Chipotle flagged immigrant worker audits last year

LOS ANGELES Wed Feb 9, 2011 6:56pm EST

1 of 3. A Chipotle Mexican Grill sign hangs in a window of one of the chains restaurants under construction in downtown Los Angeles February 8, 2011.

Credit: Reuters/Sam Mircovich

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LOS ANGELES (Reuters) - Chipotle Mexican Grill Inc, now in the midst of a widening federal crackdown on its undocumented work force, warned investors a year ago that it was subject to immigration audits and that it may have been employing workers in the country illegally.

In what may prove to be a prescient statement, the Wall Street darling also said in its 2009 annual report that the discovery of a large number of unauthorized workers could disrupt operations and harm financial performance.

"We have been subject to audits by immigration authorities from time to time," the high-flying burrito chain said in its 2009 annual report filed in February 2010.

Company spokesman Chris Arnold said that disclosure referred to so-called I-9 audits, where U.S. Immigration and Customs Enforcement (ICE) reviews documents submitted to verify eligibility for legal employment in the United States.

"However, at the time of that disclosure, we had not been notified by DHS or any other government agency that any of our worker documents were suspect," he said in an email on Wednesday.

"We had no notice of any issues with our employees until we received a Notice of Suspect Documents from Immigration and Customs Enforcement in November 2010," Arnold said.

Chipotle reports fourth-quarter earnings on Thursday and analysts said there may be questions about the impact of the ongoing probe by ICE.

So far, Chipotle has been forced to fire hundreds of its 1,200 employees in Minnesota and the company told Reuters last Friday that a federal immigration probe has widened to Virginia and Washington DC.

Chipotle's share price has jumped from under $40 to around $250 in just over two years as investors bet on big expansion plans and a business model built around its motto "Food with Integrity."

RISK LEVEL 'TICKED UP'

The richly valued stock faces pressure from rising food costs and now immigration concerns are creeping into analysts' outlooks.

"At this point, the risk level for the stock may have ticked up to some extent, as the company has received notices of inspection from ICE ... for its units in Minnesota, Washington DC, and part or all of Virginia," Janney Capital Markets analyst Mark Kalinowski said in a client note on Wednesday.

He still has a "buy" recommendation on Chipotle, however.

While changes to immigration policy are putting the restaurant industry in the spotlight due to its reliance on immigrant labor, Chipotle's disclosures suggest it was more attuned to the risk in past years than its key competitors.

A Reuters review of Chipotle's recent annual reports and those of other major publicly traded restaurants found that the Denver-based Chipotle went to greater lengths to outline potential risks.

While rivals like McDonald's Corp, Starbucks Corp and fast-growing Panera Bread Co flagged potential regulatory risks in general terms, Chipotle has addressed immigration specifically with boiler plate comment.

Among other things, Chipotle's comments include: "Although we require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers."

Immigration attorney Michael Wildes thinks the company could have been more forthcoming in its disclosures to investors.

"This sounds more like a disclaimer on the back of a cigarette box than a company that's transparent about its exposure," said Wildes, of New York City's Wildes & Weinberg, who helps companies navigate immigration laws.

Chipotle has insisted that it has not been singled out by ICE and that employers large and small are facing the same challenges on immigrant labor.

"Proper worker documentation is a challenge for all employers, and we, like many of our peers, have acknowledged that challenge to our investors," Arnold said.

Shares of Chipotle closed up 2.1 percent, or $5.25, at $252.51 on Wednesday.

(Reporting by Lisa Baertlein and Mary Milliken, editing by Dave Zimmerman and Matthew Lewis)

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