Taco Bell’s sales have taken a hit since more than 70 diners at its East Coast restaurants fell sick with E. coli poisoning, but it was still too soon to determine the losses, the fast-food chain’s president said.
Taco Bell President Greg Creed made the assessment during a conference call Wednesday with reporters.
“Clearly, we have seen sales decline, but (it’s) way too early yet for us to say what the financial impact is,” he said.
Creed also said the chain has taken precautionary measures on Dec. 9 by changing its suppliers of lettuce and cheese in New York, New Jersey, Pennsylvania and Delaware, to Salinas, Calif.-based Taylor Farms.
Federal officials said Thursday the most likely source of the illnesses was lettuce. The outbreak apparently has run its course after 71 confirmed cases of the disease in five states, primarily New York, Pennsylvania, and New Jersey.
“The reason we changed supply in these four states is obviously to assure everyone that we can leave lettuce on the menu, as well as cheese,” Creed said.
Lettuce is included in 70 percent of the menu items at the Mexican-style chain based in Irvine, Calif.
Creed declined to name the previous produce supplier, adding the chain purchased less than 20 percent of the firm’s lettuce.
Any lettuce provided by the former supplier has long since been sold or thrown out, the company said. The supplier did not provide lettuce to any of the chain’s restaurants outside the four states.
The chain had previously suspected green onions had been responsible for the outbreak, but that could not be confirmed by federal officials.
Taco Bell parent Yum Brands Inc. of Louisville, Ky., reports same-store sales on a quarterly basis. No figures have been released since October. The next report is due in February.
On Wednesday, Wall Street analysts said any negative impact on sales is likely to be short-lived, and profit from overseas and other eateries will help fatten next year’s figures.
Bear Stearns analyst Joseph Buckley said Taco Bell’s same-store sales, or sales in stores open at least one year, a key measure of industry performance, could fall about 20 percent for the last four weeks of the fourth quarter, and reduce earnings by about 4 cents per share.
Buckley estimated that fourth-quarter sales from Taco Bell would be $26 million less than originally estimated, and franchise revenue would be $4 million lower than estimates.
“Taco Bell is still a big piece of Yum, but growth coming from China and other international markets will mitigate some of the impact,” Buckley said.
For 2007, Yum — which also operates KFC, Pizza Hut and other fast-food chains — will get half of its earnings from international markets, and half in the U.S., where Taco Bell comprises 50 percent of sales, Buckley said.
Buckley lowered his 2006 earnings-per-share estimate to $2.86 from $2.90 but did not change his 2007 estimate.
Morningstar equity analyst John Owens said sales will be hurt “as long as this story continues to be in the headlines or TV.”
He compared the situation to the 2005 false claim of a woman who said she found part of a finger in a bowl of a chili at a Wendy’s restaurant, and previous consumer fears over mad cow disease and avian flu.
“These sort of things, while stories are being reported on, some consumers are reluctant to frequent the affected chains, but consumers have short memories,” Owens said.
Larry Miller, a restaurant analyst with RBC Capital Markets, also expects short-term sales to suffer, particularly in restaurants located where people got sick.
Some stores that were shut down while they underwent extensive cleaning could cost Taco Bell around $2,700 a day in lost sales, Miller estimated.