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Chipotle’s 4Q15 Revenues Take a Hit from Food Safety Issues

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Decline in 4Q15 revenues

With negative sentiments surrounding Chipotle Mexican Grill’s (CMG) E. coli outbreak, customers are hesitant to visit Chipotle restaurants. This has led to a decline in traffic and same-store sales growth.

In October 2015, Chipotle closed 43 restaurants as a precautionary measure against E. coli. That and negative same-store sales growth led to a decline of Chipotle’s revenue from $1.1 billion in 4Q14 to $997.5 million in 4Q15, a fall of 6.8%.

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Mark Crumpacker, Chipotle’s chief marketing and development officer, stated, “Our most current research indicates that 63% of Chipotle customers and 60% of fast casual diners in general are aware of the food-borne illness issues at Chipotle. Of those who are our customers and who are also aware of the issues, right around 60% have indicated that it would cause them to visit less.”

The impact of closing restaurants

Brick-and-mortar businesses such as restaurants lose revenue when they close locations, even temporarily. Average restaurant sales for Chipotle were $2.3 million for the trailing 12 months, which translates to $7,000 per day. By closing 43 restaurants from November 1 to November 10, the company lost about $3 million in revenue.

Investors who want to invest in Chipotle can mitigate risk by investing in the SPDR S&P 500 ETF (SPY). SPY invests in restaurant companies such as McDonald’s (MCD), Starbucks (SBUX), and Yum! Brands (YUM).

Outlook for 2016

Chipotle’s January same-store sales growth was -36%. Analysts thus lowered their estimates for 1Q16 revenue to around $918 million from their earlier estimate of $1 billion. They also revised their 2Q16 revenue estimate from $1.2 billion to $1.15 billion, and 3Q16 revenue from $1.26 billion to $1.23 billion. There was not much change in 4Q16 revenues.

Chipotle’s revenue is driven by same-store sales growth and unit growth. In our next article, we’ll discuss Chipotle’s same-store sales growth.

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