Here's Why Chipotle (CMG) Stock Dropped Today

Shares of Chipotle Mexican Grill CMG fell more than 6.5% in morning trading Tuesday after the company announced updated guidance for the remainder of the fiscal year. Investors are reacting strongly to the news, as it seemingly confirms fears that Chipotle is still struggling to recover from the food safety scandals of late 2015.

In a new SEC filing, Chipotle said that marketing and promotional expenses are expected to rise between 20 and 30 basis points. Furthermore, food costs are expected to remain at 34.2% of total sales, and same-store sales growth projections were left unchanged.

While these predictions may not seem like the end of the world to some, the announcement has pulled the rug out from underneath the recovery optimists.

In the wake of the damaging foodborne illness outbreaks, it was clear that Chipotle would need to ramp up its marketing and promotional efforts in order to convince customers to return to its restaurants. However, today's price action indicates that investors were hoping these increased costs would pay off more.

After five straight quarters of same-store sales declines, investors started becoming more bullish on Chipotle as the company began to right the boat this year. However, it looks like Wall Street is unsatisfied with its projected comps growth in the high-single digits.

On top of this, people are also concerned about food costs. Some of Chipotle's core ingredients, including avocados, have seen worldwide price hikes recently.

And interestingly enough, some analysts were already arguing that Chipotle's recovery has been overstated. While its first-quarter earnings report was lauded by some, others rightfully pointed out that earnings per share were still down nearly 50% from their highs in Q1 2015 (also read: Why Chipotle Stock is Still Awful for Growth Investors).

Chipotle remains a Zacks Rank #3 (Hold). We expect the company to report again on July 25.

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