Chipotle Warns of Slower Sales, Is CMG Stock in Trouble?

Globe and Mail

24-04-2025

Chipotle Mexican Grill (CMG) has hit a rough patch. Since the beginning of the year, shares of this popular fast-casual restaurant chain have fallen roughly 17%, and its first-quarter earnings report only deepened investor concerns. Despite some bright spots in the company's performance, a mix of macroeconomic pressures, shifting consumer behavior, and muted forward guidance have raised questions about the short-term outlook for CMG stock.
CMG's Q1 Earnings: A Mixed Bag
In Q1, Chipotle's total revenue increased 6.4% year-over-year to $2.9 billion. However, its top line missed Wall Street estimates. Same-store sales, a key performance metric for the restaurant industry, fell 0.4%, a rare stumble for a company known for steady growth.
Digital orders remained a major contributor, making up 35.4% of total sales. But rising costs took a toll: Eestaurant-level operating margin fell to 26.2%, down 130 basis points from last year. Adjusted earnings per share (EPS) rose 7% to $0.29, narrowly beating expectations. Still, it wasn't enough to calm worries over declining customer traffic and waning demand.
What's Behind the Weak Performance?
Chipotle's management cited several factors for the slowdown. Bad weather and a pullback in consumer spending — particularly from February onward — dampened results. Shoppers, facing persistent inflation and uncertainty about the economy, started tightening their wallets — a trend that has hit Chipotle just as it is preparing to lap tough comparisons from the previous year.
April showed modest improvement, helped in part by the popularity of the limited-time Chipotle Honey Chicken. Still, the company faces a tough road ahead. In the second quarter, Chipotle is up against one of its strongest quarters from 2024, which featured an 11.2% comp growth, including high-teens growth in April alone. Moreover, Easter's earlier timing this year created a 100 basis point headwind, and removing some pricing benefits will shave another 90 basis points from the top line.
Management now expects same-store sales for the full year to grow in the low single digits, down from earlier low- to mid-single-digit growth forecasts. Transaction volumes will likely return to positive territory in the second half of the year, but until then, investors may need to brace for further volatility.
Chipotle's Strategic Moves to Regain Momentum
Despite the near-term challenges, Chipotle is set to ramp up its marketing efforts beginning in May, with plans to push heavily across digital and social media platforms. It's also aiming to drive traffic with menu innovation, particularly around new sides and dips, and will lean more into its rewards platform to reach specific customer groups. These efforts could help Chipotle regain some lost momentum.
Another avenue for potential growth lies in catering. Currently, the business is a small contributor, accounting for just 1.5% of total sales. Chipotle sees significant room to expand this segment. A catering pilot will launch this fall in one of its U.S. subregions, featuring upgraded equipment, additional storage, and improved technology to better handle demand and logistics. If successful, this could open a new revenue stream with long-term upside.
Geographic expansion remains a key growth strategy for Chipotle. In the first quarter alone, it opened 57 new restaurants, including locations in Canada. The company remains on track to open 315 to 345 restaurants in 2025, with 80% featuring Chipotlane — its drive-thru digital order pickup format. Canadian expansion continues at a strong pace as well, with 15 to 20 openings planned, setting another record. While Chipotle is growing its restaurant base, its unit economics are strong, supporting its long-term expansion goals.
Valuation Remains a Concern
CMG stock's valuation remains a concern. Even after the recent selloff, it trades at a forward price-earnings ratio of 37.45x — an elevated figure that reflects high expectations for future growth. That premium could be hard to justify amid economic uncertainty and inflationary pressure in the near term.
Bottom Line
Despite macroeconomic headwinds and valuation concerns, Wall Street isn't sounding the alarm just yet as analysts see no fundamental weakness in the brand itself. CMG stock has a 'Strong Buy' consensus rating.
Chipotle's strong unit economics, value proposition, menu innovation, and new restaurant openings position it well to deliver solid growth. However, macroeconomic uncertainty could keep the stock range bound in the near term.