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E. coli incidents hit hard on Chipotle's bottom line

The fourth quarter of 2015 was a financially bruising one for Chipotle Mexican Grill yet not unexpected given the E. coli incidents that put Chipotle in the headlines for weeks.

February 2, 2016

The fourth quarter of 2015 was a financially bruising one for Chipotle Mexican Grill yet not unexpected given the E. coli incidents that put Chipotle in the headlines for weeks, not only stemming customer traffic but likely putting a big dent in the chain's brand overall.

On Monday the Centers for Disease Control officially closed its investigation of E. coli illness incidents at several of the chain’s locations but the good news was short-lived given the financial report delivered in an earnings call Tuesday.

In comparison to Q4 2014, revenue dropped 6.8 percent (hitting $997.5 million), comparable restaurant sales decreased 14.6 percent, restaurant level operating margin hit 19.6 percent (a decrease of 700 basis points) and net income decreased 44 percent (hitting $67.9 million), according to a company announcement.

"The fourth quarter of 2015 was the most challenging period in Chipotle's history, but the Centers for Disease Control and Prevention has now concluded its investigation into the recent E. coli incidents associated with Chipotle," stated Steve Ells, founder, chairman and Co-CEO. "We are pleased to have this behind us and can place our full energies to implementing our enhanced food safety plan that will establish Chipotle as an industry leader in food safety."

During the quarter the chain opened 79 new restaurants, according to the announcement.

When the company's financials are viewed on a year to year comparison, the figures appear a bit healthier.

Highlights for the 12 months ended Dec. 31, 2015 include a revenue increase of 9.6 percent, comparable restaurant sales increasing 0.2 percent, a 6.8 percent increase in net income and an operating margin of 26.1 percent (a dip of 110 basis points). In 2014 the chain opened 229 restaurants.

According to the announcement, the revenue dip, in comparing Q4 in 2014 to Q4 2015, was tied to the decrease in comparable restaurant sales due to “publicity during the quarter surrounding food-borne illness incidents associated with a number of Chipotle restaurants.”

Chipotle currently operates 2,010 locations.

"2016 will be a very difficult year relative to our past performance. But, by staying true to our food culture and unique people culture, and layering on our rigorous food safety program, we are confident that we are now in a position to aggressively welcome customers into our restaurants and restore customer confidence in the things that make Chipotle great," said Monty Moran, co-CEO of Chipotle, in the announcement.

While the CDC investigation is over, Chipotle announced Tuesday it was served with a subpoena on Jan. 28, 2016 by the U.S. Attorney's office for the Central District of California. The new subpoena requires the chain to produce documents and information related to company-wide food safety matters dating back to January 1, 2013.

"We intend to fully cooperate in the investigation," states the announcement.

Chipotle stated it plans to open 220 to 235 new restaurants in 2016.