Chipotle has had a disappointing year by its own high standards, lagging the market since warning in February that growth would be weaker than what investors have come to expect.
Its earnings call today (July 21) is its chance to reassure investors that its growth prospects, if not as heady as they once were, remain strong, which could help justify a stock valuation some see as high. The company also is expected to provide an update on its supply-chain issues and future plans—which will be of interest not only to stockholders but to the chain’s more fanatical customers, and especially those concerned about the fate of their Chipotle carnitas.
The sales outlook
This is the big one for the company. After years of massive sales growth, things have slowed down for Chipotle, and the company has projected that the rest of the year will be similar.
The weak numbers look worse in large part due to really difficult comparisons with last year’s sales, but investors haven’t been in much of an understanding mood over that. It’s worth closely listening to anything the company says about profit growth, sales projections, traffic numbers, and expansion-plan adjustments.
Pork problems, solved?
Chipotle has had huge shortfalls in pork supply since an issue with a supplier in January prompted it to remove it from many restaurants. That hurt sales more than expected, by as much as 2% in the first half of the year. Pork isn’t even all that popular with customers—chicken dominates most orders—but people who like it were loathe to switch.
Pork is coming back from a new supplier, for which the company is relaxing its no-antibiotics policy, but exactly what happened with the old supplier is still something of a mystery. Look for more details on the new supplier, on how quickly pork sales are recovering (it’s still unavailable in swaths of the country), and what the company might do going forward in order to prevent such disruption in the future.
Pricing and commodities
The company raised prices last year in response primarily to sky-high beef, avocado, and dairy prices, but also because it had been comparatively slow to do so in previous years. The commodities picture is looking much better this time around, with beef prices moderating in particular. Still, food costs are always high compared to that of competitors, and the company’s sustainability-focused supply chain makes it more fragile than most.
The company warned of a possible price increase on steak items earlier in the yearr. Meat lovers might get a reprieve, but Chipotle has said it’s seen almost no trade down to cheaper items or reduced traffic from that last price rise, so it may look to tinker again.
New menu items?
The addition of Sofritas last year was the company’s first ever new menu item. It’s now testing chorizo sausage in Kansas City. Might some other US cities get the chance?
New Pizzeria Locale and ShopHouse locations?
The company has two new concepts, the southeast Asian focused ShopHouse, and Pizzeria Locale, a fast-casual pizzeria. But most of the country doesn’t have access. The company announced it was pursuing new markets for Locale in its last call; so far Kansas City and Cincinnati are the only ones that have been revealed.
It suggested that ShopHouse, too, would enter new markets, though didn’t mention what those might be, and that’s a detail that could be coming on today’s call. ShopHouse is currently only in the DC area and in Los Angeles.