Los Angeles, Sep. 12 - Chipotle Mexican Grill Inc warned Friday that it would post a decline in quarterly profit for the first time since going public, sending shares down about 20 percent and triggering a slide for the wider restaurant sector.
Shares of the once high-flying Wall Street darling were trading at around $57 Friday, down from a high of $155 late last year, after it said it was hit harder than expected by consumer cutbacks and faster cost increases in a weak economy.
The warning from Denver-based Chipotle -- a Mexican-themed restaurant chain known for serving premium-priced naturally raised meat -- landed the same day as a U.S. government report said August retail sales fell for the second month in a row.
It added weight to concerns of far-ranging changes in consumer behavior due to a housing slump and credit crisis. For the restaurant business, that has meant more people eating at home or preparing their own lunches for work.
Major share declines in the sector included Panera Bread Co , which dropped more than 13 percent and was downgraded to "market perform" from "outperform" by Morgan Keegan; Chili's Grill & Bar parent Brinker International Inc, which fell almost 5 percent; and Red Lobster parent Darden Restaurants Inc, which slipped more than 3 percent.
Chipotle has not delivered a quarter with less than 21 percent profit growth since it went public in 2006, Buckingham Research Group analyst Mitch Speiser said.
The chain faces steep price rises for key ingredients like rice, soy cooking oil and corn when its annual contracts for those foods expire at the end of the third quarter, he said in a note to clients.
Additional Chipotle meat contracts will expire in the fourth quarter, said Speiser, who also lowered 2008 and 2009 profit forecasts.
Chipotle plans to raise prices in the fourth quarter to help offset its costs, but like other restaurant chains must balance that against potentially losing more customers.
"Hefty price increases will be a true test of the power of the brand," Speiser said.
MORE RESTAURANTS TO OPEN
Chipotle said it expects third-quarter earnings slightly below last year's 62 cents per share. Analyst on average had expected a third-quarter profit of 72 cents per share, according to Reuters Estimates.
Chipotle said it expects comparable restaurant sales to rise in the mid- to low-single-digit percentages for 2008, lowering a previous view for an increase in the mid-single digits.
"The company is working on national pricing plans for the fourth quarter of 2008 to offset rapidly rising food costs," the company said in a statement.
Chipotle said it still plans to open 130 to 140 new restaurants this year.
ThinkPanmure analyst Suzanne Price said she was encouraged that the company was sticking to its store growth target.
"We believe this is a sign that the company sees the current weakness as short-term," said Price, who expects Chipotle to open 134 stores this year.
The company is due to report quarterly results in the third week of October.
Chipotle shares fell $14.24 to $56.91 in afternoon trade on the New York Stock Exchange.