Chipotle shares jumped nearly 9% on Thursday after the company said it will raise menu prices by roughly 3% in the fourth quarter. Beef, freight and labor all cost more than they did a year ago.
The record shows the increases building through 2026. Pricing added 0.9% in the first quarter, 1.6% in the second and 2.7% in the third. Chipotle had first planned for menu prices to rise 1% to 2% over the full year while its operating costs climbed 3% to 4%. It now expects pricing to contribute about 2% for the year, with the fourth-quarter increase finally matching inflation.
Where the costs sit
Food, beverage and packaging fell to 29.5% of third-quarter revenue, from 30% a year earlier. Higher prices did that work, offsetting part of the jump in beef and freight bills.
Labor went the other way. It rose to 25.7% of revenue from 25.2%, pushed up by wages, performance bonuses, extra restaurant staffing and insurance.
Third-quarter revenue grew 9.6% to $3.29 billion. Comparable restaurant sales rose 2.1%, helped by a 0.8% gain in customer transactions. Adjusted earnings came in at 27 cents a share, short of the roughly 29 cents Wall Street expected. Investors looked past it and bought the stock anyway.
Margins still under pressure
Chipotle is raising prices while trying to win back customers after a stretch of weak demand. CEO Scott Boatwright said in April that the chain’s entree prices ran 20% to 30% below those of competing fast-casual restaurants.
The price increases have not protected profit. The company expects fourth-quarter restaurant-level operating margins to slip to just under 22%, down from 23.4% a year earlier. Marketing spending is part of the reason. It ran in the mid-3% range of sales in the third quarter and should reach the high-3% range in the fourth as Chipotle promotes its smoked brisket.
Several Wall Street firms cut their price targets, pointing to a slower recovery in margins even as traffic improves. Bernstein went from $50 to $43, RBC from $45 to $40 and BMO from $52 to $50.
For the fourth quarter, Chipotle expects comparable restaurant sales to rise about 2%. It is still testing price increases in individual markets to see how far customers will go along.
