A class action lawsuit was filed against Chipotle Mexican Grill (CMG) by Levi & Korsinsky on November 11, 2024. The plaintiffs (shareholders) alleged that they bought CMG stock at artificially inflated prices between February 8, 2024 and October 29, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Chipotle Mexican Grill stock during that period can click here to learn about joining the lawsuit.
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Chipotle Mexican Grill is a quick-service restaurant chain in the U.S. The restaurant offers a range of Mexican foods, such as tacos, burritos, quesadillas, and burrito bowls.
The company’s claims about the consistency in portion sizes offered across its outlets worldwide are at the heart of the lawsuit.
Chipotle Mexican Grill’s Misleading Claims
According to the lawsuit, Chipotle Mexican Grill and two of its current and/or former senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about Chipotle’s portion sizes, customer satisfaction, and ancillary issues from SEC filings and related material.
For instance, in the Fiscal 2023 annual report, CMG noted that the restaurant industry is highly competitive, with special emphasis on taste, quality, price, customer service, brand value, digital engagement, advertising, and promotions. Moreover, the same report stated that if CMG is unable to satisfy guests about the quality of its food and offerings and the value proposition of its menu, it could adversely affect its sales. Consequently, this would impact CMG’s overall financial performance.
However, subsequent events (discussed below) revealed that Chipotle Mexican Grill had failed to live up to customers’ expectations of its food offerings. The company failed to inform investors about the true extent of damage that would be caused in case of such an event.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about the true impact on sales and profits from dissatisfied customers.
The information became clear in a series of events that occurred between July 24, 2024 and October 30, 2024. Importantly, investors were completely discouraged when a Business Insider report mentioned that customers were constantly complaining about CMG’s inconsistent and often meager portion sizes. This coaxed the company to offer “consistent and generous portions” to every customer in every order. Consequently, CMG’s cost of sales increased and profit margins took a hit.
In the Q3 FY24 earnings released on October 29, CMG posted mixed results. The CEO specified that owing to the company’s efforts to offer consistent portion sizes, the cost of sales shot up and profits declined. CMG shares slipped 7.9% on the news.
Fortunately for Chipotle Mexican Grill’s investors, CMG stock has gained 31.5% in the past year, despite these unfavorable incidents.
