Restaurants

This is what has people feeling queasy at Chipotle now

Chipotle: Our actions have stopped 'unauthorized activity'
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Chipotle: Our actions have stopped 'unauthorized activity'

Chipotle just can't win.

The burrito chain told investors during an earnings conference call Tuesday that it had detected "unauthorized activity" on a network that supports payment processing for purchases made at Chipotle restaurants. The company said that it believes it has taken the proper steps to stop the activity.

The company's investigation is focused on transactions that occurred between March 24, 2017, and April 18, 2017.

The announcement doused hopes investors had that a long-awaited turnaround had begun. Chipotle shares surged as much as 6.8 percent in aftermarket trading following better-than-expected earnings. However, the gains were erased when the company revealed the payment system issues.

Shares recovered Wednesday morning, rising 2.8 percent in premarket trading.

"This issue may bear watching, as — at times — similar issues have adversely affected same-store sales trends at some of those restaurant concepts unfortunate enough to go through this challenge," Mark Kalinowski, a Nomura-Instinet analyst, wrote in a research note Wednesday.

At the moment, there is little information about the scope of the unauthorized activity.

"Because the investigation is continuing, complete findings are not available," John Hartung, Chipotle's CFO, said during the call. Hartung said it was "too early to provide further details on the investigation."

He added that the company has "implemented additional security enhancements" and declined to comment further.

In a statement from spokesman Chris Arnold, Chipotle warned customers to closely monitor their payment card statements and notify their bank if they see an unauthorized charge.

Chipotle plans to notify any affected customers when it gets "further clarity" about the timeframes and the restaurant locations that were affected.

Investors will be watching to see if this becomes a new reason to avoid the restaurant.

"Despite a possible data breach, we came away with increased confidence that the story is playing out as anticipated in our initiation-of-coverage report last June," said John Zolidis, an analyst at Buckingham Research Group.

Chipotle's same-store sales for the quarter grew 17.8 percent, up from the expected 14.9 percent that analysts had forecasted, according to Street Account.

That said, the restaurant was up against easy comparisons with the year-ago period. Same-store sales were down almost 30 percent in the first quarter of 2016, as it faced extremely weak traffic as customers shied away from going to its restaurants following a series of foodbourne illness outbreaks.

"The announced data breach only adds to the uncertainty as it could further discourage customers from returning, in addition to the likely costs," said Peter Saleh, an analyst at BTIG.

Chipotle Q1 comp restaurant sales beat estimates
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Chipotle Q1 comp restaurant sales beat estimates

(This story was updated to reflect Wednesday's stock activity and to provide further analysis.)