Though CDC Probe Over, Chipotle Faces Criminal Investigation

By Subrat Patnaik and Siddharth Cavale | February 5, 2016

Chipotle Mexican Grill Inc said a federal criminal probe linked to a food safety incident at a California restaurant has widened into a national investigation, sending its shares down 7 percent in extended trading on Tuesday.

The burrito chain also said sales at established restaurants plunged about 36 percent in January, following a 14.6 percent drop in the fourth quarter, the first decline in Chipotle’s 10-year existence as a public company.

Chipotle said heavy spending on food safety would weigh on current quarter results. It forecast it would break even on a per-share basis, compared with analysts expectations of a profit of $2.07 per share, according to Thomson Reuters I/B/E/S.

“2016 will be a very difficult year,” co-Chief Executive Steve Ells said in a statement.

Chipotle received a new subpoena at the end of January, seeking information related to company-wide food safety matters dating back to Jan. 1, 2013, and superseding an earlier subpoena that was limited to just one restaurant in Simi Valley, in Southern California.

The expanded investigation could focus on what managers at Chipotle’s headquarters knew about the conditions at restaurants around the country and when, said Bill Marler, an attorney representing Chipotle customers.

Chipotle said it intended to fully cooperate in the investigation by the U.S. attorney’s office for the Central District of California.

More than 50 people across 14 U.S. states fell sick in two E.coli outbreaks last year after eating at Chipotle outlets. Norovirus outbreaks were also reported in Massachusetts and California.

The outbreaks have driven away customers, wiped more than a quarter off the company’s stock price and resulted in a shareholder lawsuit.

The investigation will keep the story in the media and could damage future earnings if a settlement is reached or compensation is granted, said Neil Saunders, managing director of research and consulting firm Conlumino.

“While we do not believe the brand is beyond repair, we do maintain that both time and investment are required to repair the damage done,” Saunders said. “Chipotle has taken a big leap back, and it will take many smaller steps forward to regain the ground that has been lost.”

The U.S. Centers for Disease Control and Prevention, however, said on Monday that the E.coli outbreaks linked to Chipotle appeared to be over.

The company’s net income plunged 44 percent to $67.9 million, or $2.17 per share, in the quarter ended Dec. 31.

Revenue declined 6.8 percent to $997.5 million.

“The fourth quarter of 2015 was the most challenging period in Chipotle’s history,” Ells said.

Chipotle’s shares, which surged to an all-time high of $758.61 last August, after going public at an offering price of $22 in 2006, were trading at $442 after the bell.

(Reporting by Subrat Patnaik, Siddharth Cavale in Bengaluru and Tom Polansek in Chicago; Editing by Kirti Pandey and Leslie Adler)

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