Chipotle Stock Dips After NYC Lawsuit

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NYC sues Chipotle for labor law violations…

Chipotle Mexican Grill shares dropped by as much as 5.7% on Tuesday on the news that New York City is suing the company for alleged labor law violations. Specifically, Chipotle is accused of violating NYC’s Fair Workweek Law.

While this news had a significant impact on Chipotle’s stock on Tuesday, it’s uncertain how the lawsuit will affect the company long term. So far, Chipotle has performed very well in 2019.

Lawsuit Details

So what’s behind Mayor Bill de Blasio’s and his administration’s lawsuit against Chipotle? In short, it alleges that the company violated the Fair Workweek Law. Over 30 employees from five different Chipotle locations in Brooklyn filed complaints against the company regarding ongoing violations of the law.

This Fair Workweek Law, which went into effect in 2017, “requires predictable schedules in the fast food and retail industries and a pathway to stable, full-time employment for fast food workers,” according to the press release.

NYC alleges that Chipotle violated this requirement by “failing to provide good faith estimates of work schedules and schedules two weeks in advance, failing to get consent and pay premiums for last-minute schedule changes and for working ‘clopenings,’ and failing to offer newly available shifts to current employees.”

Regarding the suit, Mayor De Blasio said, “No corporation can get away with blatantly violating the rights of New York City workers without consequences. Chipotle must immediately stop their unfair labor practices and put their employees above profit.”

Restitution

For restitution, the Department of Consumer and Worker Protection (DCWP) is seeking $1 million “plus civil penalties and future compliance with the requirements of the Fair Workweek Law.”

In response to this lawsuit, Chipotle chief reputation office Laurie Schalow stated, “With respect to the Fair Workweek Law, Chipotle has been working cooperatively with the city to ensure we have systems and processes in place to comply with the law, so we believe the filing of charges was unnecessary.” She also stated that the company will cooperate with the city and is addressing noncompliance concerns.

What’s Next for Chipotle?

No trial date is set yet, and it’s possible there won’t even be a trial at all. Instead, Chipotle may have to pay the restitution, adjust its labor practices, and continue to comply with the Fair Workweek Law.

And even though the news bit into the company’s shares on Tuesday, the fast-growing foodservice business seems likely to rebound.

Great YTD Performance

Chipotle shares are already up almost 70% over the last 12 months. The company’s second-quarter earnings showcased strong performance.

During the second quarter, Chipotle’s revenue increased by 13.2% to $1.4 billion. Comparable restaurant sales increased by 10.0%, and digital sales jumped by 99.1%. The company also raised its full-year guidance for comparable restaurant sales growth.

Due to recent growth, some analysts look favorably on Chipotle. Wedbush, for example, upgraded Chipotle to ‘outperform.’ SunTrust recently reaffirmed its ‘buy’ rating for Chipotle stock.

Q3 Earnings Coming Soon

Earlier this month, Chipotle announced its plans to release third-quarter 2019 results on Tuesday, October 22, 2019. The earnings report should reveal whether NYC’s lawsuit will leave a lasting dent in the company’s finances.

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