(Adds company comment, details on food costs, byline)
By Lisa Baertlein
April 17 Chipotle Mexican Grill Inc on
Thursday said it will increase menu prices for the first time in
nearly three years, fueled by all-time high costs for steak as
well increasingly expensive avocados and cheese.
Shares of the popular burrito chain jumped as much as 6.5
percent on top-line results, but retreated 1.4 percent to
$544.68 in midday trading after executives said they expect food
costs to head even higher.
The Denver-based chain said key sales at established
restaurants rose 13.4 percent in the first quarter, the highest
in nearly eight years, helped by big-ticket catering orders and
increased visits from diners, who often added extra meat and
guacamole and chips to orders.
Chipotle is one of the fastest-growing restaurant chains and
generally has been able to raise prices without denting its
business. Other restaurants, including McDonald's Corp,
are struggling to increase traffic and sales and likely are not
in a position to charge significantly more for food without
alienating mainstream diners, many of whom are still spending
cautiously amid the slow U.S. economic recovery.
"It has been nearly three years since our last company-wide
price increase, and while we want to remain accessible to our
customers, we are at a point where we need to pass along these
rapidly rising food costs," Chief Financial Officer Jack Hartung
said on a conference call with analysts.
Chipotle expects to increase menu prices in the
mid-single-digit percentage range starting at the end of the
current quarter and complete changes early in the third quarter.
The company, which is known for using antibiotic-free meats
and organic produce when possible, has a strong following among
people who want to know how their food is produced. It was the
first major U.S. restaurant chain to announce plans to remove
food ingredients containing genetically modified organisms, or
GMOs, from its supply chain.
The chain's first-quarter food costs were a
bigger-then-expected 34.5 percent of revenue, an increase of 150
basis points. Much of the pressure is coming from steak prices,
which are up 25 percent so far this year and at the highest
level Chipotle has experienced. Avocados and cheese are also
adding to the commodity cost increases.
Hartung said food costs will be nearly 36 percent of revenue
during April and are likely to push past that over the next two
quarters, excluding the effect of any price increase.
"We believe we have a lot of pricing power," Hartung said in
response to questions from analysts. "We have built up quite a
bit of permission to raise prices. We won't cash in on all of
that pricing ability right now, so we will still have some in
Chipotle's first-quarter net income rose 8.5 percent to
$83.1 million, or $2.64 per share.
Based on last quarter's strong results, the chain raised its
forecast for sales at restaurants open at least 13 months to
call for an increase in the high-single-digit percentage range,
excluding any menu price increases.
Its prior forecast was for an increase in the
low-single-digit percentage range.
It also reiterated its plans to open 180 to 195 new Chipotle
restaurants in 2014, more than ever before.
Chipotle shares closed at $552.40 on Wednesday, marking a
52-week gain of more than 61 percent.
(Additional reporting by Siddharth Cavale in Bangalore; Editing
by Joyjeet Das, Bernard Orr)