NEW YORK — Chipotle is feeling confident that customers are willing to pay more for its burritos, bowls and tacos.
The Mexican food chain said Thursday that it would raise prices in the "mid-single digits" percentage wise for the first time in three years as its popularity continues to grow. Menu boards with the new prices should be in place at all restaurants by the early part of the third quarter.
Steve Ells, Chipotle's co-CEO, said during a conference call with analysts that price is not the main reason customers visit its restaurants anyway.
"Most of the value comes from the experience," Ells said.
He noted that the company had earned "permission" from customers to raise prices because of that experience. And if needed, he said Chipotle still had the leeway to further raise prices without scaring off customers.
"We've still got room," he said.
The decision comes as higher costs for beef, avocados and cheese have pressured profit margins for the chain, with net income for the first quarter coming in below Wall Street expectations. Still, Chipotle said sales at established locations rose 13.4 percent during the period and it raised its outlook for the year. It now expects the sales figure to grow in the high-single digits, not including the price hikes.
The Denver-based chain's popularity has surged in recent years because people like that they can pick what toppings to put on their orders. The chain's "Food with Integrity" slogan is also intended to underscore the higher quality of its ingredients, in comparison to places like Burger King and Wendy's.
Those traditional fast-food chains have struggled to grow sales as customers increasingly flock to foods they feel are fresh or higher in quality. In contrast to Chipotle, for instance, McDonald's has said it will focus on underscoring the value it offers.
McDonald's CEO Don Thompson has also noted that there is a bit of "bifurcation" in the fast-food industry, with better-off customers heading to pricier places.
For the three months ended March 31, Chipotle Mexican Grill Inc. said net income rose 8 percent to $83.1 million, or $2.64 per share. That's up from $76.6 million, or $2.45 per share, a year ago. Analysts expected $2.86 per share, according to FactSet.
Revenue climbed a stronger-than-expected 24 percent to $904.2 million from $726.8 million a year ago.
Chipotle has also been expanding rapidly. It opened 44 restaurants during the quarter and plans to open 180 to 195 restaurants during all of 2014. It already has more than 1,600 locations.
Its shares fell $10.80, or 2 percent, to $541.60 in midday trading. Its shares are up almost 70 percent since a year ago.
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