Chipotle’s stock jumped nearly 9% on Thursday following the announcement of improving sales and an anticipated 3% increase in menu prices for the fourth quarter due to rising costs related to beef, freight, and labor.
The popular fast-casual chain has been steadily increasing prices in various markets since late last year, trying to manage inflation while keeping customers coming through the door.
During an earnings call on Wednesday, Chief Financial Officer Adam Rymer mentioned that the pricing impact in the third quarter was about 2.7% and is expected to rise to around 3% in the fourth quarter.
This new 3% forecast encompasses the overall effect of price adjustments across different locations rather than a single, widespread increase applied to all Chipotle restaurants.
Throughout 2026, the influence of Chipotle’s price hikes has increased, shifting from 0.9% in the first quarter to 1.6% in the second, and reaching 2.7% in the third.
Initially, Chipotle had estimated a menu price rise of 1% to 2% for the full year, anticipating operating costs to rise between 3% and 4%.
Now, the company expects pricing to contribute roughly 2% overall for the year, with menu prices catching up to inflation in the last quarter.
The chain is impacted by higher beef and freight costs, compounded by increasing wages and additional expenses associated with staffing its restaurants.
Despite these challenges, the proportion of food, beverage, and packaging costs dipped to 29.5% of revenue in the third quarter, down from 30% a year prior, partly due to price hikes that cushioned higher beef and freight expenses.
Conversely, labor costs edged up to 25.7% of revenue from 25.2% the previous year, influenced by rising wages, performance bonuses, and staffing costs.
These pricing strategies come as Chipotle aims to reconnect with consumers after a period of reduced demand.
In the third quarter, revenue rose by 9.6% to $3.29 billion, with comparable restaurant sales increasing by 2.1% due to a slight uptick in customer transactions.
Investors seemed to favor the positive sales and traffic trends, even though adjusted earnings of 27 cents per share fell short of the expected 29 cents.
Moreover, Chipotle has ramped up its advertising and promotional efforts, highlighting limited-time menu options to attract more customers.
Marketing expenses represented a mid-3% share of sales in the third quarter, with expectations to rise to the high-3% range in the fourth quarter as the chain promotes its smoked brisket offering.
CEO Scott Boatwright noted that Chipotle’s entrée prices were still significantly lower—about 20% to 30%—than those of its fast-casual competitors back in April.
Despite the attempts to raise menu prices, Chipotle is experiencing ongoing pressure on its profit margins.
For the fourth quarter, Chipotle anticipates restaurant-level operating margins to dip to just below 22%, down from 23.4% in the same period a year earlier, due to increasing marketing costs and weaker sales leveraging affecting profitability.
In light of these factors, several Wall Street firms have reduced their price targets for Chipotle, expressing worries about a sluggish recovery in profit margins despite the improving customer traffic.
For instance, Bernstein dropped its target from $50 to $43, RBC from $45 to $40, and BMO from $52 to $50.
Looking forward, Chipotle expects comparable restaurant sales to rise about 2% in the fourth quarter as it continues to test pricing adjustments in specific markets to assess customer reactions.
