Chipotle’s Turnaround and the Risk of Food Poisoning

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It was only one incident, reported at Iwaspoisoned.com. An incident of food poisoning at an Ohio location of Chipotle Mexican Grill Inc. (NYSE: CMG) brought back memories of the chain’s history of similar incidents and how these cripple the company and nearly destroyed its reputation on Wall Street.

The new Chipotle story is actually an old one. A company that has become known for a problem cannot escape it for years. Volkswagen is an example after a scandal over some of its diesel engines. BP had a similar problem after the Deepwater Horizon disaster. The Chipotle problem is smaller than either of these, but the lingering bad publicity was harmful to all of them.

Many outsiders believe that new CEO Brian Niccol has the experience to make the company’s operations and revenue growth better. He has been at the helm since April. Chipotle recently announced a strong quarter. Revenue rose 8.3% to $1.3 billion. Comparable store sales rose a very modest 3.3%. Earnings were down slightly from $3.92 per share in the second quarter of last year to $3.81. Chipotle management explained the “real results” were better because earnings were “net of a $1.19 after-tax impact from expenses related to restaurant asset impairment, corporate restructuring, and certain legal costs …”

However, the extent of the news coverage of the incident shows how quickly a company’s troubled past can surface despite advances. The Ohio report was picked up by many major media outlets. All the coverage referred to the company’s recent history of food poisoning and how this had eroded consumer confidence in the chain.

The Ohio poisoning was one problem for a few days, at most. Chipotle will be asked about the report for weeks to come, and it will add to doubts about the company’s turnaround, whether or not it should.