Chipotle Is Raising Wages. What $15 an Hour Means for the Stock. - Barron's

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Chipotle had indicated it could offset the impact of a 10% wage increase by bumping up prices 2% to 3%.

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Chipotle Mexican Grill stock edged lower Monday after the burrito chain announced it will raise its average hourly wage by roughly $2 next month, an amount that analysts argue won’t have a significant financial impact.

By the end of June, Chipotle (ticker: CMG) will pay $15 an hour on average to both new and current workers, with the range from $11 to $18 an hour. The average hourly wage now is $13 an hour. The company is looking to add about 20,000 employees this year to the roughly 97,000 already on the payroll.

Chipotle also touted a blueprint for workers to climb the ladder to general manager—the position can come with a six-figure compensation package—in only 3½ years. The company is paying $200 employee referral bonus for crew members and a $750 referral bonus for apprentices or general managers.

The hourly wage decision isn’t much of a surprise—the company had indicated a 10% wage increase could be offset by bumping up prices 2% to 3%. One commentator figured that prices raised by 7% would cover the higher hourly wage. The company is no stranger to price increases, which some analysts have encouraged and which management told Barron’s hasn’t hurt the business.

Chipotle’s decision is part of a larger pattern of companies raising wages to get ahead of any federal legislation—Congress hasn’t made any progress on a $15-an-hour minimum wage—and to attract and retain workers, especially as competition to fill openings has heated up.

Not surprisingly, analysts believe that the company will compensate for the higher wages by simply introducing small pricing changes.

Stephens’ James Rutherford reiterated an Equal Weigh rating on the shares, but wrote that “Chipotle has the pricing power and is smart to get in front of persistent wage/hiring challenges.” He thinks the company will raise prices by 3% to 4.5% to offset the impact and possibly re-evaluate the size of the increase later in the year.

The stock was down 1.8% to $1,399.84 in afternoon trading. The shares are up 1.1% year to date and have risen more than 50% in the past 12 months.

Write to Teresa Rivas at teresa.rivas@barrons.com

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