After warning during its fourth-quarter conference call about a challenging start to 2025, Chipotle Mexican Grill reported its first same-store sales decline since the onset of the COVID-19 pandemic in 2020. Despite these disappointing results, the stock remained largely unaffected, although it has decreased by over 18% this year.
Sales in January fell by 2%, prompting Chipotle’s management to predict flat same-store sales for the first quarter. The company attributed this decline to severe weather, wildfires in Los Angeles, and a calendar shift causing a delay in consumers returning to regular routines. Although some recovery was observed in February, it was short-lived as customers reduced visits amid economic concerns. This uncertainty has persisted into April.
Facing its toughest comparable-restaurant sales period in the second quarter, due to an 11.1% increase last year and a late Easter, Chipotle anticipates only modest same-store sales growth. The company forecasts low single-digit growth for 2025, expecting positive traffic in the latter half of the year. An enhanced marketing plan is set to help drive traffic.
Management emphasizes the company’s value proposition, friendly staff, and clean dining rooms as key competitive advantages. Chipotle’s recent revenue grew by 6% to $2.88 billion, with adjusted earnings per share rising 7% to $0.29. This was slightly below expectations, with comparable-restaurant sales falling 0.4% and transactions declining by 2.3%, while the average check rose 1.9%.
Restaurant-level operating margins decreased by 130 basis points to 26.2%, influenced by larger portion sizes and increased food and labor costs. Tariffs are expected to continue impacting margins by about 50 basis points.
Despite challenges, Chipotle’s potential for long-term growth remains positive due to strong restaurant-level margins and continuous expansion. The company aims to increase its locations by 8% to 10% annually in the U.S. and is expanding internationally, particularly in Canada, the U.K., Germany, and the Middle East. It has also partnered with Alsea to open restaurants in Mexico.
The stock, trading at a forward price-to-earnings multiple of about 39, is considered toward the lower end of its recent range. Although experiencing slowing traffic, Chipotle’s long-term outlook remains unaltered, presenting potential buying opportunities for investors.
