By Granth Vanaik and Waylon Cunningham
(Reuters) -Chipotle Mexican Grill surpassed Wall Street estimates for quarterly sales and profit on Wednesday as demand for its rice bowls and burritos held up even as prices increased.
Shares of the company pared early after-hour gains but were still 2% higher after executives said Chipotle expects margins to be under pressure for the next couple of quarters.
The company’s restaurant-level operating margin rose to 28.9% from 27.5% a year ago. It said it expects margins to be around 25% in the third quarter.
Chipotle also said on Wednesday it would buy back $400 million worth stock.
The California-based chain has been able to buck a larger slowdown in customer traffic within the U.S. restaurant industry, partly because Chipotle’s loyal customers kept returning to its outlets despite inflation straining household budgets.
“The second quarter was outstanding as successful brand marketing, including the return of Chicken al Pastor, drove strong demand to our restaurants,” CEO Brian Niccol said, referring to one of the chain’s burrito bowl options.
The company recorded foot traffic growth of about 17% during the quarter, outperforming the wider fast-food and quick service restaurant category’s traffic increase of only 0.63%, according to Placer.ai.
Chipotle’s comparable sales rose 11.1% in the second quarter, compared with analysts’ average estimate for a 9% increase, according to LSEG data.
Adjusted profit of 34 cents per share beat analysts’ expectations by 2 cents.
The company has benefited from incremental menu price hikes intended to offset the high costs associated with raw materials and labor. In April, it undertook a 6% to 7% menu price increase in California after a law boosted the minimum wage for fast-food workers to $20 an hour.
“While many restaurants are struggling, Chipotle continues to beat expectations because consumers see it as a good value,” Emarketer analyst Zak Stambor said.
The upbeat results come just weeks after Chipotle’s shares began trading on the New York Stock Exchange following a 50-for-1 split of its common stock that the restaurant chain’s shareholders approved on June 6.
It continues to expect comparable restaurant sales growth in the mid-to-high single-digit percentage for 2024.
(Reporting by Granth Vanaik in Bengaluru; Editing by Devika Syamnath and Bill Berkrot)
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