- Chipotle’s third-quarter earnings missed analysts’ expectations, sending the stock towards a five-year low.
- One of four main reasons was higher avocado prices.
- Chipotle plans to raise prices in some restaurants to pass on some of the higher food costs and shore up its margins.
Chipotle had four main reasons why its third-quarter earnings missed big: hurricanes, store closures, hackers, and “historically high avocado costs.”
But it’s not millennials’ fault that guac was extra. Mexico and California, two suppliers of the main ingredient in guacamole, have had weaker harvests this year. Tropical Storm Lidia made landfall in Mexico early in September, delaying supply and causing a price increase.
Chipotle said this coincided with the end of the growing season in Peru and California, when supplies were already expected to fall.
Avocado was the biggest food expense for Chipotle in the quarter as overall food costs rose from Q2 by 90 basis points to 35% of revenue.
During the earnings call on Tuesday, John Hartung, the chief financial officer at Chipotle, told analysts more on the impact of higher avocado costs:
“In a matter of weeks, our case costs nearly doubled, before beginning to ease in October. The harvest in Mexico is now shaping up nicely and expectations are for pricing to normalize. The impact for the full quarter was 40 basis points higher than Q2, even though we had actually expected relief in avocado prices from already high levels in the second quarter. This impacted EPS in the quarter by about $US0.19. As a historical perspective, the avocado prices in the quarter are about 150 basis points higher than normal levels seen two years ago.”
Hartung said the company expects avocado harvests to normalize next year. Chipotle said it would raise prices in some restaurants to pass on some of the costs of avocados and workers, who are also getting more expensive.