Falling avocado shipments may harm Chipotle’s margins, an analyst says

Chipotle restaurant employees process orders for customers.

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Jake Bartlett, an analyst with Truist, said Chipotle Mexican Grill’s margins could be impacted by the projected decline in avocado shipments in the next quarter.

The Hass Avocado Board is forecasting a 5.8% year-over-year decline in avocado shipments in the third quarter. A reduced supply of avocados could drive prices up and make it more expensive for Chipotle to spice up their guacamole.

Bartlett, in a note to customers Wednesday, estimated that avocados only make up 5 to 10% of Chipotle’s merchandise, but they can still have a significant impact on margins. He predicts that a 10% increase in avocado price could push third-quarter earnings down 10 to 12 cents per share.

In a statement to CNBC, CFO Jack Hartung said the company has diversified its avocado sourcing over the past two years and therefore expects less of an impact for the third quarter than industry forecasts.

The burrito chain is now very familiar with rising avocado prices. Hartung told analysts on the company’s first quarter conference call that the company is now experiencing a seasonal shift every year.

The summer months tend to skyrocket avocado prices as Mexico, the leading supplier of avocados to the United States, typically ships less during these months. Peru, the second largest supplier, usually sees an increase in its avocado deliveries during the summer thanks to the reversed seasons in the southern hemisphere, but its production is usually not enough to keep American consumers happy. California is growing about 12% of the supply.

So far, 2021 has been a rocky road for avocado prices. They fell 26% in the first quarter due to higher shipments from Mexico and rose 4% in the second quarter, according to Bartlett. On Friday, US retail prices for the Hass strain rose 6% to $ 1.19, according to USDA data.

Chipotle has already raised prices this year. In early June, executives said menu prices rose about 4% to cover the cost of the wage increase for workers. Hartung said the company is watching food costs rise, but no further increases are planned at this point.

Chipotle’s shares rose modestly on Wednesday afternoon. The stock is up 5% this year, giving the company a market value of $ 42 billion.

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