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Chipotle Predicts Growth Slowdown

Published on Oct 21 2014 4:28 AM in Restaurant

Chipotle Predicts Growth Slowdown

Chipotle Mexican Grill Inc., the best performer in the Standard & Poor’s 500 Restaurants Index this year, said sales growth may slow in 2015, raising concerns the company won’t maintain its multiyear hot streak.

Sales at restaurants open at least 13 months will increase at a low- to mid-single digit percentage rate next year, the Denver-based company said yesterday in a statement. That compares with growth in the mid-teens this year, Chipotle said. Analysts estimated same-store sales growth of 7.2 per cent in 2015, according to Consensus Metrix.

The shares declined as much as 4.7 per cent to $622.02 as of 5:55 pm in extended trading yesterday after the results were released. Chipotle had climbed 23 per cent this year through yesterday’s close, the biggest gain in the S&P 500 Restaurants Index.

The company’s 2015 sales forecast doesn’t reflect “the most powerful growth story,” said Jason Moser, an analyst at the Motley Fool in Alexandria, Virginia, who recommends buying the shares. “That’s just an early projection - that could turn out to be very conservative, that could turn out to be spot on.”

The company had been bucking the trend of sluggish sales at US restaurants, with customers flocking to the chain in search of healthier fare and the option to customize their meals. Same-store sales rose 20 per cent last quarter. Analysts estimated 17 per cent, the average of 24 projections from Consensus Metrix.

Quarterly Earnings

Third-quarter net income jumped 57 per cent to $130.8 million, or $4.15 a share, from $83.4 million, or $2.66, a year earlier. Catering sales and higher prices have helped boost results. Catering made up 1.6 per cent of revenue in the second quarter, Co-Chief Executive Officer Monty Moran said on a conference call in July.

Chipotle, which has more than 1,700 restaurants, recently raised US menu prices by 6.25 percent to 6.5 per cent on average. The company is seeing higher costs for major ingredients, including beef, avocados and dairy. While avocado costs probably will stabilize next year, beef prices will remain high, Chief Financial Officer Jack Hartung said on a conference call. So far, the company has seen little resistance to its menu price increases, he said.

The company also will see higher labour costs after employees begin enrolling in health-care insurance, he said. About 10,000 hourly workers will have the chance to sign up this year, he said.

The company is planning to open as many as 195 new restaurants this year and 205 next year.

Bloomberg News edited by Hospitality Ireland

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