Chipotle Mexican Grill, Inc. (CMG - Analyst Report) was once the darling of Wall Street with revenues showing a phenomenal CAGR of more than 23% (till 2014), since it went public. This stunning performance was supported by solid comparable restaurant sales (comps) growth. However, the Colorado-based fast casual restaurant fell from grace toward 2015-end, as a series of E. coli and norovirus contamination issues wrecked its growth story. In fact, shares plunged more than 29% in 2015.

Negative Publicity

Chipotle has been reeling under the negative publicity related to the E. coli outbreak which began in Oregon and Washington at the end of Oct 2015. It later spread to seven other states namely, Illinois, Maryland, Pennsylvania, California, Minnesota, New York and Ohio. In December, a norovirus outbreak at a Chipotle outlet in Boston's Cleveland Circle affected around 136 diners, including 30 students of Boston College. As a safety measure, the fast casual chain closed several outlets which were linked to these incidents.

Toward the end of December, the U.S. Centers for Disease Control and Prevention (CDC) announced that it was probing the restaurateur’s links with a another E. coli outbreak (with a rare DNA fingerprint) in three states, namely, Kansas, North Dakota and Oklahoma.

Though the negative publicity cannot be discounted, what’s more alarming is that as soon as Chipotle reopens a store, it's forced to close another because of fresh incidents of contamination. Ever since the E. coli outbreak, traffic has been severely hit and the company is still bearing the brunt.

Shift from Main Selling Point

The fact that Chipotle has used only healthy ingredients has long been its marketing strength and attracted customers despite the comparatively high prices. With the negative publicity associated with the health scares, the restaurateur is likely to fall out of favor with health-conscious diners.

Chipotle has also reportedly enforced stricter guidelines for suppliers in the wake of these outbreaks and management is unsure whether all its local suppliers will be able to comply with those. So changing suppliers would in turn raise the costs and be a major shift away from the company’s marketing policy of using locally produced ingredients.

First-Quarter Loss Predicted

Chipotle announced last week that it expects to incur a loss of $1.00 per share in the first quarter due to declining comps, higher expenses and lower margins. This is the first time that the company would slip into the red since its IPO. Previously, during the fourth-quarter 2015 conference call, the company had predicted break-even results.

The company expects expenses to rise due to higher marketing and promotional costs – to bring back diners and boost sales – and other operating costs, which are anticipated to increase significantly on a year-over-year basis in the first half of 2016.

The company also expects elevated food costs mainly because of added food safety procedures and wastage related to the food contamination incidents. Food costs are expected to increase about 200 basis points in the near term due to the food safety related protocols.

The company’s labor costs also spiked due to extra staffing at its restaurants to help customers redeem promotional offers, like free burritos. The company also said that it expects higher legal costs because of a Department of Justice investigation into the E. coli outbreak.

In the first quarter of 2016, Chipotle expects restaurant-level operating margin in the mid single-digit range. Management expects margins and earnings to turn around gradually as sales pick up.

The company’s February sales comps declined 26.1%, compared with a 36.4% drop in January. Comps declined 21.5% for the week ended Mar 7, 2016. Moreover, comps in the second week of March declined 27.3%, as a restaurant in Boston was shuttered after employees fell sick.

Apparently, the weak first-quarter outlook is the least of Chipotle’s worries as is indicated by its fundamental statistics. EPS is projected to plunge more than 100% in the current quarter for this Zacks Rank #5 (Strong Sell) stock.

That's not all.

Chipotle trades at a price-to-earnings ratio (P/E) of 56.78x, while the industry as a whole trades at a P/E of 24.22x. Estimates aren’t on Chipotle’s side either, with almost all analysts revising their estimates downward for this quarter over the last 30 days.

Chipotle might be going through a rough patch, but there are other restaurant stocks that are performing well. We have zeroed-in on 4 such stocks that had a great year, and carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) with solid year-to-date growth in 2016. So let’s dig in!

Carrols Restaurant Group, Inc. (TAST - Snapshot Report)

Headquartered in Syracuse, NY, Carrols Restaurant operates through its subsidiaries – including Carrols Corporation – and is one of the largest restaurant companies in the U.S. The company operates three brands in the quick-casual and quick-service restaurant segments in the United States, Puerto Rico and Ecuador.

Carrols Restaurant Group owns and operates two Hispanic brand restaurants, namely Pollo Tropical and Taco Cabana. It is also the largest Burger King franchisee, based on the number of outlets, and has been operating Burger King restaurants since 1976.

The Zacks Rank #1 stock witnessed year-to-date price rise of more than 17%.

Darden Restaurants, Inc. (DRI - Analyst Report)

Headquartered in Orlando, FL, Darden is one of the largest casual dining restaurant operators worldwide. The company has operations in the U.S. and Canada with more than 1,500 outlets, under the Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's, and Yard House brands.

The Zacks Rank #1 stock saw roughly 8% increase in price year-to-date.

BJ's Restaurants, Inc. (BJRI - Analyst Report)

Based in Huntington Beach, CA, BJ's Restaurants owns and operates casual dining restaurants under the BJ's Restaurant and Brewery, BJ's Restaurant and Brewhouse or BJ's Pizza & Grill brand names.

The Zacks Rank #2 stock has seen its price increase about 3% year-to-date.

The Cheesecake Factory Inc. (CAKE - Analyst Report)

Based in Calabasas Hills, CA, Cheesecake Factory operates upscale, high volume, casual dining restaurants in the United States, Puerto Rico, the Middle East and Mexico. The company operates restaurants mainly under the Cheesecake Factory, Grand Lux Café and the RockSugar Pan Asian Kitchen brands.

The Zacks Rank #2 stock has seen its price gain almost 16% year-to-date.