Chipotle stock plunges 13% as chain lowers sales forecast, says younger diners are cutting back

Chipotle Mexican Grill reported third-quarter revenue that missed expectations and significantly lowered its full-year same-store sales forecast for the third consecutive quarter, now projecting a low-single digit decline for fiscal 2025, which caused shares to plunge 13% in extended trading. CEO Scott Boatwright attributed this to persistent macroeconomic pressures leading to a 0.8% traffic decline, as consumers across all income cohorts, particularly those under $100,000 and ages 25-35, reduce visit frequency due to inflation and economic concerns. Despite these challenges, the company plans to avoid discounting, focusing instead on operational execution, digital enhancements, and continued expansion with 350-370 new locations targeted for 2026.

Analysis

Chipotle Mexican Grill reported Q3 revenue of $3 billion, falling short of the $3.03 billion expectation, and significantly lowered its fiscal 2025 same-store sales forecast for the third consecutive quarter to a low-single digit decline, a stark contrast to earlier growth projections. This negative guidance and revenue miss triggered a 13% plunge in shares during extended trading. Adjusted EPS of 29 cents was in line with expectations, but net income decreased year-over-year.

The company attributes these challenges to persistent macroeconomic pressures, resulting in a 0.8% traffic decline, marking the third consecutive quarter of such decreases. While previously insulated, Chipotle is now experiencing reduced visit frequency across all income cohorts, particularly among consumers earning less than $100,000 (40% of its base) and those aged 25-35, who are impacted by inflation, unemployment, and student loan repayments.

Despite the traffic issues, net sales grew 7.5% to $3 billion, primarily driven by the opening of 84 new company-operated locations. Same-store sales saw a modest 0.3% increase, solely due to a 1.1% bump in average check, not improved traffic. Management, led by CEO Scott Boatwright, intends to avoid discounting, focusing instead on in-restaurant execution, marketing, digital experience, and menu innovation to revive traffic.

Looking ahead, Chipotle plans aggressive expansion, targeting 350 to 370 new locations in 2026, including 10-15 international restaurants through partnerships in Korea, the Middle East, and Latin America. This strategy aims to leverage new unit growth and international markets to offset domestic traffic headwinds.

Key Decisions for Investors

• Monitor CMG's traffic trends closely, as sustained declines across key demographic segments signal ongoing macroeconomic sensitivity and potential for further guidance revisions
• Evaluate the effectiveness of management's non-discounting strategy and operational improvements in reversing traffic declines, as this will be critical for restoring same-store sales growth without margin erosion
• Assess the long-term growth potential from new unit expansion and international market penetration against the backdrop of current domestic demand challenges