Chipotle Mexican Grill Inc. sales rose faster than expected in the third quarter, as more frequent menu launches and revamped loyalty offers help sustain a recovery that had been threatened by a food-illness scare.
Same-store sales climbed 2.1% in the period, higher than the 1.5% average of estimates compiled by Bloomberg. It’s the burrito chain’s third straight quarter of growth at restaurants open at least 13 months.
The shares rose 8.4% at 8:48 a.m. in early trading in New York.
Chipotle struggled last year as budget-conscious diners, particularly younger customers, cut back on eating out. “It was a tough year in a lot of different ways due to factors outside of our control,” Chief Financial Officer Adam Rymer said in an interview.
October sales trends have been “choppy,” he said, but they’re expected to improve with the launch of mesquite-smoked brisket on the menu on Nov. 5. The company anticipates inflation of around 3% in the current quarter and elevated levels next year, Rymer added. Chipotle expects to close the year with 2% higher prices.
September brought Chipotle’s largest increase in transactions and sales at established stores so far this year, Rymer said, citing the popularity of pollo asado and chili lime chips as well as marketing campaigns.
Chipotle had warned over the summer that a large parasite outbreak, which didn’t directly affect the company’s food, was hurting sales. Traffic recovered as Chipotle rolled out promotions. The company also seems to have quickly moved past a salmonella outbreak related to jalapeños served at Chipotle and other restaurants.
The initial report of the outbreak sent the shares down 9.7%. The stock has dropped further since then, bringing the year-to-date decline to 22% through Wednesday’s close. That compares with a 13% rise in the S&P 500 Index over the same period.
On the company’s call with analysts, Chief Executive Officer Scott Boatwright said the results prove Chipotle can drive demand despite a challenging consumer environment.
“We’ve demonstrated for the past three quarters we can do that,” Boatwright said. “And the strategy is only in the early days.”
Chipotle’s third-quarter revenue rose nearly 10% to $3.3 billion, meeting analyst expectations, while net income was lower than anticipated.
Inflation for beef and freight, as well as higher protein usage, partially offset higher prices and tariff relief. Labor expenses also rose because of higher wages, additional staffing in restaurants and increased insurance costs, cutting into Chipotle’s profits.
The company maintained its full-year guidance for comparable restaurant sales growth in the low-single-digit range.
Rymer also expects growth to be driven by longer-term initiatives such as equipment to make restaurants more efficient.
Sirtori and Bang write for Bloomberg.
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