Morningstar | New Chipotle Food Safety Concerns Could Stall Momentum; Impact Will Depend on Management Response
Chipotle once again finds itself with a potential food safety controversy after conflicting reports about illnesses tied to a location in Powell, Ohio, over the past several days. The company initially closed the location on July 31 and acknowledged a "handful of illnesses," but was reportedly set to reopen. However, the Powell location was inspected by local health officials on July 26, who noted that "lettuce was not properly cooled and beans were not held at a warm enough temperature," and the Ohio Department of Health said that it had received more than 100 calls about the Powell location.Given the various reports, we believe it would be prudent for investors to exercise some caution. Ultimately, we believe the impact to Chipotle's results will depend on two things: the severity of the outbreak and management's transparency. On the first point, when it was reported that there were only a few cases of illnesses, we believed the financial impact would be mild, as lapsed consumers following the 2015 e. Coli outbreak were unlikely to change their opinion and those customers who have returned are less likely to be swayed by food safety concerns. However, if confirmed illnesses reach several hundred people, we believe media exposure and the financial impact could be more severe.
Management's response will likely depend on a more thorough review, but if Chipotle is able to communicate what caused the illnesses in question, why the company's new food safety measures didn't prevent an outbreak, and what preventative actions will be taken in the future, we believe the impact on results will be much less severe.
We are not planning changes to our $400 fair value estimate or our narrow moat rating, though we will continue to monitor the situation for any changes in consumer behavior or deterrents to new CEO Brian Niccol's turnaround efforts.
Chipotle Mexican Grill together with its subsidiaries operates Chipotle Mexican Grill restaurants, which feature a menu of burritos, burrito bowls (a burrito without the tortilla), tacos, and salads. The company operates Chipotle restaurants throughout the United States, international Chipotle restaurants, and non-Chipotle restaurants. The company uses various herbs, spices and seasonings to prepare its meats and vegetables. The company also serves tortilla chips that seasoned with lime juice and salt, with sides of hand mashed guacamole, salsas, or queso. In addition to sodas, fruit and tea drinks, and organic milk, most of the company's restaurants also provide a selection of beer and margaritas.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.