By Anuja Bharat Mistry and Waylon Cunningham
July 29 (Reuters) - Chipotle Mexican Grill raised its annual sales forecast on Wednesday but said the third quarter is likely to be its toughest of the year after a multistate cyclosporiasis outbreak dented consumer confidence in eating out in late July.
The burrito chain also beat second-quarter estimates, buoyed by its push to roll out value deals and limited-time offerings such as honey chicken and cilantro lime sauce, along with the return of customer-favorite
Chicken Al Pastor. Its shares rose about 6% in extended trading.
"Positive traffic and average check growth reflect a healthy print for Chipotle, particularly as wallet-stretch consumers remain overly selective when dining out," said Ari Felhandler, analyst with Morningstar.
The restaurant industry is now facing a new obstacle as the parasitic disease, which U.S. health agencies have linked to iceberg lettuce, raises consumer concerns, with foot traffic data and industry sources indicating that some diners are steering clear of certain restaurants, scaling back lettuce purchases and scrutinizing food choices more closely.
"We don't know how long that will last... Right now we're being cautious. We are going to assume it'll continue for the rest of the quarter and that's how we've guided," Chief Financial Officer Adam Rymer told Reuters.
Overall, the impact to traffic appears "modest" compared to competitors that lean more heavily into salads and lettuce, Rymer said.
The company, however, had said earlier it does not serve shredded iceberg lettuce and that its romaine lettuce and Supergreens salad mix were not sourced from Mexico.
The produce from the region of central Mexico was linked to the expanding outbreak.
Chipotle's sales softened about 2% around the time of the outbreak in the second half of July.
"We're not involved in the cyclospora conversation today. The products that are caught up in that conversation, we don't use on our menu, and our lettuces are sourced here in California," CEO Scott Boatwright said on the post-earnings call.
Chipotle expects fiscal 2026 comparable restaurant sales growth to be in the low single-digit range, compared with its prior forecast of about flat.
Quarterly comparable restaurant sales were up 2.2%, while analysts estimated a 1.32% rise, according to data compiled by LSEG.
It posted an adjusted profit of 33 cents per share, ahead of the estimate of 32 cents.
But its quarterly restaurant level operating margin came in at 25.2%, down from 27.4% a year ago.
While Chipotle has kept prices increases to a modest 1%-2% to remain sensitive to consumer sentiment, its margins are taking a hit from surging input costs, including for packaging and beef — which hit a record-high in May and remains the company's largest commodity expense.
The company also announced a new $1.3 billion share repurchase plan approved by its board on June 11.
(Reporting by Anuja Bharat Mistry in Bengaluru and Waylon Cunningham in New York; Editing by Shilpi Majumdar)
