Data source: Yum! Brands. Chart by author.
It seemed at that point as if Yum! Brands was in the clear. However, an unrelated incident that struck in the third quarter of 2014 caused same-store sales to drop again after Chinese officials shut down another food supplier that had allegedly been selling expired meat to Yum! Brands' KFC outlets, as well as other restaurant chains.
The net result was that Yum Brands' same-store sales in China dropped by an average of 13% over the next four quarters, before turning positive again in the third quarter of 2015.
What this teaches us about Chipotle Mexican Grill is that scandals like these take four to five quarters before same-store sales recover. That makes sense when you consider how the metric is calculated. If sales at a restaurant chain fell by 20% in the first quarter of last year, it would be a lot easier for them to grow in the first quarter of this year.
In Chipotle's case, then, it seems reasonable to assume that it will report positive same-store sales in either the fourth quarter of this fiscal year, or, more likely, in the first quarter of next year. I say "more likely" because it wasn't until the first quarter of this year that the worst of the crisis was reflected in Chipotle's comparable sales. In the fourth quarter of last year, they dropped by 14.6%. Flash forward to the first quarter of this year, however, and they were down by 29.7%.
The net result is that Chipotle's stock probably won't recover until the beginning of 2017. I could be wrong on this, but it seems to follow not only from logic -- as that will be when it's comping against the previous year's steep drop -- but also from a comparison to Yum! Brands' experience in China.
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