Chipotle Is Scrambling After Its First-Ever Quarterly Loss

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Back to the drawing board. Photo: Patrick T. Fallon/Bloomberg via Getty Images

Chipotle's latest regulatory filing is out, which tends to mean a new day of reckoning, and yesterday's is no exception: The company reports stocks fell 36 percent in January, 26 percent in February, and 22 percent so far in March, enough to hand it the dubious achievement of its first-ever quarterly loss since going public. Chipotle had been predicting it would break even, so this adds insult to injury. (The usually staid Barron's called the loss "ginormous.") Investors didn't responded well to the news, of course — shares tumbled about 4 percent in after-hours trading. The company admits it now expects to report a loss of at least $1 per share for the start of 2016, and the kicker is it's not just bad sales that are doing the chain in. From the horse's mouth:

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.

Those free burritos sort of backfired, in other words. To right their sinking ship, Chipotle executives are already trying a couple of things. The first is bringing on a bona fide food-safety czar. A Kansas State University meat-science professor named James Marsden will take up the mantle; previously, it was a team of experts, but this will concentrate oversight in the hands of a sole researcher who, first off, is actor James Marsden's dad, but more relevantly has done groundbreaking research on E. coli and is literally in the Meat Industry Hall of Fame, a thing that apparently exists.

Next, the chain is testing out additional precautionary measures, perhaps a wise decision in light of last week's news of yet another norovirus issue at a Massachusetts location. Beef used to arrive raw in stores, get hand-rubbed with adobo spices, then stuck in the fridge to marinate. But at some locations, it now shows up precooked in a vacuum-sealed bag, requiring employees to just add spices and reheat. This could help kill any E. coli present, but the downside is it's the total opposite of fresh. Chipotle wouldn't comment on the practice, but The Wall Street Journal noticed the webpage where Chipotle used to explain that beef and chicken are marinated overnight coincidentally no longer mentions beef. Sources tell the Journal the possibility of precooking chicken isn't off the table, either.

Further, Chipotle is toying at the same time with the idea of reducing its food-safety testing, presumably because it thinks other fail-safes like precooking meat will be sufficient. Sophisticated lab tests that rely on DNA to check for pathogens were a critical part of the plan to put Chipotle "10 to 20 years ahead of industry norms" when it comes to food safety, so scaling down procedures in place for barely two months would be pretty ballsy for a beleaguered chain.

[Bloomberg, WSJ]