Revenue for the quarter fell by about 7 percent to $998 million compared to the year before, while profits plummeted by 44 percent to $68 million. Shares of Chipotle, meanwhile, fell more than 5.5 percent in after-hours trading on the news, after dipping to their lowest level in over two years last month. The company's stock is down almost 40 percent over the past three months alone, closing Tuesday at $476 a share.
"The fourth quarter of 2015 was the most challenging period in Chipotle’s history," Chipotle's co-CEO Steve Ells said in a statement.
The trouble began last fall when Chipotle closed more than 40 restaurants in Washington state and Oregon after health authorities linked an E. coli outbreak to six restaurants in the region. Illnesses contracted at Chipotles were then reported in seven more states, including Illinois, Pennsylvania and Maryland, broadening the scope of the outbreak.
Soon thereafter, in December, more than 100 students at Boston College fell ill after eating at a Chipotle, leading the company to close another restaurant. Boston health officials said the cause was norovirus, a common virus, while citing the restaurant for two health violations: improper handling of poultry and the presence of a sick employee. The Centers for Disease Control and Prevention later announced it was investigating yet another E. coli outbreak that could be linked to the chain, although the agency has since said it is closing the inquiry. In January, Chipotle announced that it had also received a subpoena as part of a federal criminal investigation into a California norovirus outbreak.
Consumer awareness of the issues Chipotle has been dealing is high, Mark Crumpacker, Chipotle's chief marketing and development officer, said in the earnings call. He cited a survey saying that 63% of Chipotle customers were aware of their problems with food borne illness, and about 60% indicated it would cause them to visit stores less.
Chipotle, for its part, has vowed to clean up its act, a promise which the company reiterated in its earnings statement. "We strongly believe that we can establish Chipotle as a leader in food safety just as we have become a leader in our quest for the very best ingredients we can find," Ells said.
In the aftermath of the the outbreaks, Chipotle pledged to sanitize its operations, hired food safety consultants and announced that it would introduce more-stringent testing of its ingredients. In its earnings call, co-CEO Monty Moran said the company had made changes to its food handling and preparation procedures, and introduced regular third-party audits of its restaurants. Company executives and health officials say they may never know what caused the outbreak, since any contaminated ingredients would now be long gone.
But the current reality remains, and it could extend well into the future. Falling sales suggest that what people had observed anecdotally—restaurants where patrons used to line up suddenly empty—is likely happening nationwide. And it bodes poorly for the months and quarters to come, especially if recent history is any indication of what's to follow.
Taco Bell, the last major fast-food company to face an E. coli outbreak, suffered in the aftermath of a 2006 scare, enduring five straight quarters of negative sales growth. In the earnings call, company executives cited the experience of other restaurant chains, saying that it had taken four or five quarters for these companies to fully recover from outbreaks of food-borne illness. But they implied that Chipotle's recovery could be more extended, due to the greater number of incidents and higher visibility of its problems.
Those looking for optimist talk from Chipotle about a short-term rebound were instead met with a reluctant caution about the year to come.
"2016 will be a very difficult year relative to our past performance," Monty Moran, Chipotle's co-CEO, warned.