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Chipotle Profit Slammed by Higher Guacamole Costs

January 10, 2017, 3:14 PM UTC

Chipotle Mexican Grill (CMG) just can’t catch a break.

The burrito chain, still trying to recover from a series of food safety problems in 2015 that decimated the once high-flying company’s business, said on Tuesday that sales at established restaurants, fell 4.8% in the fourth quarter, their fifth straight quarterly decline and slightly deeper than the 3.7% drop analysts were expecting.

What’s more, avocado costs, a key ingredient in guacamole, were higher than expected, denting Chipotle’s profit, the company said in a regulatory filing.

Chipotle has been grappling with weak sales since an E.Coli outbreak in late 2015 scared away customers, who have proven hard to lure back. The company recently announced the departure of one of its co-CEOs and in the last year has launched aggressive, profit-draining promotions that gave away millions of burritos and a large education and marketing campaign aimed at convincing customers its food is safe again. Indeed, Chipotle pointed to higher TV advertising costs as a reason for lower profits.

The company estimated a profit of 50-58 cents per share for the fourth quarter, well below the average Wall Street analyst estimate of 96 cents, according to Thomson Reuters. And with those costs expected to persist this year, it’s easy to see why Chipotle CEO Steve Ells said last month he was “nervous” about the company’s ambitious 2017 sales and that eventually Chipotle will have to need to raise prices to cover minimum wage increases, and higher food costs. Last month, Ells said only about half of his stores merited a ‘good’ grade.

Still, shares rose 4% in early trading on signs the worst is over for the beleaguered restaurant chain. Comparable sales improved in each month, falling 20.2% in October 2016, and 1.4% in November, before rising 14.7% in December, when it lapped a big drop a year earlier.