After warning during its fourth-quarter conference call that 2025 was off to a tough start in January, fast-casual restaurant chain Chipotle Mexican Grill (CMG 2.48%) found that traffic never really recovered; it reported its first same-store sales decline since 2020, early in the COVID-19 pandemic. The stock largely shrugged off these disappointing results, although as of this writing it's still down more than 18% on the year.
Let's dig into Chipotle's most recent results to see when the company may get back on track, and whether the stock's recent weakness is a buying opportunity.
NYSE: CMG
Key Data Points
Weakening consumer traffic
After seeing sales fall 2% for the month of January, Chipotle management guided for mostly flat same-store sales for Q1. At the time, it blamed severe weather, the Los Angeles wildfires, and an unfavorable calendar shift (New Year's Day fell on a Wednesday, delaying the return of consumers to their regular routines) for its poor start to the year, but it thought it would begin to see a recovery in February.
However, any recovery it did see didn't last long. The company said in February that it began to see customers reduce the frequency of their visits due to concerns over the economy. It said this elevated level of uncertainty felt by consumers has continued into April.
The restaurant operator isn't looking for a quick recovery. It faces its toughest comparable-restaurant sales of the year in Q2, as its comps soared 11.1% in Q2 of last year. A late Easter, meanwhile, is also expected to have a negative impact on the quarter.
Nonetheless, Chipotle is still predicting same-store growth this year, just a bit lower than its previous forecast. It now sees same-store sales growth in the low single digits for 2025, with traffic turning positive in the second half. Previously, it had forecast low- to mid-single-digit comparable sales growth. The company has an enhanced marketing plan ready for the summer and the rest of the year to help drive traffic.
Management said its value proposition, friendly staff, and clean dining rooms give it a strong competitive advantage during these periods. Having recently been to a few Chipotle restaurants with shockingly unclean dining rooms and overflowing trash cans, I think management had better take a closer look into that last one.
Turning to the results themselves, Chipotle grew its revenue by 6% to $2.88 billion, with adjusted earnings per share (EPS) jumping 7% to $0.29. The analyst consensus compiled by LSEG was for adjusted EPS of $0.28 on revenue of $2.95 billion.
Comparable-restaurant sales fell 0.4%, which was below the 1.7% increase analysts were expecting, according to StreetAccount. Transactions fell 2.3%, while the average check rose 1.9%.
Restaurant-level operating margins slipped 130 basis points to 26.2%. This is an important metric, as it measures how profitable each individual restaurant is. Larger portion sizes, along with some higher food and labor costs, ate into this number. Chipotle expects tariffs to have an ongoing impact of about 50 basis points, excluding any impact from postponed tariffs on Mexico and Canada.
Image source: Getty Images.
Is the stock a long-term buy?
Even during a difficult period of declining same-store traffic and rising costs, you can see the attractiveness of Chipotle. The company still has strong restaurant-level margins, and is still growing overall given its rising restaurant count. In fact, it has a long runway to continue adding locations, which is one of the biggest reasons to own the stock for the long term.
Chipotle sees room to add new locations at an 8% to 10% annual rate in the U.S. Meanwhile, it's barely scratched the surface of international expansion. It plans to ramp up growth in Canada this year, while looking to develop opportunities in both the U.K. and Germany. It's also accelerating growth with its partner Alshaya Group in the Middle East, and has just signed an agreement with Alsea to open restaurants in Mexico, with the first scheduled for early next year.
Turning to valuation, the stock trades at a forward price-to-earnings (P/E) multiple of about 39 based on 2025 estimates, which is toward the low end of its range over the past few years.
While Chipotle is dealing with slowing consumer traffic, I don't see anything right now to suggest that its long-term story has changed. I think investors can start to accumulate shares at current levels, while potentially buying more if the stock comes under more pressure later this year.
