Chipotle's Steak Burrito With Cheese And Guacamole Is Putting The Squeeze On Profit Margins

Business Insider

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Chipotle Serving

inazakira/flickr

Chipotle Mexican Grill just announced that its first-quarter sales beat expectations, but food inflation is pressuring profit margins.

"Food costs were 34.5% of revenue, an increase of 150 basis points driven by higher commodity costs," Chipotle  management said. "Higher commodity costs were primarily driven by inflationary pressures in beef, avocados, and cheese prices."

Earnings per share climbed 7.8% to $2.64, below expectations of $2.87.

While inflation has generally remained low in the U.S., food prices have been notably hotter.

"Prices for foods, feeds, and beverages rose 3.7% in March, the largest monthly gain for the index since a 4.3% increase in March 2011," said the U.S. Bureau of Labor Statistics earlier this month. " The March 2014 advance was driven by a 14.0% rise in fruit prices, the largest one-month increase for that index since the index was first  published monthly in December 1993."

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avocados

Morgan Stanley

Avocado prices have seen violent swings in recent years.

Prices for individual food items such as avocados can be quite volatile as issues like weather can be unpredictable.

The good news for customers is that companies such as Chipotle are absorbing much of these rising costs.

During the first quarter, Chipotle's comparable-store sales jumped 13.4%, beating expectations for 8.8% growth.

"We are delighted that more and more people are choosing to visit our restaurants every day allowing us to deliver double-digit comps during the quarter," said co-CEO Steve Ells. "We are confident that our special food culture will continue to attract more customers to visit Chipotle as customers better understand and connect how natural and high quality ingredients that are freshly prepared result in better tasting food."

Management forecasts high single-digit comparable-store sales growth for the year.



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