UPDATE 2-Chipotle profit jumps, U.S. immigration probe expanded

Thu Apr 18, 2013 6:27pm EDT

LOS ANGELES, April 18 (Reuters) - Chipotle Mexican Grill Inc posted a big jump in quarterly profit on Thursday and said federal investigators have expanded their probe into the popular burrito chain's compliance with U.S. immigration laws.

Chipotle shares were up 3.5 percent in extending trading after cost cutting helped insulate earnings from cooling sales growth and higher food prices.

The news from Chipotle landed as restaurant chains fight for frugal diners and as U.S. lawmakers embark on renewed efforts to reform immigration.

First-quarter profit at Chipotle rose to $76.6 million, or $2.45 per share, from $62.7 million, or $1.97 cents per share, a year earlier.

Revenue was up 13.4 percent to $726.8 million.

Sales at restaurants open at least 13 months, a closely watched gauge of industry performance, rose 1 percent - just matching analysts' average estimate compiled by Consensus Metrix.

Food costs were 33 percent of revenue, an increase of 80 basis points from a year ago, largely due to salsa ingredients and other produce, dairy and chicken. Chipotle uses organic ingredients and antibiotic-free meat when possible. As a result, it is less able than many rivals to lock in ingredient prices.

Denver-based Chipotle - the subject of a three-year federal probe into its hiring practices - said on Thursday the civil division of the U.S. Attorney's Office for the District of Columbia requested work authorization documents for all of its workers since 2007, plus employee lists and other related documents.

Earlier this week, a bipartisan group of U.S. senators unveiled an immigration reform bill that, among other things, would open the door for millions of undocumented workers to one day become U.S. citizens.

The shares of the nearly 1,500-restaurant chain peaked at just above $440 about a year ago. In after-hours trading on Thursday, shares of Chipotle, which has ramped up advertising and introduced catering to drive additional sales, gained $11.64 to $340.

But the red-hot growth that propelled the stock to those levels has cooled under pressure from food costs and rivals that have mimicked Chipotle's menus.

Those trends have brought out the bears.

Jeffrey Gundlach, chief investment officer and chief executive of the $56 billion DoubleLine Capital LP, said last week his latest idea was a "short" bet against Chipotle shares.

A year ago he told investors he was shorting the stock of Apple Inc at $610 and correctly forecast Apple's stock price would fall to $425.

Late last year, hedge-fund manager David Einhorn called Chipotle his latest short idea. He said the shares were overvalued and the company's business was vulnerable to competition, including from Taco Bell's new Cantina menu that resembles Chipotle's but costs less.

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