Chipotle Is Set to Report Earnings. The Burrito Chain Needs New Catalyst For Growth.

Chipotle aims to boost traffic through its advertising and limited-time offers. (Joe Raedle/Getty Images)

Chipotle Mexican Grill is suffering from weak consumer spending like most other restaurant peers. Investors are watching closely for catalysts that could bring foot traffic back in the second half of the year.

Chipotle is set to report second-quarter earnings on Wednesday after the stock market closes. For the three months ended in June, analysts polled by FactSet expect the burrito chain to grow sales by 4.7% to $3.1 billion. But much of the growth would be driven by new restaurant openings. Same-store sales are expected to decline 2.9% from a year ago. Earnings are expected at 33 cents per share, one cent less than a year ago.

Inflation and recession fears have pushed many consumers to dine out less, hurting restaurants from fast-food chains to casual-dining spots. Chipotle was a relatively better performer among peers. Still, consumer weakness has caught up with the Mexican fast-casual chain: In April, Chipotle posted its first comparable sales decline since the Covid pandemic.

The trend will likely continue. According to Placer.ai, Chipotle’s total number of store visits increased 0.7% year-over-year in the second quarter thanks to its new restaurant locations. But the average number of visits per venue fell during the quarter. The successful launch of chicken al pastor last year, which brought in a lot of customers, set a high bar for this year’s results, said Placer.ai.

Chipotle stock has been trading at higher valuations than many peers as investors bet on its growth potential and shareholder returns. Shares currently trade at 43 times forward earnings, much higher than McDonald’s 24 times, Texas Roadhouse’s 28%, and Darden Restaurants’ 20 times—all three are also relative outperformers in the restaurant industry.

If the weakness continues, it might be difficult for Chipotle stock to maintain its expensive price tag. Chipotle said it plans to drive traffic growth through increased advertising, elevated hospitality, and more limited-time offers at its restaurants. Last month, the company launched adobo ranch, its first new dip in five years, in an effort to capitalize on ranch’s growing popularity.

At the last earnings report in April, management expects same-store sales growth to remain negative for the first half of 2025, but turn positive again in the second half. Over the long term, the firm plans to double its footprint to more than 7,000 units, and expects its average unit sales to grow from the current $3.2 million to more than $4 million.

Last week, BMO analyst Andrew Strelzik upgraded his rating for the stock to Outperform from Market Perform and raised his target price to $65 from $56. He cited strong U.S. store openings and an improved outlook for sales—thanks to seasonal menu items, improved digital ordering, and potential demand spikes as more companies ask employees to come back to office.

The upgrade, Strelzik said, isn’t based on expectations for Chipotle’s second-quarter results, but rather on its long-term potential for growth. For the June quarter, he anticipates same-store sales to decline 3% year over year. What’s more, potential tariff-related pressures could boost ingredient costs and hurt profitability, even if sales improve, he said.

Write to Evie Liu at evie.liu@barrons.com