Chipotle should see a margin benefit from greater avocado supply

Chipotle Mexican Grill Inc.’s margins should improve in the second half of the year as the supply of avocados grows, easing the price for the key ingredient, according to a Truist Securities note. Analysts quote data from the Hass Avocado Board showing avocado shipments are expected to be up 2.1% in the third quarter after fewer shipments from Mexico in the first half. Mexico provides about 80% of supply. Avocados account for about 9% of Chipotle’s cost of goods sold (COGS). Prices were up 64% year-over-year in the first quarter and up 65% for the quarter to date. “We estimate that a 10% change in avocado prices impact restaurant margins by ~30 basis points and annual earnings per share by ~$0.65,” Truist said. Truist rates Chipotle shares buy with a $2,000 price target. Chipotle stock was up 1.3% in Wednesday premarket trading, and has fallen 31.1% for the year to date. See also: Avocado demand persists despite 44% increase in prices and sky-high grocery inflation

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