By Juveria Tabassum and Waylon Cunningham
(Reuters) -Chipotle Mexican Grill said on Tuesday that if President Donald Trump’s proposed tariffs on Mexico go into full effect, the burrito maker would see a roughly 60-basis-point impact on its raw material costs this year.
The forecast from the popular eatery — while yet a small hit — is among the first from companies that are rushing to assess any hit from these proposed tariffs. Chipotle also forecast tepid annual comparable sales growth on Tuesday, a sign that it was bracing for a hit from inflation to hurt demand for its premium burritos and bowls.
Its shares fell 4% in extended trade.
Chipotle, like other restaurants and fast food chains that rely on supplies from Mexico, could be handed higher costs of raw materials — including avocados — if President Trump’s proposed tariffs take effect. Trump announced, and then paused for a month, tariffs on Mexico.
The country accounted for about half of avocados that Chipotle serves, executives said on a post-earnings call on Tuesday.
Chipotle forecast annual comparable sales growth at low to mid-single digits, which was below analysts’ expectations of a 5.2% growth, according to data compiled by LSEG.
The company has seen higher costs of commodities such as avocado and beef, as it looks to reinvigorate its menu by adding popular limited-time offers, including the smoked brisket and its honey chicken, in order to keep consumers interested.
This is the first quarter with Scott Boatwright at Chipotle’s helm. Boatwright officially became CEO in November but had been operating as interim CEO since mid-August, when Starbucks poached Brian Niccol with one of corporate America’s most lucrative contracts.
Boatwright said he would continue efforts at kitchen automation technology that began under Niccol, such as deploying an advanced produce slicer to all restaurants with the potential to cut labor costs.
For now, the 2% price hike it made to menu prices in December is likely to carry through for the rest of the year.
“If something that came up throughout the year that would be a permanent hit to the business in the form of inflation, we would consider taking price, but at this point, we feel we are covered,” Chief Financial Officer Adam Rymer said.
Chipotle’s operating margin in the reported quarter ended Dec. 31 was 14.6%, compared with 16.9% in the preceding quarter.
“I think most restaurants right now are very reluctant to take any price. But if inflation continues, I don’t know that they’re going to have much of a choice,” said Peter Saleh, analyst at BTIG.
“(Chipotle has) taken a fair amount of price over the past four or five years and they haven’t really seen pushback on demand. I still think they’re a good value for play for the consumer,” he added.
Fourth-quarter comparable sales grew 5.4%, below estimates of a 5.6% growth, while its adjusted earnings per share of 25 cents beat estimates by 1 cent.
(Reporting by Juveria Tabassum and Waylon Cunningham; Editing by Alan Barona and Sayantani Ghosh)
