Chipotle Stock Falls After Earnings. Comparable Store Sales Are the Worry.

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

Chipotle Mexican Grill posted second-quarter earnings and revenue that both met analyst expectations. Still, the stock tumbled nearly 10% in after-hour trading on Wednesday as investors worry about the burrito chain’s declining same-store sales.

For the three months ended in June, Chipotle posted 33 cents in earnings per share, 2.9% down from a year ago, while net revenue increased by 3% to $3.1 billion as analysts had expected.

Much of Chipotle’s revenue growth was driven by footprint expansion. In the second quarter, the company opened 61 new restaurant openings, making the total 3,839. Same-store sales for existing restaurants, however, declined 4% from a year ago.

For full year 2025, Chipotle expects comparable sales to be flat from 2o24. Since comparable sales declined year-over-year for both the first and second quarter, this suggests that management believes things will turn positive again in the second half of the year.

Chipotle plans to open a total of 315 to 345 new company-owned restaurants in 2025. That means a pickup in pace compared with the 118 new openings in the first six months of the year.

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.

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

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 4% decline in the second quarter—the second time in a row—had investors even more worried about Chipotle’s near-term outlook.

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 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.

There has been some progress, according to management.

“We are seeing momentum build as we rolled out our summer marketing initiatives and as our comparisons ease,” said CEO Scott Boatwright in a statement. “I am optimistic that our positive momentum will continue as we further support our world-class people with new tools to improve execution, introduce new menu innovations, amplify our rewards program, and introduce this great brand to more communities around the globe.”

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.

Chipotle stock has been trading at higher valuations than many peers as investors bet on its growth potential and shareholder returns. As of Wednesday’s close, shares were trading at 44 times forward earnings, much higher than McDonald’s 24 times, Texas Roadhouse’s 28 times, 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.

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