Chipotle sees strong demand from burrito fans.
The burrito business is booming, but rising commodities prices are taking a bigger bite.
Chipotle Mexican Grill (CMG) is proving to be one of the best at bringing Tex-Mex to the masses.
The fast food restaurant chain earned $83.1 million, or $2.64 per share, in the first quarter.
That fell short of analysts’ expectations, but the restaurant touted its strong sales. Even the winter weather didn’t hurt demand for burritos and tacos.
Chipotle shares rose in early trading, but the stock came under pressure in the afternoon and ended the day down nearly 6%.
Revenue increased nearly 25% to $904 million in the quarter. And same-store sales, a key measure of growth, increased more than 13%.
Chipotle has been on an big expansion push, opening new locations around the country with people often lining up for the restaurant’s debut in their towns. And it has no plans to slow its roll. The company expects to open up to 195 new stores in 2014.
But rising prices for staple ingredients have been giving Chipotle some indigestion. Food costs ate up nearly 35% of its revenue in the quarter.
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Beef prices have risen to all-time highs as cattle farmers recover from two years of drought. Chipotle said its paying 25% more for steak. It expects cheese prices to increase 10% and the supply of avocados is down due to dry weather in California.
With all the food price inflation, Chipotle plans to increase menu prices for the first time in three years, said chief financial officer Jack Hartung.
“We’re at a point where we need to pass along these rapidly rising food prices,” Hartung said in a conference call with analysts. Menu prices will go up “somewhere in the mid- single digits” on a percentage basis, beginning this quarter, he said.
Still, he said the company has built up a fair amount of pricing power. After three years, Chipotle feels it has “permission” to raise prices and may consider additional hikes next year.
