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Chipotle stock falls after ‘tightening’ consumer spending leads to second earnings miss in 5 years

After months of charging more for burritos and bowls to boost sales, executives at Chipotle Mexican Grill Inc. on Tuesday signaled that the days of larger price hikes — and the jolt they gave to financials — might be behind them.

in its fourth-quarter earnings release, said it expected same-store sales to increase “in the high single digits” in the first quarter. That outlook was based on a “low-double-digits” percentage gain in same-store sales notched in January. But during the Mexican fast-casual restaurant chain’s earnings conference call, Chief Financial Officer Jack Hartung said trends further out were harder to predict, as recession fears endure and gains from earlier price increases fade.

“Considering economic uncertainty, including the possibility of a recession, we expect comps to moderate as we lap menu-price increases in early Q2 and the middle of Q3,” he said.

However, he said later in the call the chain had no plans to raise prices at the moment, and that it might be more “patient” doing so this year. And he said the company was not going to raise prices for the sake of putting up year-over-year growth.

“We’re not going to take a price increase just to cover a lap over last year,” he said. “The main thing we’re going to do is we’re going to watch inflation, and we’re going to hope that inflation is tame.”

The remarks were made after Chipotle reported fourth-quarter results earlier in the afternoon that missed expectations, dragged by “tightening” consumer spending. The results marked only the second time in five years that the company put up earnings per share that were short of Wall Street’s expectations. The last time that happened was the same quarter in 2020. Shares sank 4.7% after hours.

Rising food prices have gouged consumers over the past year, including some of Chipotle’s.

Executives in October said that some lower-income consumers had ordered food less frequently, after the chain raised prices in part to counter higher costs for employees and ingredients. However, they said most of their customers earned at least $75,000 annually. Even as layoffs hit other industries, and other restaurants try to raise wages and juggle higher costs, Chipotle last month said it would hire 15,000 staff, in preparation for what it called “burrito season.”

Chief Executive Brian Niccol said during Tuesday’s call that Chipotle hadn’t seen any “meaningful” resistance overall to price increases. And he said that wealthier customers, particularly those making more than $100,000, stopped by more often.

He also talked up new technology that the company was trying out — a grill that could cook chicken and steak more quickly; an automated digital make line; and a robot called Chippy that fries chips — that might help Chipotle save money down the road.

The chain reported fourth-quarter net income of $223.7 million, or $8.02 a share, compared with $133.5 million, or $4.69 a share, in the same quarter in the prior year. Revenue rose 11% to $2.18 billion, compared with $1.96 billion in the prior-year quarter. Same-store sales gained 5.6%.

Excluding the impact from certain legal proceedings and restructuring, Chipotle earned $8.29 a share, compared with $5.58 a share in the prior-year quarter. Analysts polled by FactSet expected adjusted earnings per share of $8.91, on revenue of $2.23 billion. They expected same-store sales growth of 6.9%.

‘It’s like being ripped into two’: Chipotle workers overwhelmed by online orders and furious customers

The results follow some massive gains for Chipotle — in terms of sales, profit and stores — over the pandemic, which spurred greater demand for digital ordering and food delivery. Chipotle executives on Tuesday said that delivery transactions fell during the quarter, as more people returned to ordering in restaurants.

BTIG analyst Peter Saleh, in a note last month, said Chipotle likely raised its prices too much, potentially causing more customers to turn away from the chain.

“However, we believe the trade-off of modestly lower transactions, but significantly higher margins, is something investors should readily accept,” he said.

Shares of Chipotle have moved 18% higher over the past 12 months. By comparison, the S&P 500 index

has fallen 7% over that period.

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