Just as it seemed that Chipotle Mexican Grill, Inc. (NYSE: CMG) would bounce back from a disastrous 2016, stocks tanked as management announced that operating costs will be higher than expected.
Due to two years of problems with the safety of their food, the popular Mexican, fast food chain is struggling to regain consumers trust due to two years hazardous food incidents. The most recent Securities and Exchange Commission filing revealed Chipotle will raise funds allocated for marketing and promotions a much as .3 percent.
The fast food chain has been working diligently to regain the trust of consumers. Since 2015, the brand has attempted to recover from numerous cases of E. coli, Salmonella, and other norovirus outbreaks. In its efforts, Chipotle has offered free food, various advertising campaigns, and adjustments to the menu.
The damaged food chain said it expects sales from current stores to be in the high-single digits, but failed to relieve investors’ fears as shares fell almost to 7 percent. This drop made it the worst performer in the S&P 500 so far on Tuesday and poorest selloff of the year.
Peter Saleh, an analyst at BTIG, wrote on a research note,” We remain Neutral and shares of Chipotle as we believe the sales and unit economic recovery ought to be further along 16 months after the initial food safety incidents”.
Although the Denver based company reported that current stores experienced a 20% increase in sales through the first quarter, this was only the result of returning customers that they had already lost in years past. In comparison to last year, sales dropped almost 30% due to numerous health incidents and Chipotle is expected to see future increase in sales from returning customers.
Despite the sales bouncing back, some analysists are reluctant to support the company. Nonura-Instinet’s Mark Kalinowski altered his earnings per share predictions for the from $8.75 to $8.20 and slashed his price target by $30.
On the contrary, other analysts believe that Chipotle’s recovery would not be immediate, but is certain. Nicole Miller Regan, from Piper Jaffray, predicts that the stock would maintain the $530 target price. She continues in her research note, “Our latest checks largely reflect the consensus view that Chipotle trends have largely turned the corner and are now on the mend” and “initial indications suggest new television advertising has helped drive awareness and that new bunuelos dessert item has been received favorably.”