Chipotle stock takes a hit

The Mexican chain is off more than 11% in recent weeks amid tariff threats, putting at least a temporary halt on a strong run this year.
Photograph courtesy of Chipotle Mexican Grill

the bottom line

President Trump’s threat to impose tariffs on Mexican imports hasn’t been good for Chipotle’s stock.

The company’s share price had surged this year on the back of strong performance under CEO Brian Niccol, seeming to turn a corner late last year and improving further in the first three months of 2019.

The stock hit a 52-week high of $727 last month, having recovered virtually all of the ground lost in the aftermath of its 2015 food safety crisis, when it lost more than half of its total valuation at one point.

But Chipotle is down 11% since hitting that high, much of it since Thursday, when Trump threatened to impose tariffs on Mexican imports later this month if the country doesn’t do more to prevent illegal immigration into the U.S. The stock was down nearly 3% on Monday, and below $650 a share for the first time since March.

Chipotle is viewed as particularly vulnerable among restaurant companies to tariff threats, given its reliance on avocados to make its popular guacamole.

It is perhaps the only major restaurant chain to feature avocados in the risk factors listed in its financial reports.

Reuters reported Monday that Chipotle’s profit margins could fall by 20 to 30 basis points if tariffs on Mexican imports hit 25%, as Trump has threatened. Another option could be a price increase, which would amount to a nickel per burrito.

Still, Chipotle’s stock price has performed well overall in 2019. It is up more than 50% so far this year, according to a Restaurant Business analysis.

Indeed, Chipotle’s stock performance this year is something of a microcosm of the industry's overall performance on Wall Street.

Overall, restaurant stocks are up more than 7% this year. Two-thirds of the 46 restaurant companies we track are up so far in 2019, and only Pizza Inn owner Rave Restaurant Group, a penny stock that started the year trading below $1 a share, has performed better than Chipotle.

Fast-casual chains—notably Chipotle, Shake Shack and Wingstop—in particular have regained favor with investors this year. Shake Shack is up 35% thanks largely to improving traffic, while Wingstop’s consistently improving performance has sent its stock up 24%.

But most restaurant stocks have seen a pullback in recent days as trade concerns worry investors. The S&P 500 Index is down nearly 7% over the past month, for instance.

Some companies have held onto their valuations, however, including Yum Brands, which is actually up in recent days, and McDonald’s Corp., which has hovered at nearly $200 a share for much of the year and is up 12%.

The fast-food brands are viewed as safe havens in case the economy falls into a recession, because their low-cost offerings tend to resonate better when consumers have less money.

Few companies’ stock price is as closely watched as Chipotle’s, however, given its popularity with investors and its steep decline followed by its quick rise more recently as the company’s sales have regained momentum.

Chipotle has yet to regain its full ultraprofitable, sales-driven margins. Higher avocado prices would only make it tougher for that to happen.

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