Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

Time For A Turnaround?
Chipotle's shares have slid more than 30 percent in the past year.
Source: Bloomberg

Chipotle wants investors to believe it has hit rock bottom. 

The burrito chain, mired by serious public-health issues this year, said Tuesday that sales at its established restaurants slumped by nearly 15 percent from the year before. The stock dropped about 8 percent in after-hours trading -- and that's on top of a more than 30 percent drop in the past year that wiped out billions in market value.

Despite its worst quarterly sales performance ever as a public company, executives enthusiastically "welcomed customers back" to its restaurants and said it was "pleased to have this behind us." They said they were encouraged by the clean bill of health delivered from the U.S. Centers for Disease Control and Prevention this week and hyped an advertising campaign meant to convince America that it's safe to stuff themselves with 1,000-calorie burritos once again. 

In other words, there's nowhere to go but up.

That's A Wrap
Chipotle's sales at established restaurants dropped precipitously in the latest quarter.
Source: Bloomberg

Not so fast. Chipotle's reassurances and chipper tone may calm some customers, but it's going to take more than just a marketing campaign to bring back restaurant-goers -- and investors -- for good.

The $15 billion company said its sales trends actually got worse in January: Same-store sales in the month were down 36 percent from the year before, an even steeper drop than in December (down 30%) and November (down 16%). And in addition to losing many of its casual customers, it said it even saw a drop-off in what it calls its "top loyal customers," restaurant-goers who come in 25 times or more a year and represent a fifth of the company's business. In fact, Chipotle said 60 percent of customers who were aware of the food-safety issues said the problems caused them to visit the chain less.

Now, the company is planning to spend at least $50 million in the first quarter on a frenzy of promotions, which are certainly going to hit the company's once-industry-leading margins -- not to mention the money the company is plunging into revamping its supply chain to usher in new safety protocols, as well as increasing labor costs to hire more staff and offer paid sick leave to its employees in the hopes of making its restaurants more sanitary.

While the CDC closed its investigation into  Chipotle's links to a spate of E. Coli cases, it didn't actually determine which ingredients could have been the culprit.  And even more jarring is a new criminal subpoena Chipotle said it was served last month, which broadens the scope of a previously announced investigation that had been limited to a single California location, expanding it to company-wide food safety matters dating back to January 1, 2013. The more in-depth criminal probe is likely to garner headlines that could keep more Chipotle customers away and put a damper on any sales rebound. 

As it is, Chipotle's stock remains overvalued compared with its peers: It is currently trading at about 36 times earnings over the next 12 months, compared to an average multiple of about 24 among its peers, according to data compiled by Bloomberg.  And analysts surveyed by Bloomberg have wildly different share price targets, ranging from as little as $375 to as much as $600, as Wall Street struggles to call a bottom. (The stock ended Tuesday at about $475.)

Even Chipotle said it could take four to five quarters to get back to its pre-crisis sales levels. So before investors are going to buy what Chipotle is selling, the burrito chain is going to have to show that traffic is recovering and that customers have moved past their food-safety worries. Based on its earnings report Tuesday, it doesn't look like Chipotle is there yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at

To contact the editor responsible for this story:
Beth Williams at