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Actionable news in CMG: CHIPOTLE MEXICAN GRILL Inc,

Chipotle's Food-Safety Crisis May Be Over But the Stock Is Still Way Down

  • Sales haven’t recovered as marketing spending gets a boost
  • ‘They’re going to have to find a different way to operate’

Maybe Chipotle just needs to grow up.

Before what’s obliquely referred to as the food-safety issues -- the norovirus, E. coli and salmonella contaminations that sickened about 500 diners between July 2015 and December -- Chipotle Mexican Grill Inc. was a superstar that flouted some big-company norms. The investor relations team, for example, consisted of a single employee, working the IR job half-time to boot, and ad spending was sparing. But no problem, revenue grew an average 22 percent annually, and the stock kept climbing.

Then came the outbreaks, capped off by the indictment of one of the top four executives on charges he bought cocaine from a New York drug ring that was busted earlier this summer. The company has turned in three straight quarters of double-digit sales declines. The market capitalization is $11.5 billion, about half what it was 12 months ago. In March, Chipotle abruptly stopped issuing monthly sales reports, frustrating some investors.

The “free pass” Wall Street gave the company for nearly a decade has expired, said Stephen Anderson, an analyst at Maxim Group who recommends selling the shares. “They’ve been humbled” by the 47 percent drop in the value of the stock, which closed Thursday at $394.91. “They’re going to have to find a different way to operate.”

‘Lumpy’ Marketing

Chipotle has already started, with a new marketing campaign and what the company described as the largest media buy in its history. But Anderson and others said Chipotle has to do a lot more: speed up the introduction of mobile paying systems that rivals like Panera Bread Co. and Starbucks Corp. already have; shake up the board by bringing in more outsiders; and boost the investor-relations staff. It wouldn’t hurt to resume monthly sales reporting, said Sara Senatore, an analyst at Sanford C. Bernstein & Co.

“People were surprised that they stopped giving out monthly comps,” she said. “The messaging has not been consistent -- and that can be disruptive.”

Senatore pointed to the way the quick-casual chain has typically sold itself to the public. Last year, Chipotle devoted $69.3 million to advertising and...