Chipotle Mexican Grill said the 2019 cost this year could rise by about $ 15 million if the tariffs proposed by President Donald Trump on Mexican imports come into effect and could lead to price increases.
"If the tariffs become permanent, we would look" to offset these costs with other ongoing margin improvement efforts, "said CFO Jack Hartung in a statement." We might also consider passing these costs through a modest price increase, for example, a nickel price on a burrito that covers the increased costs without compromising our strong value proposition. "
Chipotle anticipated second quarter earnings A 1% increase in food costs compared to the first quarter due to rising avocado prices that prices could be even higher.
Trump threatened to impose 5% tariffs on all Mexican goods on Thursday, June 10, if the country does not help prevent the influx of illegal immigrants, mainly from Central America, via the US Rand. According to Trump's plan, tariffs would rise gradually this year and could reach up to 25%.
Chipotle said his supply chain team had worked on Friday to diversify its product sources in line with "our principles of food integrity," and it is unwilling to compromise these principles.
"We know that we can easily solve the volatility in our supply chain by buying pre-pressed or processed avocados that are cheaper, readily available and stable, but we feel committed to our brand's purpose and upholding our food with integrity principles" said Hartung. "We believe that daily use of whole, fresh ingredients and manual guacamole production in our restaurants make guacamole taste better than our customers deserve and expect from Chipotle."
In the first quarter, restaurant margins increased to 21%, thanks to higher restaurant sales in the same store and lower repair and maintenance costs. This was partially offset by wage inflation and higher marketing and advertising costs and delivery costs due to higher delivery volumes.
These higher operating margins contributed net income of $ 88.1 million or $ 3.13 per share in the first quarter. After eliminating one-time items such as restructuring charges, Chipotle earned $ 3.40 per share on adjusted revenues of $ 1.31 billion.
Chipotle estimated that tariffs could reduce margins for 2019 by 20 to 30 basis points.
An employee draws from guacamole at a restaurant owned by Chipotle Mexican Grill Inc. in El Segundo, California, USA, on Wednesday, July 25, 2018.
Patrick T. Fallon | Bloomberg | Getty Images
Analysts say that Chipotle is not the only brand that could suffer from the price increase caused by the Mexico tariffs. However, the company is one of the first to specify the cost pressure it could see.
"Anyone with avocados would be hardest hit by Mexican import tariffs," says R.J. Hottovy, senior restaurant analyst at Morningstar. "Chipotle would be the most likely candidate."
Hottovy also called on other smaller chains, including Fiesta Restaurant Group and Chuy's, who could not easily hedge against tariffs.
This has not hurt any individual company, but the risk is that there will be an escalation of tariffs in the future, "he said.
While Chipotle has no formal guidance on food costs, Hartung said in his article Q1 earnings call for food costs to account for about 33% of sales, saying avocado prices rose in March on higher demand, and the company expects food prices to increase in the second quarter.
with a market value of $ 18.3 billion, the best performer in the restaurant segment was up more than 52% in 2019, with a minus of 1.7% on Monday morning.