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 Shares of the burrito chain fell nearly 5 percent to $426.67, the
lowest in more than two years. That brought their decline to about
30 percent since Oct. 31, when its first E. coli outbreak was
reported.
Chipotle in a regulatory filing also projected a 14.6 percent plunge
in fourth-quarter same-store sales, compared with a previously
estimated 8-11 percent drop. That would be the company's first
quarterly same-store sales decline since it went public in January
2006. (http://1.usa.gov/1JtQlLV)
Chipotle said it received the subpoena in December as a part of a
criminal investigation by the U.S. Department of Justice and the
Food and Drug Administration. A federal grand jury will decide
whether to press charges in the case.
Norovirus is the leading cause of food-related illnesses and
outbreaks in the United States. It is highly contagious, often
spreading when infected restaurant employees and food workers touch
raw ingredients before serving. Food was the suspected source of the
California outbreak, a state health department document from
September showed.
The latest investigation adds another headache for Chipotle, whose
sales have slumped since an E. coli outbreak sickened more than 50
people in nine states in October and November.
Since last fall, Chipotle has had to sanitize restaurants and throw
out food while sending ingredients for testing at government labs,
as company and public health officials attempt to pinpoint the
source of the infections.
The week of Dec. 7, 120 Boston College students fell ill from a
norovirus incident at a restaurant in Brighton, Massachusetts. More
Chipotle-related E. coli cases were announced late December.
The same month, nearly a quarter of Americans who were aware of the
E. coli cases said they were eating Chipotle less often, a Reuters/Ipsos
poll found. (http://1.usa.gov/1JtQlLV)
A Justice Department official declined to comment on the Chipotle
investigation. But he said the agency has prioritized food safety
and stepped up enforcement, through prosecutions and injunctions to
stop problems before they lead to outbreaks.
BROAD RANGE OF DOCUMENTS
The subpoena requires Chipotle to produce a broad range of documents
related to an August norovirus incident at its restaurant in Simi
Valley, California, which sickened more than 200 people, including
17 workers.
That same month, two California residents sued Chipotle for damages
in U.S. court after they said they became sick from eating at the
Simi Valley location.
Alyssa McDonald vomited repeatedly and developed "explosive
diarrhea," while another customer said she had to go to a hospital
emergency room, court documents showed. The Ventura County Health
Department found McDonald's stool tested positive for norovirus, the
lawsuit said.
Doug Beach, a Ventura County health official, said his office was
interviewed by the FDA and U.S. Attorney's office in the fall, whose
lines of inquiry focused squarely on Chipotle.
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The county turned over files about the incident to federal
prosecutors, he added. "It's unusual to have the federal government
involved."
The federal government's involvement in a one-restaurant outbreak is
surprising since there was no clear interstate element, said Bill
Marler, a Seattle-based lawyer who represents Chipotle customers
sickened in Simi Valley.
The FDA declined to comment on the investigation.
Chipotle spokesman Chris Arnold declined to discuss most aspects of
the probe, but the company said the subpoena covers only the
"isolated" Simi Valley case.
Health officials in several U.S. states that had Chipotle-related
outbreaks, including New York, Washington, and Oregon, said they had
not been contacted by federal investigators.
Days after managers shut down the Simi Valley restaurant, and threw
out all remaining food and disinfected surfaces, a health department
inspection on Aug. 24 turned up multiple violations, such as unclean
equipment and restroom facilities.
On Aug. 27, an inspector found that at least some of the "violations
observed on previous inspections have not been corrected."
Chipotle, one of the restaurant industry's top performers for years,
is struggling to rebound since the wave of illnesses.
In its Wednesday filing, Chipotle said same-restaurant sales for
December were down 30 percent, the company said.
Any more incremental bad news, particularly if there is an
unfavorable decision from the grand jury, could trigger
consideration among shareholders of a management change, Maxim Group
analyst Stephen Anderson said.
The company, which also announced a $300 million share buyback in a
bid to soothe investors, said it will fully cooperate with the
probe.
(Reporting Sarah N. Lynch in Washington and Tom Polansek in Chicago,
Siddharth Cavale and Subrat Patnaik in Bengaluru, and Sue Horton in
Los Angeles; Writing and additional reporting by Eric M. Johnson in
Seattle; Editing by Meredith Mazzilli and Richard Chang)
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