It's getting more expensive to make a good burrito. Chipotle Mexican Grill (NYSE:CMG) just reported earnings for the first quarter and, while the results were generally good, the company saw its food costs tick up, yet again.
Ingredient prices rose by almost a full percentage point compared to the prior year, hitting 33% of sales. The culprit this time? Chipotle says it was the spiking cost of salsa and other produce that led the way. Still, that bounce was better than last quarter's rise, when beef price inflation was responsible for a 1.3 percentage point rise in costs.
Whatever the reason behind the spiking costs, Chipotle is overdue for a price hike to counteract those nasty trends. Competitors sure haven't missed a beat in passing along extra costs to their customers. McDonald's, for example, raised average menu prices in every region of the world last year. And Panera Bread's prices crept up by 2.5% just last quarter.
However, Chipotle hasn't had as much freedom to raise its own prices. After all, the company's sales growth has been falling for much of the last year. And the middle of a slowdown is just about the worst time you could pick to ask your customers to pay higher prices.
While Chipotle's not completely out of the woods on that score yet, sales are stabilizing. After setting a recent high of 12.7% a year ago, comparable sales growth fell to 3.8% by the fourth quarter. Last quarter, that figure was about 3% -- after accounting for a few lost business days.
Get it while it's hot
Now might be the right time for the company to roll out a modest boost in menu prices. Sure enough, while it didn't specify a concrete date in its earnings release, Chipotle did say that, "any price increase we decide to take won't occur before late summer or early in the fall."
When those taco and burrito prices finally rise, investors can expect profitability and sales to both benefit. Chipotle says it expects flat to low growth in 2013. But that uninspiring outlook doesn't include any help from potential menu price increases.
Chipotle's on a roll
Fool contributor Demitrios Kalogeropoulos owns shares of McDonald's. The Motley Fool recommends Chipotle Mexican Grill, McDonald's, and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.