By Jonathan Stempel
(Reuters) – Chipotle Mexican Grill was sued on Monday by shareholders for concealing how many of its restaurants were skimping on portions, forcing the chain to spend more on ingredients and hurting its stock price.
In a proposed class action filed in Santa Ana, California federal court, shareholders said Chipotle failed to disclose growing unhappiness among customers with inconsistent portion sizes for its burritos and rice bowls.
They said the truth came out as customers voiced dismay on TikTok and other social media, prompting Chipotle to reemphasize what CEO Scott Boatwright and his predecessor Brian Niccol called “generous portions” at its more than 3,600 restaurants.
Costs to repair the damage hurt margins, causing Chipotle’s stock price to fall after the company reported second- and third-quarter results, according to the complaint. The decline on Oct. 30 wiped out about $6.5 billion of market value.
The lawsuit seeks unspecified damages for purchasers of Chipotle stock and options from Feb. 8 to Oct. 29, 2024.
Chipotle did not immediately respond to requests for comment.
The lawsuit was filed a few hours after the Newport Beach, California-based company removed the “interim” tag from Boatwright’s job title.
Niccol stepped down as chief executive in August to take the same job at Starbucks (NASDAQ:).
Chipotle’s share price rose more than eightfold in Niccol’s nearly 6-1/2 years at the helm.
Niccol and former Chief Financial Officer Jack Hartung are also defendants in Monday’s lawsuit. Hartung became Chipotle’s president and chief strategy officer on Oct. 1.
The case is Stradford v. Chipotle Mexican Grill Inc (NYSE:) et al, U.S. District Court, Central District of California, No. 24-02459.
