Chipotle Mexican Grill (CMG 2.12%) has long been one of the most popular fast-casual restaurant chains around, but this year, the company has been struggling to bring in the same type of customer traffic to its restaurants that it's used to.
After not seeing a same-store sales decline since 2020, which was early during the COVID-19 pandemic when people were staying home and businesses were shuttered, the company just reported its second straight quarter of comparable-store-sales decreases when it announced its Q2 results on July 23. The weakness started back in January and continued into the spring.
With the stock now down 24% in 2025 as of July 24, let's see if this dip is a buying opportunity or if investors should run for the hills.
Traffic declines
After seeing its comparable-restaurant sales fall 0.4% in Q1, the weakness continued, with Chipotle seeing a 4% decline in Q2. Transactions sank 4.9%, while its average check size rose 0.9%.
The company called out May as being particularly weak, but it then began to see a rebound in June, with comparable sales and traffic turning positive. It credited the launch of its limited-time Adobo Ranch dip offering and "Summer of Extras" reward program for the improvement. It said that while July has been choppy, the positive comp and transaction trends have continued. It also called out the strong performance of its Chipotle Honey Chicken limited time offering, saying it accounted for one out of every four orders.
Despite the recent rebound, the company lowered its full-year same-store outlook. It now expects comparable-store sales to be flat compared to an earlier outlook of low single-digit growth. However, the company does believe it can still generate mid-single-digit comparable-restaurant sales over the long term. Management does not believe it's making any missteps, with its recent struggles more a result of shifts in consumer sentiment.
Overall, Chipotle grew its revenue by 3% to $3.06 billion in the quarter, while adjusted earnings per share (EPS) fell 3% to $0.33. Analysts were looking for adjusted EPS of $0.33 on revenue of $3.11 billion, as compiled by LSEG.
Restaurant-level operating margins dipped 150 basis points to 27.4%. This is an important metric, as it measures how profitable each individual restaurant is. The drop appears largely due to higher wage costs and sales deleveraging, as the company said that supply chain and in-restaurant initiatives have more than offset the declines from increasing portion sizes that had been too small. Last year, a number of viral videos called out some locations for skimping on portion sizes, which the company decided to remedy. It said about 30% of its restaurants needed to be retrained on correct portion sizes.
Chipotle's goal is to return restaurant-level margins back to the 29% to 30% range in the future, while driving average unit volumes (average yearly sales of an individual restaurant) above $4 million.
Image source: Getty Images
Is it time to buy the dip?
There is no doubt that Chipotle is going through a difficult stretch. The big question is whether this is self-inflicted, or whether this is largely due to a more difficult consumer environment, or perhaps a combination of the two.
My guess is it's a little bit of both. There is good evidence that consumers have been a bit more cautious given all the tariff talk and some higher prices. However, I've been to a few Chipotle restaurants this year that have had trash receptacles overflowing and dirty tables, which made me not want to eat there. This is just anecdotal, but if it's more widespread, it could certainly turn some customers off. However, I think it might be easy to fix this issue.
Meanwhile, the company still has a long growth runway. It's still really just starting to expand internationally, and it continues to believe it can increase its U.S. locations at an 8% to 10% annual rate. So while Chipotle has certainly become a large operation, it still has plenty of growth ahead.
From a valuation standpoint, the stock now trades at a forward price-to-earnings (P/E) multiple of about 38 based on 2025 analyst estimates and 32 based on 2026 estimates. That's not in the bargain bin, but it's cheaper than where it's traded at over the past few years.
At this point, while I think there is some room for improvements, I don't think the long-term Chipotle story has changed. I really like its international and continued expansion opportunity, and its core menu and limited time offerings continue to resonate with customers. Consumers still respond to its marketing, and I think it can get back to solid same-store sales growth in a more normal environment. As such, I'd think investors with a long-term outlook can confidently continue to accumulate shares at current levels.
