Can Chipotle recover from E. coli outbreak? - KMOV.com

Can Chipotle recover from E. coli outbreak?

Posted: Updated:
In this Nov. 9, 2015, file photo, pedestrians walk past a still-closed Chipotle restaurant in Seattle. (AP Photo/Elaine Thompson) In this Nov. 9, 2015, file photo, pedestrians walk past a still-closed Chipotle restaurant in Seattle. (AP Photo/Elaine Thompson)

By Paul R. La Monica 

NEW YORK (CNNMoney) -- Suffering sofritas! It looks like Chipotle's E. coli problems are much more serious than investors first thought.

Chipotle warned in an SEC filing after the closing bell Friday that same-store sales may plunge as much as 11% and profits could fall 26% in the fourth quarter because of an E. coli outbreak that appears to have its roots at the popular Mexican food chain.

Shares of Chipotle tumbled as much as 8% in early morning trading Monday on the news before recovering a bit.

At least 13 Wall Street analysts cut their price target on the stock Friday or Monday morning, according to FactSet Research.

The stock, which has been a favorite on Wall Street since its IPO in 2006, is now down more than 20% this year and nearly 30% below the all-time high it just set in August.

Chipotle's stunning revelation came just a few hours after the CDC said that there are now 52 reported cases in nine states of E. coil since the outbreak was first discovered in late October.

Neither Chipotle nor the CDC has been able to determine what specific food is the cause of the disease. The CDC said that "a common meal item or ingredient served at Chipotle Mexican Grill restaurants in several states is a likely source of this outbreak."

Chipotle has vowed to take action.

The company said Friday it hired IEH Laboratories and Consulting Group, a food safety research firm, to help it find ways to improve practices at Chipotle's suppliers and restaurants.

One analyst said that it may not be easy to identify the source though. And it will cost a lot in the process. But Chipotle clearly has no choice but to spend as much as it needs to solve the problem.

"There must be something seriously wrong with the supply chain. The question is how expensive will it be to fix it," said Howard Penney, a managing director who follows consumer stocks for Hedgeye Risk Management.

And the damage to Chipotle's reputation may already be done.

"It's staggering. They have to get their act together and figure it out," Penney said.

Some analysts had suggested last month that consumers may look to eat more at other fast casual restaurants, such as Jack in the Box-owned Qdoba and Panera, as a result of the E. coli concerns.

Ironically enough, Jack in the Box is infamous for being the source of the worst E. coli outbreak at a restaurant chain ever. More than 700 people were infected in late 1992 and early 1993 due to contaminated hamburger meat. Four children died.

Shares of Jack in the Box plunged as a result and did not get back to their pre-outrbreak levels until the spring of 1997.

Fortunately, none of the Chipotle E. coli cases have been as serious -- although 20 of the 52 people who became ill were hospitalized.

So any future hit to Chipotle's sales may depend on just how many more cases are reported. The company did indicate that sales have been extremely volatile in the past few weeks due to the media coverage of the outbreak.

BTIG analyst Peter Saleh wrote in a report Monday that "we do not believe there will be any longer-term impact to the brand or its customer appeal and expect Chipotle's growth trajectory to remain intact."

Saleh did slash his price target on the stock though because of the expected drop in sales and earnings for the next few months.

And Penney said consumers may now think twice about whether Chipotle's pricey burrito bowls are worth it.

"Chipotle's food is expensive. Will the company have pricing power anymore?" he said. "The brand has been hurt and it may not take months but years to recover."

But what do you say? Have you stopped eating at Chipotle due to E. coli concerns?

According to early results of my informal Twitter poll, only about a third of the respondents said they are now avoiding Chipotle.

TM & © 2015 Cable News Network, Inc., a Time Warner Company. All rights reserved.

  • NationalMore>>

  • Texas school shooting: Sheriff says he doesn't believe any victims killed in crossfire with gunman

    Texas school shooting: Sheriff says he doesn't believe any victims killed in crossfire with gunman

    Monday, May 21 2018 7:47 AM EDT2018-05-21 11:47:12 GMT
    Santa Fe High School staff react as they gather in the parking lot of a gas station following a shooting at the school in Santa Fe, Texas, on Friday, May 18, 2018.   CREDIT: Jennifer Reynolds/The Galveston County Daily News via APSanta Fe High School staff react as they gather in the parking lot of a gas station following a shooting at the school in Santa Fe, Texas, on Friday, May 18, 2018. CREDIT: Jennifer Reynolds/The Galveston County Daily News via AP
    The gunfire tearing through Santa Fe High School didn't stop for half an hour. And during that time, Texas deputies were in a 25-minute shootout with the gunman, authorities said.More >
    Galveston County Sheriff Henry Trochesset said Monday he doesn't believe any of the victims killed in Friday's mass shooting were shot by officers during the crossfire with the suspected shooter at the Santa Fe, Texas,...More >
  • White House pushes ahead with Mideast peace plan

    White House pushes ahead with Mideast peace plan

    Saturday, May 19 2018 12:25 AM EDT2018-05-19 04:25:02 GMT
    Sunday, May 20 2018 10:12 AM EDT2018-05-20 14:12:39 GMT
    (AP Photo/Evan Vucci). White House senior adviser Jared Kushner shakes hands with President Donald Trump during an event on prison reform in the East Room of the White House, Friday, May 18, 2018, in Washington.(AP Photo/Evan Vucci). White House senior adviser Jared Kushner shakes hands with President Donald Trump during an event on prison reform in the East Room of the White House, Friday, May 18, 2018, in Washington.
    The Trump administration is aiming to roll out its much-hyped but long-delayed Middle East peace plan next month amid signs it may further alienate the Palestinians by slashing funding for humanitarian and...More >
    The Trump administration is aiming to roll out its much-hyped but long-delayed Middle East peace plan next month amid signs it may further alienate the Palestinians by slashing funding for humanitarian and development projects in the West Bank and Gaza.More >
  • Mother of victim says alleged Texas school shooter asked her daughter on date, was rejected

    Mother of victim says alleged Texas school shooter asked her daughter on date, was rejected

    Saturday, May 19 2018 1:19 AM EDT2018-05-19 05:19:36 GMT
    A shooter has been reported at Texas' Santa Fe High School, the school district there said. The district is on lockdown.A shooter has been reported at Texas' Santa Fe High School, the school district there said. The district is on lockdown.
    The teenager who allegedly used a shotgun and a revolver to kill 10 people and wound 10 others at a Texas high school Friday admitted he didn't shoot people he liked and meant to kill the ones he did target, a...More >
    Sadie Baze says she keeps expecting her daughter to walk into the house, but Shana Fisher was killed Friday, one of 10 people gunned down at her high school.More >
Powered by Frankly