Industry News | October 24, 2008

Chipotle Falls Victim to Economy

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This week Chipotle execs warned of menu price increases in the upcoming year to help the brand weather through the economic crisis. As the standard bearer for the fast-casual segment, the move could foreshadow similar reactions throughout the industry in response to failing consumer confidence, rising food prices, and shrinking lines of credit.

“Even though we have a lot of loyal customers, we’re not immune to these conditions,” Chipotle CEO Steve Ells says during the company’s third-quarter conference call with investors. “While top-line pressure and increased commodity costs certainly had an effect on our performance during the period, we’re remaining focused on our long-term vision to change the way the world thinks about and eats fast food.”

During the conference call, the company reported its first profit fall since it went public in 2006. Net income was down 5.5 percent for the quarter to $19.5 million and diluted earnings per share were down to $0.59, a decrease of 4.8 percent.

But the poor performance did not come as a surprise to insiders. Ells released a daunting statement about a month before third quarter results went public, warning investors of the company’s slowing success. “Our preliminary view of the third quarter reflects a further deceleration in comparable restaurant sales combined with continued increases in food costs,” he said in September. “We attribute current trends to the same macro-economic pressures that have affected other restaurant companies.”

For a company that is usually a Wall Street success, poor quarter earnings and a dismal economy could not dampen spirits in the c-suite. “With more than $200 million in cash and no debt, we’re able to finance our current and future growth from internally generated cash flow, and our restaurant-level economics are still among the best in the industry,” says company COO Monty Moran.

Moran went on to outline growth plans for 2009, when the company plans to increase its number of new-restaurant openings to 135 to 145 units.

The company expects sales increases in the mid-to-low single digits for the full year of 2008 and in the low single digits for next year.

--Blair Chancey

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.