The company has outperformed its restaurant competitors but has struggled with profitability because of increasing food costs. So unless consumers kick about it the hike in its prices can help the company continue growing revenue at double-digit rates.
Chipotle's shares are up 2.7% year to date based on the closing price of $547.09 on Friday. It has been just a couple of weeks since the company started introducing the higher prices, but so far the results are encouraging. There has been no indication of a consumer backlash.
According to a study by RBC Capital, Chipotle has increased prices on average by 6.5% on its core items and by 7% on its non-core items in nearly 550 locations across the United States.Moreover, in a conference held earlier this week, company officials said they have not seen any negative impact on sales related to the price increase. In the previous round of price increases, which occurred three years ago, the company did not encounter any resistance from consumers. The drop in sales that followed was mainly due to the recession, they claimed. In its previous quarterly results, Chipotle's revenue increased by the highest levels over the last two years, 24.4%, to $904.2 million due to strong same-store sales growth of 13.4%. Chipotle's emerging markets-focused rival Yum! Brands (YUM) and the biggest player in United States, McDonald's (MCD), reported 7% and 1.4% year-over-year increases in their quarterly revenue, respectively. The two companies reported declining same-store sales in the U.S, in stark contrast to Chipotle's performance. Chipotle's net income climbed 8.5% from last year. That is not as good as Yum! Brands, which is eying a recovery in China, but considerably better than McDonald's, whose net income dropped by 5%. Besides the same-store sales, Chipotle impressive performance is also due to the company's focus on growing its store count at an annual rate of more than 10%. In the previous quarter, Chipotle opened 44 new stores, taking its total store count to 1,637.