weekend, or was it simply oozing financial symbolism to see Chipotle running low on lettuce?

Either way, Chipotle doesn't seem to be getting a lot of respect these days. The shares closed 30% lower in 2015, making this only the second time in the past seven years that Chipotle stock has posted a negative return. It was the worst year for the stock since the market was ravaged during the 2008 financial crisis.

The new year got off to a bad start yesterday. Chipotle stock slumped 6.5% on Monday, hitting a new 52-week low following an Oppenheimer analyst downgrade. The stock has now closed lower in 10 of the past 12 weeks, and it has a lot of ground to make up in these next four trading days if it doesn't want to run that streak to 11 of the past 13 weeks.

Oppenheimer's downgrade centers around fears that the near-term weakness will extend long beyond what should be an abysmal holiday quarter. Oppenheimer refers to the E. coli scare that Yum! Brands' (YUM -1.32%) Taco Bell went through a decade ago. Yum! Brands' quick-service chain went on to post five quarters of negative comps before bouncing back. Chipotle's situation could be worse because we don't know if it's been fully contained just yet. It also doesn't help that social media has evolved dramatically since 2006. Bad news travels fast, and when "Food With Integrity" is your motto, it makes the story that much more scintillating.

Then again, Yum! Brands' Taco Bell wasn't flexing the same kind of comps that Chipotle was scoring before customers began to get ill. Chipotle has conceded that the recently concluded fourth quarter was a bust -- with comps down by 8% to 11%, according to Chipotle itself -- but even Oppenheimer sees a return to positive restaurant-level sales by the second half of this year. It's not modeling more than a year of negative comps, though it warns that it's a possibility given the unique circumstances of a market darling seeing its reputation come undone.

The weakness at Chipotle will linger beyond the holiday quarter, but when it bounces back -- and it will -- Chipotle's going to finally have some easy comparisons when it's up against the rough patches of today. There's a silver foil lining to everything at Chipotle.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,639.09 (1.06%) $17.28
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
$116.93 (-1.32%) $-1.57

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