TLDR
- Chipotle reported a 4% same-store sales decline in Q2, worse than the expected 2.9% drop
- Stock fell more than 10% in premarket trading after earnings announcement
- Company cut full-year guidance to flat same-store sales growth from low single-digit growth
- Traffic declined 4.9%, accelerating from Q1’s 2.3% drop
- CEO expects return to positive transaction growth in second half of year
Chipotle Mexican Grill shares tumbled more than 10% in premarket trading Thursday after the company reported its second consecutive quarter of declining sales and slashed its full-year outlook.
The fast-casual chain posted same-store sales that fell 4% in the second quarter. This was worse than Wall Street’s expectation of a 2.9% decline.
Traffic patterns showed an even steeper drop. Customer visits fell 4.9% compared to the 4.4% decline analysts had predicted.
This marks an acceleration from the first quarter’s 2.3% traffic decline. The Q1 drop was Chipotle’s first quarterly foot traffic decline since 2022.
The disappointing results prompted management to cut guidance once again. The company now expects flat full-year same-store sales growth.
This represents a downgrade from its previous forecast of growth in the low single-digit range. Analysts had been expecting 0.8% same-store sales growth for the fiscal year.
CEO Scott Boatwright blamed “ongoing volatility in our trends in the consumer environment” for the revised outlook. He told investors the company experienced share losses in April and May as low-income consumers pulled back spending.
Consumer Pressure Takes Its Toll
The earnings results reflect broader challenges facing restaurant chains as consumers become more selective with their dining spending. Economic uncertainty and persistent inflation have pushed many customers, particularly lower-income households, to cook more meals at home.
Boatwright acknowledged the company’s value proposition isn’t resonating with consumers the same way it did a year ago. “We’ve got to figure out a way we can communicate value for the consumer,” he said on the earnings call.
Revenue came in at $3.06 billion, missing analyst expectations of $3.11 billion. Earnings per share of $0.33 on an adjusted basis met forecasts.
The CEO did note some improvement in June and July. “We’re back to share gains yet again in June-July,” Boatwright told investors.
CFO Adam Rymer highlighted strength in sides and add-ons during the quarter. The company’s new Adobo Ranch dip, launched in mid-June, showed positive early results.
Recovery Strategy in Motion
Chipotle is banking on several initiatives to drive a turnaround. The company plans to increase its cadence of limited-time offerings and expand its sides and dips menu.
Management also wants to lean more heavily into its rewards program and catering business. These efforts aim to return the chain to positive transaction growth in the second half of the year.
Boatwright expressed confidence in the company’s path forward. “I’m confident that we have a path to get back to mid-single-digit growth and return us back to where we need to be in the coming months.”
The company faces additional cost pressures from tariffs. Chipotle expects tariffs to raise its cost of sales by 0.5% on an ongoing basis.
An additional 0.4% impact is expected in the third quarter. Despite these headwinds, management maintains its optimistic outlook for the remainder of the year.
William Blair analyst Sharon Zackfia noted that the Adobo Ranch launch appeared to boost both traffic and average ticket size due to the associated upcharge. Other menu items like guacamole, queso, chips, and drinks also performed well during the quarter.
The company continues investing in new store openings and equipment upgrades to improve operational efficiency. These investments, combined with enhanced marketing efforts, are expected to help drive future demand recovery.
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