NEW YORK -- Chipotle's stock is taking a big hit from investors worried that years of lightning-fast growth are over.
The burrito maker's stock has fallen more than 13 percent in morning trading and is at its lowest point in more than a year, threatening to end its run as an investor darling. The culprit? A one-two punch of slowing growth and worrisomely high food costs caused by this summer's drought.
Chipotle shares closed down 15 percent, or $42.93, at $243. They have lost 28 percent since the beginning of the year. The stock's all-time closing peak of $442.40 in April capped a three-year run that saw its stock price increase nearly tenfold.
Late Thursday, Chipotle Mexican Grill Inc. said its third-quarter revenue and net income both grew. But the growth was slower than last year. The company's results missed Wall Street expectations. Another concern was a weakening sales forecast. Chipotle predicted revenue growth in stores open at least a year would be flat to up in the low-single-digits next year. That's down from this year, when it expects the metric to be up in the mid-single-digits, and significantly lower than last year's 11.2 percent gain.
Earlier this month, hedge fund manager David Einhorn talked down Chipotle's stock. He said Chipotle faced higher costs for food and employee health care and a big challenge from Yum Brands Inc.'s Taco Bell, which has made a big advertising push for its Cantina Bell menu, which features higher-quality items _ including larger burritos that look a lot like Chipotle's.
Chipotle executives downplayed the Taco Bell threat, without naming the chain.
"There was a lot of noise during the quarter about somebody taking market share away from us," said Co-CEO Montgomery F. Moran. "They did a lot of very, very heavy advertising. A lot of the advertising was intended to attract our customers for obvious reasons, but our transaction trends in the second quarter, when none of that advertising happened, were identical to the third quarter when there was very, very heavy advertising in the quarter."
As for costs, weakening customer traffic could make it hard for Chipotle to raise prices. Chief Financial Officer John R. Hartung said on Thursday's conference call that the Denver-based company has not tested price increases but is open to them next year if inflation warrants. He said Chipotle expects meat and dairy prices to rise next year because of this summer's drought.
"We really want to see how things play out in terms of the economy, in terms of our transaction trends, in terms of actual inflation and in terms of what competitors do and how customers respond," Hartung said.
One reason why Chipotle might want to raise prices: People are spending less on each burrito trip, on average. That could be because people are ordering fewer drinks, the company said, and the restaurants are getting fewer orders submitted online, on smartphone apps and by fax. Those orders tend to be larger than average.