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One year after Chipotle's E. coli crisis, chain still struggling

A file photo of a meal being prepared at a Chipotle restaurant.
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A file photo of a meal being prepared at a Chipotle restaurant.

It has been exactly a year since news of an E. coli outbreak accelerated Chipotle's downfall from a Wall Street darling, and investors are wondering when, if ever, the stock and sales will bounce back.

"The bloom's off the rose," said Bob Derrington, senior restaurant analyst at Telsey Advisory Group, who has a "hold" rating on the stock.

Since the scandal hit, Chipotle's same store sales have remained sharply in negative territory even as the burrito chain has doubled down on promotions and reassured customers about its new food safety practices. Exacerbating the problem is increased competition within the restaurant space.

At Chipotle, average unit volumes have shrunk from roughly $2.5 million pre-E. coli scare to about $1.8 million, Derrington said. He does not think average unit volumes will improve until "at least the year 2020 – if they do."

To do that, Chipotle would have to generate high single digit comps until then, Derrington says.

"It's possible. It's like Jim Carrey says in "Dumb and Dumber:" 'So you're saying there's a chance,' he said.

New stores are performing even worse, running at 73 percent of the comp restaurant volumes, a lower level than pre-crisis.

"It speaks volumes about how consumers haven't come back to accept the brand as they have in the past," Derrington said.

In an email, Chipotle spokesman Chris Arnold said, "recovery is happening," adding that "from the outset that this would take time, but we are continuing to make progress.

"We have recovered 16 points of lost comp sales since the low point in January (and made more improvements with comp transactions); implemented a number of new food safety procedures as we've worked to establish Chipotle as an industry leader in food safety, a commitment we made to our customers last year; made considerable progress developing infrastructure to better understand our customers and to target them more directly; and set sales and earnings targets for next year," he added.

While John Zolidis restaurant analyst at The Buckingham Research Group, said he does not know when Chipotle will return to its peak average restaurant volume, he is in the minority of Wall Street analysts who rate it a "buy."

"We're bullish on the Chipotle – among the few," he said. "I don't think you need a full receovery for the stock to be a really great investment at current levels."

The sluggish recovery has caught many off guard, he said, as the stock remains 42 percent lower than its year-ago levels.

Part of the reason the response has differed from other restaurant food safety crises has to do with Chipotle's brand positioning, which stresses that it offers "food with integrity."

"This incident caused consumers to question core value to associate with Chipotle," he said.

Social media, which distributed news of the outbreaks quickly, compounded the problem.

Still, he's optimistic that in the long run, customers will not even remember Chipotle's food safety crises.

"I do think that over time the customer will just forget about these issues," he said.