Price increase still planned for Chipotle

by Monica Watrous
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DENVER — Talk of a price increase is still on the table for Chipotle Mexican Grill, Inc. — even as the burrito chain wrapped up a solid year of sales and profits.

Chipotle said no one thing, but rather a combination of factors, led to double-digit growth in earnings and sales during fiscal 2013, with fourth-quarter income advancing 30% and revenue climbing 21%. Faster throughout, ingredient-focused messaging, local store marketing and incremental catering sales contributed to gains, said Jack Hartung, chief financial officer, during a Jan. 30 call with financial analysts.

“If you’re going to prioritize all those items, you’d probably have to put the biggest piece on that, even though it’s tough to measure, but we just think the fact that every time our customers come in, they have these wonderful teams that are anxious to serve them,” Mr. Hartung said. “That’s probably the single biggest piece.”

Still, ingredient inflation and costs associated with the fast-casual chain’s efforts to remove bioengineered organisms from its menu items have caused the company to consider price increases that may take effect during the third quarter.

“We are not in a hurry, and we wouldn’t hesitate, if conditions suggest that we shouldn’t take it, that maybe we will either defer it or take it off the table altogether in 2014,” Mr. Hartung said. “Now at some point, we don’t want to be underpriced, so there is a desire to not be so far under what others are charging in the industry that people are wondering, ‘Well, gee, I wonder with this food integrity thing, how can they claim that their ingredients are better when they are charging so much less than other restaurant companies out there?’ So we would not want to be in that kind of a situation, but it’s still possible we may pull the menu price off the table in 2014.”

Higher prices for California avocados, salsa ingredients and beef continue to pressure Chipotle, but the chain said it also pays more for oil since it has transitioned from soy oil to non-bioengineered sunflower and rice bran oils.

“We’d just like to get through and find out how this weather might affect our ingredients,” Mr. Hartung said. “Right now, we don’t know if any of the weather we’ve seen in the south is going to have an effect on some of our ingredients next year, and so we would like to get through at least a quarter or so and see how things are falling out, both on our ingredient inflation side, as well as our transaction momentum. So we think that we will be in a position to then raise prices sometime in the third quarter.”

For the year ended Dec. 31, 2013, the company’s net income rose 18% to $327,438,000, equal to $10.58 per share on the common stock, up from $278,000,000, or $8.82 per share, in fiscal 2012. Revenues for the year totaled $3,214,591,000, up 18% from $2,731,224,000 the year before. Comparable restaurant sales during the year increased 5.6%. Chipotle opened 185 new restaurants during the year.

Fourth-quarter net income advanced 30% to $79,662,000, or $2.57 per share, up from $61,353,000, or $1.96 per share, during the prior-year period. Quarterly revenue increased 21% to $844,147,000 from $699,161,000 during the fourth quarter of the previous year.

Comparable restaurant sales during the quarter climbed 9.3%. Chipotle opened 56 new units during the quarter.

For 2014, Chipotle is targeting low- to mid-single digit comparable restaurant sales, excluding menu price increases, and expects to open 180 to 195 new restaurants.

The company said it has made solid progress against its goals to remove bioengineered ingredients from its menu items and expects to be G.M.O.-free by the end of the year.

“As of now, all of our cooking oils used in North America are made from ingredients that are not genetically modified, and there are only a few key steps left before all of our food is made without genetically modified ingredients,” said Steve Ells, chairman and co-chief executive officer. “We’re still working to eliminate them in our corn and flour tortillas, a process we expect to be complete by the end of the year.”

Additionally, Chipotle plans to expand the availability of Sofritas, a vegan shredded tofu item, to more locations throughout the year.

With 16 restaurants in Canada, London, Paris and Frankfurt, the chain also expects to expand its international footprint in 2014.
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