Chipotle Falls as Food Costs Bite into Q4 Earnings
Update: Chipotle Mexican Grill said late Wednesday that fourth-quarter profit rose 23% to $1.81 a share. But Wall Street expected $1.83. It was the second straight quarter that the burrito chain has missed views amid higher food costs. Food costs were 32.2% of sales, up from 31.1%, due to higher commodity costs. Total sales climbed nearly 24% to $596.7 million, slightly above forecasts for $591.2 million.
The company’s shares fell 2% in early after-hours trading after rising 1% to a record high 370.98 ahead of results.
The restaurant chain sees food costs and same-store sales rising in the mid-single digits in 2012. The company expects to add 155-165 stores.
Posted Jan. 29 8:05 a.m. ET
Burrito joint Chipotle Mexican Grill (CMG) has served up double-digit sales and earnings growth, in the face of rising food costs and consumer belt-tightening. On Wednesday afternoon, investors will see if that continued through the fourth quarter.
Analysts expect the chain to post $1.82 per share, up 24% from $1.47 a year ago. They see revenue climbing 22.3% to $590.2 million.
Keys to watch for include sales at stores open more than a year. That grew 11.1% over the first nine months of the year. The company guided for low-single-digit growth for the full year, implying a slowdown in the fourth quarter.
Analysts will also be watching for rising food costs. Ingredients have gone up, but by how much? And was the eatery able to offset that with price hikes? The company raised menu prices earlier in the year and said customers didn’t balk.
Then there’s the restaurant growth. The company implied 52 to 62 new restaurants in the fourth quarter.
It opened 32 in the third, bringing its total to 1,163. That includes its first Asian-theme eatery, ShopHouse Southeast Asian Kitchen, in Washington, D.C.
That ShopHouse concept could provide some future growth, though the company hasn’t announced expansion there yet. Darren Tristano, executive vice president of the restaurant consulting firm Technomic thinks the concept might appeal to existing Chipotle customers though, and possible cannibalize some of that business.
Overall, Tristano says consumers seem to be dining out again, though they don’t welcome menu price increases, they’re expecting and tolerating them.
“Consumer sentiment is starting to shift very slowly toward ‘things are going to get better,'” he said.
But industry growth this year is likely to be modest. Technomic forecasts 3% sales growth industrywide — or about half a percentage after inflation.
Last week, the world’s largest burger Chain, and one-time Chipotle owner McDonald’s (MCD) beat earnings, but guided cautiously on 2012, in part on a weaker euro against the dollar. Europe is McDonald’s top sales region.
Chipotle won’t doesn’t have that problem — yet. It opened its first European restaurant in London in 2010. It’s since opened a second and has plans for several more there and is about to launch it’s first in Paris.
Chipotle shares sit near an all-time high, closing at $366.76 on Friday. That could lead to some profit-taking, if results aren’t stellar.
The company also faced rising fast-food competition from Yum Brands (YUM), parent of Taco Bell, which in December said it would roll out more a more Chipotle-like menu. It’s due to report on Feb. 6.
Chipotle is one of several trendy eateries with top-notch earnings. Buffalo Wild Wings(BWLD), Panera Bread(PNRA) and BJ’s Restaurants(BJRI) report later this month.