Chipotle's food safety woes lead to criminal investigation, sales slide

Sales at fast casual chain Chipotle Mexican Grill continue to tumble as the company's struggle with a bout of foodborne illness issues at locations across the country deepens.

The company on Wednesday reported a double dose of bad news. Sales at restaurants open at least a year slid 30% in December and fell 14.6% during the fourth quarter. Chipotle (CMG) also said it has been served with a federal grand jury subpoena over an August norovirus episode in California.

The Denver-based company said it was served with the subpoena in December and was notified about an official criminal investigation being conducted by the U.S. Attorney’s Office for the Central District of California, in conjunction with the Food and Drug Administration’s Office of Criminal Investigations.

The subpoena requires Chipotle to produce a broad range of documents related to a restaurant in Simi Valley, California that experienced an isolated norovirus incident during August 2015, the company said in a Securities and Exchange Commission filing. The company said it will cooperate with the investigation and that it can't yet determine if there will be costs associated with the probe.

Profits are expected to take an even bigger hit than before. The company now expects fourth-quarter earnings between $1.70 a share and $1.90 a share. That's down from an already lowered forecast of $2.45 to $2.85 a share issued a month ago.

Investors are growing more queasy by the day. The burrito chain's stock has taken a walloping falling by more than one third in last 12 months and losing 5% to close Wednesday at $426.67. The company said it has approved the repurchase of up to another $300 million of its shares, in addition to a $300 million authorization approved in December. During the fourth quarter it repurchased 609,000 shares at an average price of $556 apiece.

The number of people that have gotten ill after eating at Chipotle has been growing for months. A norovirus episode in Boston last month sickened more than 120 college students. There have also been dozens of cases of Chipotle customers being sickened with E. coli in nine states over the last few months. The company has yet to confirm the cause of the outbreak.

In the August case in California, a Chipotle restaurant in Simi Valley, Calif. was temporarily closed after dozens of customers and 18 employees reported symptoms of norovirus. The restaurant was reopened after it performed a deep cleaning of the store.

"As a matter of policy, we do not discuss pending legal actions, but we will fully cooperate with this investigation," Chris Arnold, a Chipotle spokesman said. He declined to offer further comment on the company's disclosure about the federal probe.

Also in August, Minnesota health and agriculture officials reported an outbreak of salmonella among customers of 17 different Chipotle restaurants located primarily in the Twin Cities metro area. Minnesota Department of Health officials cited tomatoes as the cause of outbreak, which affected 64 customers. Nine of those sickened customers were hospitalized.

Chipotle has marketed itself as a healthier option to fast food, touting itself as the first major national chain to eliminate genetically-modified ingredients from most of its menu.The company has more 1,900 restaurants.It reports fourth-quarter financial results on Feb. 2.