With more expensive pork prices potentially placing pressure on margins, BMO Capital Markets downgraded Chipotle Mexican Grill’s stock. The company’s stock tumbled 6 percent to $667.12 on the news and some industry observers are predicting a bumpy ride in the future even with initiatives like new menu items, bolstering digital sales and increasing store traffic, CNBC reported.
Strategic Wealth Partners CEO Mark Tepper said on a CNBC show per the report, “It’s going to drive up the protein costs for them, and the Street’s already overly optimistic on their margins. They’ve seen a huge rebound in margins. And increasing costs are going to hurt their margins.” Tepper also noted the company has been using promotions to increase store traffic, which has contributed to good results.
However, Tepper pointed out that “it requires more and more money to keep it going, and that becomes a slippery slope.” Another observer, Newton Advisors President and Founder Mark Newton noted per the report, “Look, I love the food. I love the company. I think it’s important to differentiate that from the stock.” As of 1:22 p.m. ET on Friday (March 24), the stock was trading at $669.84 per Yahoo Finance.
The report, however, comes after Chipotle Mexican Grill exceeded analysts’ estimates for the first quarter. The quick-service restaurant (QSR) chain reported revenues of $1.3 billion and earnings per share of $3.40, while analysts had set their estimates at $1.27 billion and $3.01 per share. The QSR’s digital sales jumped 100.7 percent year over year (YOY) during the quarter to represent 15.7 percent of sales at $206 million.
The company also rolled out its Chipotle Rewards program on March 12. Through the spend-based program, diners receive 10 points for every dollar of their purchases. They earn a free entrée when they accrue 1,250 points. In an earnings call, Chipotle Mexican Grill CEO Brian Niccol said diners had been asking for a rewards program for a long time.