Food safety scare knocks Chipotle shares to four-month low

A sign is seen at a Chipotle Mexican Grill restaurant in San Francisco, California July 21, 2015. REUTERS/Robert Galbraith

By Lisa Baertlein

LOS ANGELES (Reuters) - Chipotle Mexican Grill Inc's shares touched their lowest level since July after the popular burrito chain said it closed 43 restaurants in the states of Washington and Oregon amid an investigation into an E. coli food poisoning outbreak.

Shares in the high-flying restaurant company touched a low of $608.52 in early trading on Monday and closed down 2.5 percent at $624 as investors and analysts fretted that food safety concerns could scare diners away from its more than 1,900 restaurants in the United States.

The outbreak is Chipotle's third food safety incident this year.

The closed restaurants, in and around Seattle and Portland, account for roughly 2 percent of Chipotle's U.S. footprint and could lower fourth-quarter sales at established restaurants by 0.6 percent, according to a "conservative bounce-back scenario," Bernstein analyst Sara Senatore said in a research note.

"Food-borne outbreaks are not unusual for the fast food restaurant industry and the impact of previous incidences has proven fleeting for restaurants generally and Chipotle specifically," said Senatore, adding that the latest incident at Chipotle likely would increase scrutiny of its supply chain.

If the restaurants remain shuttered through year-end, the closures could reduce fourth-quarter sales at established restaurants by 1.7 percent and potentially reduce quarterly earnings by 11 cents per share, Andrew Charles, an analyst at Cowen and Co, said in a client note.

Chipotle said it closed all of the restaurants in the Seattle and Portland markets in "an abundance of caution" after learning that health department officials were investigating about 20 cases of E. coli, including in people who dined at eight of its eateries.

Over the weekend health department officials said there were 19 cases in Washington and three in Oregon. Eight of those cases involved individuals who had been hospitalized.

The source of the E. coli O26 contamination has not yet been determined, Oregon Health Authority spokesman Jonathan Modie said. He added that investigators are leaning toward some type of produce as a source because vegetarians were among the people who fell ill.

Modie said E. coli O26 does not cause illness as serious as E. coli O157:H7, which in past U.S. outbreaks has resulted in kidney failure and death.

​​Health officials urged people who ate at an area Chipotle between Oct. 14-23, and suffered vomiting and bloody diarrhea, to see their healthcare provider and mention the outbreak. They expect the number of reported cases to rise as news of the outbreak spreads.

This summer, health investigators targeted Chipotle in a Norovirus outbreak in California as well as a Salmonella outbreak in Minnesota.

Chipotle options were busier-than-usual on Monday, as traders loaded up on near-term put options aimed at protecting against further share declines. Put options betting on Chipotle shares dropping below $600 by Friday were the most active with 1,100 contracts traded.

(Reporting by Lisa Baertlein in Los Angeles and Saqib Iqbal Ahmed in New York)

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