The burrito business is booming, but rising commodities prices are taking a bigger bite.
Chipotle Mexican Grill (CMG) is proving to be one of the best at bringing Tex-Mex to the masses.
The fast food restaurant chain earned $83.1 million, or $2.64 per share, in the first quarter.
That fell short of analysts' expectations, but the restaurant touted its strong sales. Even the winter weather didn't hurt demand for burritos and tacos.
Chipotle shares rose in early trading, but the stock came under pressure in the afternoon and ended the day down nearly 6%.
Revenue increased nearly 25% to $904 million in the quarter. And same-store sales, a key measure of growth, increased more than 13%.
Chipotle has been on an big expansion push, opening new locations around the country with people often lining up for the restaurant's debut in their towns. And it has no plans to slow its roll. The company expects to open up to 195 new stores in 2014.
But rising prices for staple ingredients have been giving Chipotle some indigestion. Food costs ate up nearly 35% of its revenue in the quarter.
Beef prices have risen to all-time highs as cattle farmers recover from two years of drought. Chipotle said its paying 25% more for steak. It expects cheese prices to increase 10% and the supply of avocados is down due to dry weather in California.
With all the food price inflation, Chipotle plans to increase menu prices for the first time in three years, said chief financial officer Jack Hartung.
"We're at a point where we need to pass along these rapidly rising food prices," Hartung said in a conference call with analysts. Menu prices will go up "somewhere in the mid- single digits" on a percentage basis, beginning this quarter, he said.
Still, he said the company has built up a fair amount of pricing power. After three years, Chipotle feels it has "permission" to raise prices and may consider additional hikes next year.
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Are the meals no longer as happy for McDonald's customers as they used to be? The fast food giant definitely seems worried.
McDonald's (MCD) reported lackluster quarterly results last week. And company executives used the words MOREJan 28, 2014 10:46 AM ET
You know times must be tough when McDonald's says consumers are struggling. But are diners really too stretched for the Dollar Menu, or is there something else going on?
The fast food giant said Monday that global sales and earnings rose in the second quarter, though profits fell short of analysts' expectations.
McDonald's warned that sales will be "relatively flat" in July and that results will be "challenged" in the second half MOREBen Rooney - Jul 22, 2013 2:12 PM ET
When you think about the 4th of July, fireworks, backyard barbecues and Tchaikovsky's "1812 Overture" (music with cannons!) probably come to mind. And thanks largely to ESPN, the gluttonous International Hot Dog Eating Contest down in Brooklyn's Coney Island has also become a national Independence Day tradition.
The contest has been going on since 1916 at the Nathan's Famous hot dog stand at the corner of Surf and Stillwell Avenues -- MOREPaul R. La Monica - Jul 2, 2012 9:44 AM ET
Shares of McDonald's and KFC-owner Yum! Brands declined Friday amid growing fears about slowing economic growth in China.
McDonald's announced that its sales at stores open at least a year in the Asia, the Middle East and Africa region declined 1.7% in May, with particular weakness in Japan and China.
In fact, sales in China declined for the first time since November 2009, said Lynne Collier, analyst at Sterne Agee. Collier said that her conversations MOREHibah Yousuf - Jun 8, 2012 12:36 PM ET
Not a member yet?Sign up now for a free account
|Water becoming more valuable than gold|
|Will 7 Apples a day keep the bears away? - The Buzz|
|Postal workers protest Staples|
|Tesla finds friends in the FTC|
|Don't assume you're safe from Heartbleed|