Chipotle says Mexican tariffs could increase costs by $ 15 million in 2019

Chipotle Mexican Grill said its costs for 2019 could increase by about $ 15 million this year if President Donald Trump's proposed tariffs on Mexican imports were passed, which could result in higher prices.

"If rates became permanent, we would seek to offset these costs through other efforts to improve the margin already underway," said Chief Financial Officer Jack Hartung in a statement. "We could also consider passing these costs on a modest price increase, for example about a nickel on a burrito, which would cover the additional costs without harming our strong value proposition."

Chipotle said its net profit last year had reached $ 176.6 million, or $ 6.31 per share, for a $ 4.9 billion business figure. Excluding asset writedowns and restructuring costs, the company realized a profit of $ 253.4 million, or $ 9.06 per share. The price increases implemented late in the year contributed to the company's results.

Chipotle already anticipated that food costs in the second quarter would be 1% higher than in the first quarter due to higher prices for avocado. Rates would mean that prices could be even higher.

Trump, on Thursday, threatened to apply a 5% tariff on all Mexican products as of June 10 if the country does not prevent the flow of illegal immigrants, mainly from Central America, to the US border . According to Trump's plan, rates would increase gradually and could reach 25% this year.

Chipotle said Friday that its supply chain team was working to diversify its product sources, in accordance with "our principles of food integrity," and stated that he did not want to not compromise these principles.

"We know that we could easily solve the volatility of our supply chain by buying premature or processed avocados, which would be cheaper, more available and more stable, but we are committed to respecting the purpose of our brand and to defend our food with integrity, "he said. "We believe that the use of whole and fresh ingredients and the manual manufacture of guacamole in our restaurants provide a tasteful guacamole that our customers deserve and expect from Chipotle."

In the first quarter, restaurant operating margins accelerated to 21%, driven by higher comparable restaurant sales and reduced repair and maintenance costs. This was partially offset by wage inflation as well as increased marketing and promotional costs and delivery costs due to increased sales of delivered products.

These higher operating margins resulted in a net income of $ 88.1 million, or $ 3.13 per share, in the first quarter. After excluding non-recurring items such as restructuring costs, Chipotle achieved adjusted earnings of $ 3.40 per share, on sales of $ 1.31 billion.

Chipotle estimated that rates could reduce 2019 margins by 20 to 30 basis points.

Analysts claim that Chipotle is not the only brand likely to suffer from price increases resulting from Mexican fares. However, the company is one of the first to specify the pressure on the costs it could incur.

"Anyone with lawyers would be the hardest hit by Mexico's import tariffs," said R.J. Hottovy, senior restaurant analyst at Morningstar. "Chipotle would be the most likely candidate."

Hottovy has also called other small chains, including Fiesta Restaurant Group and Chuy's, which could not cover themselves as easily against tariffs.

"A tariff of 5% probably would not hurt a single company, but the risk is whether we will see a possible increase in tariffs," he said.

Although Chipotle does not give any formal indication of food costs, Hartung said in its release of the first quarter results that the company estimated that food costs would represent about 33% of its sales figure. 39; business. He said avocado prices had risen in March due to increased demand, and that the company was forecasting higher food costs in the second quarter.

The stock, which has a market value of $ 18.3 billion, posted the best performance in the restaurant sector this year, up more than 52% in 2019. It was down 1.7% on Monday morning.