NEW YORK (TheStreet) - Apparently customers didn't care that Chipotle
(CMG - Get Report) raised prices in the spring to its menu that includes burritos laden with guacamole and burrito bowls.
Shares were surging 9% to $646.02 in after-hours trading after the Denver-based chain reported that second-quarter profit rose 25%, far exceeding Wall street analyst expectations. Chipotle, in a statement, said that comparable restaurant sales were some of the strongest it had experienced since going public in 2006. The jump in net income comes after Chipotle began raising menu prices in April.
Net income for the quarter was $110.3 million, or $3.50 a share, exceeding analysts' expectations of $3.08 a share, according to an analyst survey by Thomson Reuters. Revenue rose 29% to $1.05 billion, also beating forecasts. Comparable store sales - those measuring store sales for units open at least a year - rose 17% compared to prediction of a 10.5% increase, according to Consensus Metrix.
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"Comparable restaurant sales growth was driven primarily by increased traffic and to a lesser extent from an increase in average check, which includes the benefit of the nationwide menu price increases that were fully rolled out by the end of the quarter," Chipotle said in its statement. Chipotle also opened 45 new stores in the quarter bringing its store count to 1,681.
The company also raised its sales guidance for 2014. It now expects comparable restaurant sales growth in the "mid-teens" for the full year compared to its previous guidance of "high single digits."
On the other side of the equation, Chipotle has been suffering from higher food costs on commodity items like beef, cheese and avocados and decided to implement a long-speculated menu price hike in the second quarter. The company said food costs rose 150 basis points to 34.6% of revenue for the June 30-ending quarter, it said. The increase was driven by higher prices for beef, avocados and dairy, but was somewhat offset by Chipotle's menu price increase and lower tomatillo prices, it said.
Chipotle reported restaurant operating margin of 27.3% in the quarter, down 30 basis points from the second quarter of 2013. The decrease was primarily driven by higher food and marketing costs contributed to the lower restaurant margins but were somewhat offset by "favorable sales leverage in labor and occupancy costs."
--Written by Laurie Kulikowski in New York.