Chipotle's stock extends its declines, but analysts aren't sweating the jalapeno scare

By Bill Peters

'History has repeatedly shown that the sales impact of foodborne illness tends to be fleeting for restaurants,' one analyst noted

Chipotle said that the CDC and FDA "do not consider there to be a current ongoing risk from Chipotle restaurants" related to a salmonella outbreak.

After Chipotle Mexican Grill stopped serving jalapenos at some restaurants following a salmonella investigation, Wall Street analysts say the impact to sales will likely be limited.

News of the food-safety scare might make consumers steer clear of Chipotle restaurants temporarily, and the chain might have to run promotions to get them back, the analysts said. But they noted that Chipotle appeared to address the issue quickly and that these sorts of incidents don't generally cause long-term damage to the brand.

"The key, in our opinion, is that the incident remain isolated," William Blair analyst Sharon Zackfia said in a research note. "Regardless, history has repeatedly shown that the sales impact of foodborne illness tends to be fleeting for restaurants."

She said that as long as the issue remained contained, third-quarter same-store sales could end up being anywhere from flat to down 1%, assuming a decline in August and a rebound in September.

Shares of Chipotle (CMG) were down 2.9% on Thursday. Shares are down around 10% since Tuesday, when the company said it had stopped serving the jalapenos in question.

Chipotle on Wednesday said that it had identified jalapenos from a grower in Sinaloa, Mexico that were distributed by Coast Citrus Distributors, and said it removed the peppers from the restaurants where they were sent. The chain said the Centers for Disease Control and the Food and Drug Administration "do not consider there to be a current ongoing risk from Chipotle restaurants in this outbreak."

The CDC on Wednesday said public-health officials in several states were investigating an outbreak of salmonella infections tied to jalapeno peppers. Of 191 people interviewed, 177 reported eating at a Chipotle, Qdoba or another "Mexican-style restaurant" between June 14 and July 14 before getting sick.

That announcement followed a similar investigation into dozens of salmonella-related illnesses by Minnesota health authorities, with many people saying they had eaten at Chipotle beforehand.

The salmonella outbreak overlaps with the nation's largest-ever cyclospora outbreak, tied to shredded iceberg lettuce, that has sickened thousands of people over the past several weeks. Many of the cases have been in Michigan, and the outbreak has been linked to two deaths in the state.

Chipotle executives said traffic trends had softened through the latter half of last month in the wake of the cyclospora scare, but the company still raised its full-year sales forecast. The chain said it did not believe its ingredients were linked to that outbreak.

Zackfia said that Chipotle had around 100 locations in Minnesota, representing around 2% of its domestic stores. And she noted that the current salmonella outbreak didn't appear to pinpoint Chipotle as the source.

"Similar to the recent cyclospora outbreak, the salmonella outbreak appears to be tied to a supplier, not a specific restaurant brand, and therefore we do not believe it indicates any breakdown in Chipotle's restaurant-level health and safety protocols," she wrote.

The CDC on Wednesday noted that Qdoba has also stopped serving jalapeno peppers. The agency said there had been 345 salmonella cases as of Aug. 4, across 27 states. Thirty-six people have been hospitalized, with no deaths reported.

BTIG analyst Peter Saleh, in a research note on Wednesday, said the impact to Chipotle would depend on media coverage.

"As with prior food-safety incidents, we believe there is a high probability that traffic slows in the days ahead and could force management to be more promotional to entice consumers back to the brand (more discounts, lower margin)," he wrote.

After health officials linked iceberg lettuce served at Yum Brands' (YUM) Taco Bell to cyclospora infections in several states, the chain won back some consumers with $1 deals on some lettuce-free items.

UBS analyst Dennis Geiger likened this week's food-safety scare at Chipotle to the E. coli outbreak linked to items served at McDonald's (MCD) in 2024. McDonald's sales only suffered briefly.

"That said, impacts from the Salmonella outbreak could be compounded by several industry food-safety incidents currently continuing to make headlines in the national media," he added.

-Bill Peters

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08-06-26 1459ET