Chipotle Mexican Grill Receives New Subpoena Over Restaurant Illnesses

Chipotle Mexican Grill (CMG) disclosed that it received a new subpoena for information into illnesses at several restaurants, sending its stock lower a day after the company reported better-than-expected first-quarter results.

In a filing on Thursday with the Securities and Exchange Commission, the restaurant said that on April 18 it got the request related to incidents at restaurants in Simi Valley, Calif., Los Angeles, Boston and Sterling, Va., which were covered under previous subpoenas, and an additional restaurant in Powell, Ohio.

Chipotle said it was first served with a federal grand jury subpoena in January 2016, looking for documents and information on company-wide food safety issues dating back to Jan. 1, 2013.

“We have fully cooperated and intend to continue to fully cooperate in the investigation,” Chipotle said in the filing. “It is not possible at this time to determine whether we will incur, or to reasonably estimate the amount of, any fines or penalties in connection with the investigation pursuant to which the subpoenas were issued.”

The restaurant company’s stock sank 6.4% in late morning trading Thursday. In 2015, the Centers for Disease Control and Prevention reported 60 cases of E. coli from two outbreaks that were linked to Chipotle restaurants. Across 14 states, a total of 22 people were hospitalized.

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Chipotle worked to rebuild its image in the wake of the outbreaks, and in the first quarter earnings jumped to $3.40 per share on an adjusted basis from $2.13 in the same period of last year, the company said late Wednesday. The consensus on Capital IQ was for $3.03.

Revenue climbed 14% to $1.31 billion, also topping expectations for $1.27 billion. Same-store sales growth of 9.9% was ahead of the consensus estimate for 6.8% and the company guided for mid to high single digit comparable restaurant sales growth from a prior view of mid-single digit growth.

The raised outlook for the sales growth in is supported by multiple drivers, according to Wedbush Securities. Analysts from the investment advisory firm raised their price target on Chipotle to $700 from $680, while keeping a neutral rating.

“We believe the adoption of loyalty, along with a 100 bp uptick in marketing to 3.5% of sales in Q2, could help sustain YoY growth rates in digital as compares become difficult,” the analysts wrote in a note. “We expect menu innovation will also provide another potential layer of comp under both digital and non-digital umbrellas, all of which will benefit from a growth in marketing spend.”