Chipotle Mexican Grill (CMG) sought to downplay the impact on its costs if key ingredients such as avocados from Mexico or beef from Canada become subject to U.S tariffs.
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Speaking during the analyst call after earnings yesterday, CFO Adam Reimer said the company had not adjusted its forecasts to reflect the impact of tariffs, but suggested it would be limited and could be offset.
This week President Donald Trump put on pause for one month plans to introduce a 25% tariff on Mexican imports. He also delayed a 25% levy on Canadian goods but went ahead with an additional 10% tariff on China.
“Our guidance does not include the impact of the new tariffs on items imported from Mexico, Canada and China,” said Reimer. “We source about 2% of our sales from Mexico, which includes avocados, tomatoes, limes and peppers and less than 0.5% of our sales from Canada and China.”
If the recently announced tariffs go into full effect, it would have an ongoing impact of about 60 basis points on the company’s cost of sales, he added.
Despite this the company does not have plans to raise prices this year after a 2% increase in December.
Avocados Constant Pressure on CMG
Among a range of cost pressures, CMG is facing a steep rise in avocado prices, which are up 14% from a year ago.
But CEO Scott Boatwright downplayed the impact of tariffs adding to cost pressures, noting that the company has done a lot on diversifying its supply chain away from Mexico.
Today, only about 50% of CMG’s avocado supply is from Mexico, with alternative sourcing from Colombia, Peru and the Dominican Republic, he added.
CMG Misses Estimates
The tariff costs come as CMG is facing pressures on other fronts, with its earnings results showing slowing growth at the burrito chain.
Same-store sales rose 5.4% in Fiscal Q4 2024, missing consensus estimates of 5.7% growth, with management expecting this figure rising by a low-to-mid single digit for the full year.
Is CMG a Good Stock to Buy?
Overall, CMG has a Moderate Buy consensus rating among Wall Street analysts, based on 14 Buys and five Holds. The average CMG price target of $68.44 implies 16% upside from current levels.
