Chipotle Mexican Grill, Inc. (CMG) had another rough day, with the stock plunging 7.61%. There were a few related reasons for the slide.

Founder and Co-Chief Executive Officer, Steve Ells told investors at a Barclays conference: “I'm not satisfied with the rate of recovery and the quality of the restaurant experience. We are not offering the necessary guest experience.” Ells went on to state that half of the company’s restaurants would be rated C, D, or F. He cited:

  • Untidy dining rooms
  • Dirty soda filling stations
  • Slow lines

To really add fuel to the fire, Ells added that he was “nervous” about the company’s guidance. In October, Chipotle guided for a low-single digit comps decline in the fourth quarter and a return to positive comps (high-single digits) in 2017. Recent comments make these numbers unlikely, which is a big part of the reason for investor concern.

Chipotle is trapped in a negative loop. After its E.coli and other food-borne health-related incidents last year, it needed to increase emphasis on food safety. By focusing more on food safety, there was a reduced focus on speed. Prior to the incidents last year, customers dined at Chipotle for taste, speed, safety, and ambiance.

The taste remains roughly the same, but speed of service has declined, the trust factor with consumers has been considerably diminished, and the CEO of the company just cited untidy dining rooms and dirty soda filling stations, which take away from the ambiance. You also have to factor the recent customer lawsuit filed for calorie misinformation. This lawsuit might be frivolous, but it brought calorie counts for Chipotle menu items to light, which adds yet another headwind. (See also, Chipotle Sued Over Calorie Misinformation)

There is one potentially positive factor in all of this. Ells mentioned that a board member announcement would happen shortly. This news could lead to a pop in the stock price, but even if that’s the case, Chipotle remains a high-risk long-term investment due to compounded challenges.

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