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Chipotle Stock Drops on Renewed Food Safety Fears

What happened

Shares of fast-casual restaurant chain Chipotle Mexican Grill (NYSE: CMG) slumped on Tuesday after the company was forced to close a restaurant in Sterling, Virginia, following multiple reports of sickened customers. The stock was down about 6.5% as of 2:45 p.m. EDT.

So what

According to a statement Executive Director of Food Safety Jim Marsden provided to Business Insider, the symptoms experienced by the affected customers are consistent with norovirus. The company is working with health authorities to resolve the situation, but Marsden emphasized that norovirus does not come from Chipotle's food supply.

Image source: Chipotle.

This incident may be a one-off event that would probably be less consequential for any other chain, but Chipotle is still recovering from the food safety disaster that rocked the company in 2015. Five people in Washington state contracted E. coli after eating at Chipotle in July of that year, followed by hundreds being sickened in California by norovirus, and finally 64 people in Minnesota being sickened by salmonella. More E. coli cases popped up around the country in subsequent months, as well as an additional case of norovirus. This string of crises prompted Chipotle to completely revamp its food safety procedures.

This new case of norovirus comes at a time when Chipotle's sales are finally starting to show signs of life. The company expects to produce comparable-sales growth in the high single digits this year, a vast improvement over the 20.4% decline it suffered in 2016.

Now what

The food safety crisis of 2015 dealt a blow to Chipotle's image as a purveyor of high-quality meals. The burritos and tacos Chipotle sells to its customers come with a promise that its food is superior to the food served at typical fast food chains. That promise was broken two years ago, and the company is still trying to recover.

This new norovirus incident may be an isolated event, the result of a single employee making a mistake, but it has the potential to undo some of the work Chipotle has done rebuilding trust with its customers. Those who are still leery of Chipotle after it failed to live up to its "Food with Integrity" motto two years ago may be even harder to win back as customers now.

Chipotle is scheduled to report its second-quarter results after the market closes on July 25. Investors should learn at least some details on how (or if) this news is affecting sales at that time.

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Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.