Burrito Bull Market

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Surging avocado, beef and cheese prices are hitting restaurants hard. What’s good for farmers is bad for fast food star Chipotle (CMG). Will increased costs derail the best IPO story of 2006?

Chipotle Chief Executive Jack Hartung joins the guys for the conversation.

Are you worried?

“Not really,” says Hartung. “We think a lot of the higher costs may be cyclical… and we think we have pricing power that a lot of other restaurants don’t have. And if costs remain high, customers are going to have to pay higher prices.”

So you’re going to pass off costs?



“If need be. But the other thing we have going for us is a great unit economic model,” says Hartung. “We’ve always had higher food costs, but we only focus on a few items (on the menu). And we’re really efficient. Also we have smaller buildings and a little bit lower labor (costs). Our utilities and maintenance are generally lower… we have higher margins because we’re more efficient… and we think our customers are willing to pay more for the higher quality ingredients that we use.”

How extensive is the pricing power when other chains such as Darden are warning?

“A lot of this pressure came upon us in the first quarter – yet we expanded our margins in Q1,” says Hartung. “Most of that was driven by efficiencies… and we generally only raise prices when we bring better quality ingredients to our customers.”

Dylan asks the guys what they think of this stock?

All the guys agree this stock is a buy.

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CMG
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