Chipotle (CMG +1.76%) stock has been getting hit with intense sell-offs lately. Since the close of the market last Friday, the company's share price has fallen 21.2% -- with the big sell-off largely driven by the company's disappointing third-quarter report and projections.
Chipotle published its Q3 results after the market closed yesterday -- reporting performance and forward guidance that resulted in a steep valuation pullback for its stock today. While the company's non-GAAP (adjusted) earnings per share of $0.29 were in line with Wall Street's expectations for the period, sales of $2.99 billion fell roughly $20 million short of the average analyst target.
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Here's why investors are bailing on Chipotle
Chipotle's revenue was still up 7.5% year over year in the third quarter, but there were signs of performance weakness that extended beyond top-line results falling slightly short of the average Wall Street target. Notably, the company's same-store sales growth was up only 0.3% year over year -- which means that overall revenue growth was almost entirely driven by the opening of new locations. Opening new stores is hardly a bad thing in and of itself, but it does require significant spending outlays and doesn't boost earnings as much in the near term compared to same-store sales growth.
Making matters worse, the paltry growth for same-store sales was driven by a 1.1% increase in average check size. Meanwhile, transaction volume across comparable restaurants actually fell 0.8% -- reflecting a decline in customer traffic.
Customer traffic trends have since worsened, with CEO Scott Boatwright stating that same-restaurant sales have declined in October. Comparable restaurant sales are now projected to fall in the fourth quarter, resulting in a low-single-digit-percentage decline for annual same-store sales. With the update, Chipotle has cut its same-store sales growth targets for three consecutive quarters.
Following the recent sell-off, the stock is down roughly 46% across 2025's trading. The big pullback comes even as the S&P 500's level has climbed 16% across that stretch.
NYSE: CMG
Key Data Points
Boatwright indicated during the Q3 conference call that the company was seeing significant spending drop-offs in the 25-to-35 age demographic in response to economic pressures. He added that the company was seeing a decline in purchase frequency among all customer-income cohorts. Customers are cutting back on eating out in response to rising costs across various categories and tighter budgets, and it's not clear when these headwinds might start to moderate.
In conjunction with the disappointing same-store sales performance and concerning guidance, Chipotle stock received price-target cuts from multiple analysts today. While the company is hoping to reenergize sales growth by ramping up its international expansion initiatives, the near-term outlook in the domestic market is marked by some significant challenges.
