By Juveria Tabassum and Waylon Cunningham
(Reuters) -Chipotle Mexican Grill on Tuesday missed market expectations for third-quarter same-store sales growth as higher menu prices hurt demand, while steeper costs of ingredients such as avocados and dairy weighed on margins.
Shares of the company were down about 4% in extended trading after Chipotle also maintained its growth target for annual comparable restaurant sales in the mid to high single-digit range.
Restaurant chains in the United States have struggled with muted demand this year as consumers pare back spending on higher-priced menu items and instead hunt for deals.
Still, stable demand for Chipotle’s popular offerings of burritos, rice bowls and tacos from loyal customers has helped the company stave off some of the pressure being felt by fast food chains such as McDonald’s.
The company named insider Scott Boatwright as interim CEO in August after Brian Niccol, credited for driving a revival in sales and profit at the burrito chain, resigned from the top job to take over as CEO of coffee chain Starbucks.
Niccol’s exit was “not expected,” Chipotle executives said on a post-earnings call.
“Executives reaffirmed their full-year guidance but there could be some cracks of doubt as the new CEO manages this cycle starting with a mixed result vs expectations,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.
Chipotle’s comparable sales rose 6% in the third quarter, compared with analysts’ average estimate of a 6.3% rise, according to data compiled by LSEG.
Higher prices of commodities such as beef, dairy and avocado weighed on restaurant-level margins, which were down about 80 basis points from a year earlier.
The company is seeing low single-digit inflation on cost of sales, said CFO Adam Rymer.
Chipotle is also investing in in-store efficiency such as the continued roll-out of kitchen automation technology, and harnessing artificial intelligence to help drive growth through its loyalty program to offset input cost pressures.
Excluding items, the company’s earnings per share of 27 cents beat expectations of 25 cents.
(Reporting by Juveria Tabassum and Waylon Cunningham; Editing by Maju Samuel)
