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Chipotle May Charge More For Burritos

Associated Press file photo (2007)

Diners are seen through the front window of a Chipotle Mexican Grill restaurant in downtown Chicago.

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The Associated Press

Published: September 13, 2008

NEW YORK - Hungry diners craving a Chipotle burrito might soon have to fork over a bit more cash.

Denver-based Chipotle Mexican Grill Inc. is considering raising its prices to combat high food costs, the company said Friday as it also warned investors that the weak economy has hurt its third-quarter results. Higher ingredient costs have been plaguing many restaurant chains that are also suffering from declining sales in the tough economy.

Chipotle said it is "working on national pricing plans" for the fourth quarter and would release details when it reports its third-quarter financial results in October.

The company also said it now expects its third-quarter profit to be lower than a year ago, when it earned 62 cents a share. That would be far below the 72 cents a share that analysts have been expecting from the company for the period.

Chipotle also said its same-store sales, or sales at locations open at least a year, will increase by the low single-digits for the quarter.

Many restaurants have struggled to keep sales and profits growing as consumers cut back on discretionary spending because of high gas prices, the weak housing market and a lack of confidence in the economy. Meanwhile, food costs for protein and grain have risen far above year-ago levels, forcing many restaurant chains to boost menu prices.

For months, Chipotle had seemed largely unaffected by the dismal economic environment. In its second quarter, the company reported a 23 percent boost in profit and a 7.1 percent rise in same-store sales. Same-store sales had jumped by double-digit percentages in the previous three quarters.

The new third-quarter guidance sent the stock plunging to a nearly two-year low. Shares fell $14.45, or 20.3 percent, to close at $56.70. Earlier in the day, it had fallen to $55.42, its lowest price since January 2007.

Most analysts, although disappointed, said the planned price increases would help put the company back on track for profit growth and likely wouldn't shock consumers enough to deter them from eating there.

ThinkPanmure LLC analyst Suzanne B. Price said in a note to investors that the company "has room to raise prices without affecting demand in many of its locations" since a number of competitors have already raised their own prices.

Cowen & Co. analyst Paul Westra agreed that higher menu prices may help, but noted that the news shows Chipotle is "not immune to the slowdown."

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