Earnings

Chipotle shares drop 6% in premarket

Chipotle shares fall on revenue miss, investigation
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Chipotle shares fall on revenue miss, investigation

Chipotle's stock fell sharply in premarket trading on Wednesday following a weak earnings report on Tuesday.

Shares were down more than 6 percent before the bell.

In addition, JPMorgan, which recently downgraded Chipotle to neutral, maintained its December 2016 stock price target of $465.

It closed Tuesday at $475 a share.

Chipotle beat Wall Street's earnings expectations on Tuesday, but shares fell as it revealed a wider criminal probe into the company's recent food-safety scandal.

Chipotle said federal prosecutors in central California wanted 3 years' worth of information on food safety matters; the Mexican food chain is cooperating with the probe.

Shares in the one-time Wall Street darling fell 2.5 percent in after-hours trading. The stock has plunged in recent months amid a nationwide outbreak of E.coli at its restaurants that sickened dozens. Sales at established restaurants fell 14.6 percent in the fourth quarter.

"The fourth quarter of 2015 was the most challenging period in Chipotle's history, but the Centers for Disease Control and Prevention has now concluded its investigation into the recent E. coli incidents associated with Chipotle," Steve Ells, founder, chairman and co-CEO of Chipotle, said in a statement.

A person walks past a Chipotle Mexican Grill store location in downtown Portland on November 3, 2015 in Portland, Oregon.
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The company posted earnings of $2.17 a share, compared to $3.84 a share in the year-earlier period.

Revenue for the quarter came in at $998 million, against the comparable year-ago figure of $1.07 billion.

Chipotle's earnings beat all but the most optimistic of Wall Street's expectations.

Analysts had expected Chipotle Mexican Grill to report earnings of about $1.85 a share on $1.01 billion in revenue, according to a consensus estimate from Thomson Reuters.

"2017 could be a nice bounce back year where you're talking about double digit comps or trajectory level towards those comp levels you once saw..." R.J. Hottovy, an analyst with Morningstar, told CNBC. "That said you have to have some patience. This is going to be a bumpy ride this year."

Source: Chipotle

The Centers for Disease Control and Prevention announced on Monday that Chipotle's E. coli outbreak had ended, causing the stock to spike 4 percent. Previously, the company had said its sales plunged 30 percent in December, following at least six outbreaks tied to the fast-casual chain in the last year, including norovirus, E. coli and salmonella.

At an investment conference in Orlando, Florida, in January, Chipotle executives said the company is taking measures to reduce the risk of another food scare to "near zero."

The company will start "inviting customers back" to restaurants in February with increased marketing and direct mail offers.

Chipotle Chief Financial Officer Jack Hartung noted the company's recovery would be "messy," with investments in food safety and marketing eating into profit margins.

Chipotle, which is based in Denver and has more than 1,900 locations, said it has already made many changes to tighten its food safety. The steps include moving the chopping of tomatoes and lettuce to a centralized location and blanching onions to kill germs before they're chopped.