Chipotle Mexican Grill, Inc. (NYSE:CMG) has been raising prices across several hundred locations, according to a number of reports trickling out over the weekend and into Monday. As a result, CMG stock is getting a small bump in Monday’s trade.
Specifically, Chipotle has raised prices by about 5% across 440 of its stores — that’s about 20% of its U.S. locations. Chipotle spokesperson Chris Arnold confirmed the report.
The new pricing is meant to even out increased workforce costs and food-price inflation, though “even with the new prices, our pricing remains very competitive within the category, particularly if you factor in the quality of ingredients we use,” Arnold said.
Price increases are nothing new to longtime Chipotle fans — the company has made headlines for several menu upticks, which have come in response to minimum-wage hikes, as well as higher costs for things like guacamole and beef.
But the current round of price hikes would seem poorly timed, given that CMG is still struggling to recover from its string of food-borne illness outbreaks in the second half of 2015.
Chipotle’s revenues dropped nearly 13% from 2015 to 2016, which included performance such as a 22% decline in same-store sales in Q3 2016, and a 23.6% plunge in comps for Q2 of that year. Margins have suffered, too, dropping from the high 20% area to below 15% at some points. As a result, CMG stock was more than halved from its 2015 highs through its 2016 lows.
Don’t Be Too Skeptical of CMG Stock
Quietly, though, CMG stock is actually having itself a nice rebound year in 2017.
The company has finally addressed its management woes, booting co-CEO Monty Moran and going with a single-CEO structure with Steve Ells at the helm.
Meanwhile, shares have climbed more than 25% year-to-date to pummel the broader market. That’s despite a fourth-quarter earnings report in early February that saw earnings of 55 cents miss by two pennies, and revenues of $1.03 billion come in merely in line with expectations.
But the Q4 report did show that comps are at least starting to level off, with same-store sales off just 4.8%, which included positive movement in November and December.
Technically speaking, you could argue that CMG stock has gotten ahead of itself.
Shares are well above their 50- and 200-day moving averages, which formed a bullish “golden cross” signal back in March that eventually helped kick off its most recent leg. However, the stock is well into overbought territory, per both its Relative Strength Index (RSI) and MACD readings.
Yet Chipotle stock still remains roughly 40% off its August 2015 highs, and the next point of price resistance doesn’t appear to kick in until the $520 mark, which shares attempted to recover to in the midst of its 2015-16 decline. That’s still another 10% higher from here.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.