Looming tariffs on Mexican goods could mean higher prices for food at Chipotle (CMG).
If Trump’s threatened tariffs on Mexican goods go into effect, it would cost the company $15 million this year and reduce margins by 20 to 30 basis points, the company reported.
“If the tariffs become permanent, we would look to offset these costs through other margin improvement efforts already underway,” Chipotle CFO Jack Hartung said in a statement. “We could also consider passing on these costs through a modest price increase, such as about a nickel on a burrito, which would cover the increased cost without impacting our strong value proposition.”
On Thursday, President Donald Trump announced that starting June 10, he would be placing 5% tariffs on all Mexican goods if the country does not address the issue of illegal immigration. Those tariffs are set to increase to 10% on July 1 and will continue increasing by 5% until Mexico addresses the immigration matter.
“If Mexico fails to act, Tariffs will remain at the high level, and companies located in Mexico may start moving back to the United States to make their products and goods,” President Trump said in a statement.
In a note to clients Friday, Goldman Sachs explained why restaurant stocks could be hit hard by the tariffs on Mexican goods. “Mexico represents the largest source of U.S. agriculture imports, adding direct risk to restaurants should the import tariffs be implemented. In addition, the broad impact of incremental import tariffs on the U.S. consumer should affect spending on dining,” analyst Ben Snider explained.
The tariffs are threatening to disrupt supply chains for many U.S. companies. Nevertheless, Hartung explained that while Chipotle would be able to easily fix the supply chain issues by purchasing pre-made or processed avocados, the company is committed to the brand and upholding its food’s integrity. “We believe that using whole, fresh ingredients and making guacamole by hand in our restaurants each day leads to better tasting guacamole that our customers deserve and expect from Chipotle.”
Chipotle shares have rallied 50% this year and have outperformed the broader market, which is up 10%.
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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