Chipotle Maintains Absorption of Tariff Costs, Emphasizing Value

Chipotle Mexican Grill (CMG) remains vigilant in monitoring the evolving tariff landscape, with CFO Adam Rymer stating that the company is closely observing the situation. Despite announced 25% tariffs on Mexican and Canadian imports and additional 10% tariffs on Chinese goods, Chipotle has indicated patience in adjusting pricing.

"We don't necessarily want to act quickly with price," Rymer emphasized, indicating that price increases are not imminent. The company aims to assess the permanence of tariffs before making any decisions.

According to Rymer, Chipotle is capable of absorbing the tariff costs for an extended period. If tariffs become a permanent fixture, the company will consider price increases to offset the impact, but not to expand margins. The estimated ongoing impact of tariffs on Chipotle's cost of sales is approximately 60 basis points.

While Chipotle imports avocados from Mexico, the company has diversified its supply chain with imports from Colombia, Peru, and the Dominican Republic, mitigating potential risks associated with avocado costs. The company sources less than 0.5% of its cost of sales from Canada and China.

"We're not completely dependent on one region," Rymer stated, highlighting the company's ongoing efforts to maintain diversification.

Bank of America forecasts improved food margins for Chipotle in 2025 compared to 2024, assuming tariffs do not take effect. Value remains a central strategy for Chipotle, which has captured market share from quick-service competitors through competitive pricing.

Chipotle CEO Scott Boatwright noted a 30% discount on average compared to peers' food prices. The company implemented a 2% price increase in December 2024.

"We're very careful with when we take a price increase," Rymer said, emphasizing the importance of maintaining Chipotle's value proposition in the industry.

BTIG analyst Peter Saleh suggests that if Chipotle refrains from further price hikes, 2025 same-store sales could benefit by 200 basis points from the previous price adjustment in December 2024.