Chipotle says beef increase and freight costs will weigh on menu price hikes
July 20 (Reuters) – Chipotle Mexican Grill Inc (CMG.N) topped comparable quarterly profit and sales estimates on Tuesday, but warned that rising beef and freight costs would outweigh the benefits of rising menu prices short term.
Restaurants have been plagued by outages of everything from green tea to paper bags, as well as labor shortages, as the U.S. economy reopened following closures linked to the pandemic . Read more
In the current quarter, commodity costs and staff shortages at vendors will mainly offset the 3.5% to 4% menu price increase initially implemented to pay higher wages, a CFO Jack Hartung said on a call with analysts.
“It should come as no surprise that the third quarter is challenged by several industry-wide issues,” Hartung said.
Sales of the burrito and bowl chain, which had already recovered during the COVID-19 pandemic, strengthened further as restrictions eased and Americans returned to offices and ordered more lunches.
Excluding one-off items, the company posted earnings per share of $ 7.46 for the second quarter ended June 30, crushing estimates of $ 6.52 and pushing shares up more than 4% in extended trading.
Comparable sales rose 31.2%, ahead of Wall Street expectations of 29.4%, according to IBES data from Refinitiv.
Chipotle said he expects third-quarter sales growth in the low to mid double-digit range, from estimates of 9.7%.
Net income was about $ 188 million, or $ 6.60 per share, for the quarter, compared to $ 8.2 million, or 29 cents per share, a year earlier.
Restaurant operating margin was 24.5% – an increase from 12.2% in the second quarter of 2020 and the highest level since the third quarter of 2015.
Higher margins arose despite raising employee wages to an average of $ 15 an hour in late June – thanks to rising menu prices.
So far, the company has encountered “no resistance” to higher menu prices, Hartung said.
The chain also opened 56 new locations during the quarter, including 45 with advance order “Chipotlanes”, allowing it to meet or slightly exceed its previous expectations of building around 200 new restaurants this year.
Reporting by Hilary Russ in New York and Praveen Paramasivam in Bengaluru; Editing by Krishna Chandra Eluri, Rosalba O’Brien and Richard Pullin
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