But, fear not, those price blips likely won't raise the price of your lunch.
Avocado prices are up 75% since July, Credit Suisse analyst Jason West, who holds a neutral rating on Chipotle stock, wrote Friday, Aug. 25, and have risen about 50% year over year, thanks to a weak harvest in California and low supply in Mexico. West estimates that avocados account for 10% of Chipotle's cost of goods sold, "so this price spike has potentially material ramifications for margins and EPS, at least in the near term." He estimates that each 10% change in avocado prices affects restaurant margins by 30 basis points and earnings per share by about 30 cents, or 4%.
As of Chipotle's second-quarter conference call on July 25, the company expected moderating avocado prices through the year, or a year-over-year decline of about 20% in both the third and fourth quarters. Instead, West estimates they'll be up 10% in the third quarter and 25% in the fourth quarter, which could shave 25 cents, or 13%, off the third-quarter consensus earnings per share estimates, and 35 cents, or 20%, in the fourth quarter, with the timing potentially varying "depending on the nature of CMG's short-term purchase contracts."
"We will update on avocado pricing and all of our financials when we release our Q3 results," a Chipotle spokesman said in an email.
The prices of avocados have gone fluctuated. The average wholesale price for 48 Hass avocados is $73.38, which is expected to fall to about $55 by December. From 2004 through the present, the average August price was about $35, falling to some $25 in December.
The price variations have been felt elsewhere, too. A produce vendor on Broadway and Wall Street told TheStreet on Friday that two weeks ago, the wholesale price of Mexican avocados more than doubled—from $40 for a box of 32 to $95.
Between Chipotle's latest food-poisoning scandal in July, which could dent same-store sales, and the margin compression from avocado prices, "we would not be buyers," West added. He lowered his 2017 and 2018 earnings per share estimates to $6.38 and $9.57, respectively, down from $6.95 and $9.71. Next quarter, he expects Chipotle to earn $1.15 per share, well below the consensus estimate of $1.85 per share. His price target dropped to $320 from $335.
Chipotle reports earnings on Oct. 24. Shares are down 20% year to date, compared to the 8.9% rise in the S&P 500 during the same period. The stock rose 0.3% to $302.75 in premarket trading Friday.
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