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Chipotle's Wealthier Customers Bought Pricier Burritos, Boosted Profits

By Dave Simpson

Chipotle Mexican Grill Inc has beaten Wall Street estimates for quarterly profits, as multiple rounds of price hikes helped the burrito chain cushion the blow from soaring costs.

Details

Shares of the California-based company jumped more than 8% in extended trading as it also said restaurant margins improved to 25.2% in the second quarter from 24.5% a year earlier.

With higher costs biting into profits in the restaurant industry, Chipotle, like peers McDonald's Corp MCD.N and Starbucks Corp SBUX.O, has hiked prices several times over the past few months.

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"Our pricing power is strong and the brand is resilient," chief executive officer Brian Niccol said during a call with investors.

Low-income customers are not ordering as often, Niccol said, citing data from the chain's rewards program. But the majority of Chipotle's customers are higher income consumers who actually increased their frequency, he said.

Earlier, Walmart Inc WMT.N and McDonald's warned that low-income consumers had stopped splurging on more expensive items.

Chipotle has been launching new menu items such as the limited-time Mexican chicken dish pollo asado in a bid to boost demand. The company has also been doubling down on its digital business through its order-ahead drive-thru "Chipotlanes".

While Chipotle's menu prices rose over 4% in the quarter, that was outpaced by higher costs for avocados, tortillas, dairy and beef.

To shave costs, the company has been looking to automate its kitchen operations and is even testing a robot called "Chippy" to help cook tortilla chips.

The price hikes helped Chipotle's net income jump to $259.9 million, or $9.25 per share, in the second quarter ended June 30, from $188 million, or $6.60 per share, a year earlier.

Excluding items, Chipotle earned $9.30 per share, topping estimates of $9.04, according to Refinitiv IBES.

Same-Store Sales Expectation

It expects same-store sales to rise in the mid- to high-single digits in the third quarter, while analysts on average predict a 7.1% gain.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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