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Chipotle says higher beef and freight costs will offset profits from menu price hikes


Chipotle Mexican Grill Inc beat estimates for comparable quarterly sales on Tuesday but warned that higher beef and freight costs will offset the benefit of menu prices hikes.

Restaurants have been plagued by outages of everything from green tea to paper bags, as well as labor shortages, as the U.S. economy has reopened following pandemic-related lockdowns.

In the current quarter, commodity costs and staffing shortages at suppliers will mostly cancel out the 3.5% to 4% menu price increase originally implemented to pay for higher wages, Chief Financial Officer Jack Hartung said in a call with analysts.

“It shouldn’t be a surprise to anyone that Q3 is going to be challenged by several industry-wide issues,” Hartung said.

The burrito and bowl chain, which had already seen sales recover during the COVID-19 pandemic, grew even stronger as restrictions eased and Americans trickled back to offices and ordered more lunch.

Comparable sales for the second quarter ended June 30 rose 31.2%, compared with Wall Street expectations of 29.4% growth, according to IBES data from Refinitiv.

Chipotle said it expects third-quarter comparable restaurant sales growth in the low to mid double-digits range, compared with estimates of 9.7%.

Net income was about $188 million, or $6.60 per share, for the quarter, compared with $8.2 million, or 29 cents per share, a year earlier.

In May, the company said it would raise employee pay, resulting in a $15 average wage at its restaurants by the end of June.

Nevertheless, restaurant operating margin was 24.5% – an increase from 12.2% in the second quarter of 2020 and the highest level since the third quarter of 2015.

Chipotle said earlier this month that it had started accepting resumes on social media platform TikTok through July 31 to recruit younger Gen-Z workers, part of an effort to hire another 15,000 employees.

The burrito chain also said on Tuesday that its board had authorized a $200 million common stock buyback plan, which adds to previously announced repurchase plans totaling $2.9 billion.

(Reporting by Hilary Russ in New York and Praveen Paramasivam in Bengaluru; Editing by Krishna Chandra Eluri and Rosalba O’Brien)

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