Chipotle share price loses its spice as company reports dip in sales due to food-safety issues

 
Caitlin Morrison
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Chipotle Closes Over 40 Restaurants In Portland Area Over E. Coli Outbreak
Chipotle was rocked by E.coli and norovirus outbreaks in 2015 (Source: Getty)

Shares in Chipotle Mexican Grill have fallen by over three per cent in after hours trading, after the company revealed a 26.1 per cent decline in sales at established restaurants in February.

The group, which owns hundreds of restaurants throughout the US, and also several locations in the UK, said it expects to report a loss of $1 per share "or worse" during the first quarter of the year.

The dismal outlook follows a number of food-safety incidents last year, including two E.coli outbreaks and two outbreaks of norovirus at various locations.

"During the quarter we will incur higher expenses driven by increased marketing and promotions spend in other operating costs, which are anticipated to be significantly higher in the first half of 2016 compared to historic reporting periods," the company said in an SEC filing.

"We also anticipate higher food costs due to additional food safety protocols put into place, as well as higher food costs related to food waste, rejection rates related to high resolution DNA testing, and lower volumes."

The company added that it had also incurred higher labour costs to "ensure we were fully staffed as customers redeemed their free burrito offer" and said the first quarter results will include an estimate of the liability for expected, but unredeemed free burrito offers.

"We also expect an increase in legal expenses associated with the investigation by the Department of Justice," the company said.

"We continue to expect that our margins and earnings potential will fully recover as our sales improve over time, except that we expect our food costs to be higher on an ongoing basis."

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