Chipotle Mexican Grill deliberating wisdom of price hike after another strong quarter

The Associated Press 0

NEW YORK, N.Y. – Chipotle’s popularity isn’t showing any signs of fading, and the Mexican food chain is eyeing whether it can raise prices later this year without scaring off customers.

The Denver-based company said Thursday that sales rose 9.3 per cent at established locations in the final three months of the year. By contrast, McDonald’s reported a decline of 1.4 per cent for the period. Even Starbucks, which has enjoyed healthy growth, saw the figure rise by a more modest 5 per cent.

The figure is a key metric because it strips out the volatility of newly opened and closed locations.

During a call with analysts, Chipotle executives were noncommittal when asked about earlier discussions of a price hike of 3 per cent to 5 per cent in the second half of the year. Although the company is dealing with higher costs for avocados and other ingredients, its operating margin has improved as a result of lower costs in other areas, such as marketing.

When asked why Chipotle would risk hurting its brand by raising prices when it doesn’t need to, an executive replied that was among the considerations in deciding whether to proceed with the hike.

Chipotle Mexican Grill Inc. has surged in popularity because people see it as being a step up from traditional fast-food chains such as Burger King and Wendy’s. The chain’s “Food with Integrity” slogan is intended to underscore the higher quality of its ingredients. In coming weeks, Chipotle is even introducing a series called “Farmed and Dangerous” on Hulu that satirizes the industrial farming system.

It’s not just the messaging over its ingredients. Many customers simply like that they can walk down a line and customize the toppings they get on their burritos, bowls or tacos. The ability to dictate exactly what they want is also what has helped make Subway so popular.

Looking ahead, Chipotle says it expects sales in established locations to rise in the low- to mid-single digits for the year, up from its previous forecast of growth in the low single digits. That doesn’t factor in potential price hikes to its menu.

Chipotle earned $79.6 million, or $2.53 per share, for the quarter ended in December. That’s a penny more than analysts expected. A year earlier, the company earned $61.4 million, or $1.95 per share.

Revenue rose to $844.1 million, topping the $826.5 million Wall Street expected.

Full-year profit amounted to $327.4 million, or $10.47, on revenue of $3.21 billion.

Chipotle shares gained 13 per cent to $558.50 in after-hours trading. The stock is up about 60 per cent in the past year.

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