Chipotle's sales decline is just beginning
Hollis Johnson/Business Insider
Chipotle's sales and stock price are getting hammered in the midst of E. coli outbreaks linked to its restaurants.
The burrito chain has warned that its same-store sales could fall for the first time in company history this quarter because of the outbreak. The company is expecting a decline of between 8% and 11%.
But JPMorgan says this is just the beginning of a long slide for Chipotle.
Analyst John Ivankoe predicts Chipotle's same-store sales will decline for at least the next five quarters through September 2016.
In a research note, Ivankoe estimates that sales at stores open at least a year will fall 13% in the fourth quarter of this year, then decline 12%, 7%, and 4% respectively, in the first, second, and third quarters of next year.
Ivankoe also dropped the company from "Overweight" to "Neutral," saying there will be a prolonged negative impact to the brand following reports of a second outbreak of E. coli tied to its restaurants.
"The new news flow shows the impact continuing and more importantly a management team that seems to be scrambling for answers," Ivankoe writes.
So far, 53 people have been sickened in nine states as a result of the dual E. coli outbreaks, and 47 of those people have confirmed eating at Chipotle before their illnesses started.
The first and larger outbreak was limited to people who had eaten at Chipotle before November 7.
Then on Monday, the Centers for Disease Control and Prevention announced that a different strain of E. coli sickened five people from three states. The customers all reported illnesses from November 18 to November 26 and had eaten at Chipotle in the week before their illnesses started.
To make matters worse for Chipotle, it was recently hit with a norovirus outbreak at a restaurant in Boston that sickened more than 150 customers.
Chipotle's stock price has lost a third of its value since mid-October, when reports of the illnesses first started coming out.
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The company has committed to making major changes to its food preparation and testing to improve safety going forward.
"Since this issue began, we have completed a comprehensive reassessment of our food-safety programs with an eye to finding best practices for each of the ingredients we use," Chipotle spokesman Chris Arnold said Monday. "We are confident that we can achieve a level of food safety risk that is near zero."
For example, Chipotle will be moving some food preparation and testing to a central kitchen.
Tomatoes, cilantro, and lettuce are among the ingredients that will now being prepared in the central kitchen and shipped to restaurants in plastic bags, the Wall Street Journal reported.
Cooks will also take extra measures to kill germs, such as dipping onions in boiling water before they are chopped and adding cilantro to hot rice to get rid of microbes, according to theAssociated Press.
The company told Business Insider it may start scaling back on its use of local ingredients, as well, because smaller suppliers will likely have difficulty meeting its new standards for food safety and testing.
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