Suffering from higher food costs, especially in beef, cheese and avocados, the popular Denver-based chain noted on its first-quarter earnings call that menu prices would rise on average in the mid-single-digits. Management said it expected to start installing new menu boards with the upped pricing late in the second-quarter, and be fully rolled out by early in the third quarter. Chipotle noted that the last time it raised menu prices was nearly three years ago.TheStreet's Laurie Kulikowski has details on what to expect when Chipotle reports results:
In an email to TheStreet, Chipotle spokesman Chris Arnold wrote that the company will provide an "update on the status the price increase" during its earnings call. According to a Wells Fargo Securities research note, approximately 60% of Chipotle's 1,637 stores have implemented the new pricing plan as of June 11.
A recent survey by SpenDifference found that more than half of chains held steady on price increases during the first quarter, however, 93% of chains plan to raise prices during the second half of this year. "Recent events affecting commodities may provide operators the impetus to follow through on their planned increases," SpenDifference CEO Maryanne Rose said in a June release.
SpenDifference works with emerging to mid-sized restaurant companies to provide full-service supply chain support. The company currently works with approximately 20 national and regional chains that represent nearly $1 billion annually in purchasing.
Prices for beef and cheese are at an all-time high, SpenDifference noted. The Porcine Epidemic Diarrhea Virus that broke out in Iowa last year has spread to 23 states, severely impacted pork costs, according to SpenDifference.
"The price increases are happening everywhere -- even In-N-Out Burger," restaurant consultant Tom Kelley wrote in an email. "Now with new city and state minimum wage increases there's no end in sight."
"Most casual and chain restaurants have been absorbing higher costs (labor and commodities) as their customers tend to be more regular and, thus, price sensitive," Kelley said. However, higher-end chains like "Chipotle and In-N-Out have loyal followings that will pay a bit more to a point. Upscale restaurants have been steadily upping prices with new items as well as daily menu changes."
Because not all stores have implemented the price increase yet, analysts expect Chipotle to post quarterly earnings growth on Monday of 9% or $3.08 a share on revenue of $989 million, up 21% from the year-earlier period, according to Thomson Reuters.
The price hike is expected to help benefit Chipotle's bottom line in the back half of the year as well. Between the price increase and the fact that Chipotle is still aggressively opening stores, Wall Street expects third-quarter earnings growth of 31% to $3.47 a share with revenue rising 22% to $1.01 billion compared to the same quarter last year.
Even with the price hike being rolled out, Wells Fargo analyst Jeff Farmer expects Chipotle to post same-store sales growth of 12%, above consensus estimates of 10.2% fueled by catering revenue and greater add-ons such as guacamole and chips; more transactions; and the menu price increases. "With 5-6% [increase in] menu pricing now in most markets, CMG's EPS growth is poised to accelerate materially in H2 2014," Farmer wrote on July 16.
That said, its stock likely won't reflect the changes, precisely because it's already richly valued, analysts say. "We believe CMG shares will see limited multiple expansion in coming quarters based on our view that the shares already reflect an investor expectation for both mid- to high-single-digit SSS growth and [approximately] 20% EPS growth in 2014," Farmer wrote.
Chipotle shares trade 47.71 times 2014 earnings estimates and 36.65 times 2015 estimates.--Written by Laurie Kulikowski in New York.