TLDR
- Chipotle shares dropped 7% after-hours despite posting Q4 earnings of 25 cents per share, beating the 24-cent estimate
- Same-store sales fell 2.5% year-over-year as lower-income customers reduce dining spending
- Company forecasts flat comparable sales growth for 2026 with modest 1-2% menu price hikes planned
- Revenue reached $2.98 billion in Q4, driven by 132 new restaurant openings rather than existing location growth
- Chipotle stock down 34% over past year as margins face pressure from rising beef and labor costs
Chipotle delivered a disappointing outlook Tuesday despite beating Wall Street’s fourth-quarter earnings expectations. The burrito chain’s after-hours stock decline reflected investor concerns about slowing customer traffic.
The company reported adjusted earnings of 25 cents per share and revenue of $2.98 billion. Both figures topped analyst estimates of 24 cents and $2.96 billion respectively.
But the headline numbers masked underlying weakness. Same-store sales declined 2.5% compared to the previous year.
Chipotle Mexican Grill, Inc., CMG
New restaurant openings drove the revenue growth. Chipotle added 132 company-owned locations during the quarter. Existing restaurants are struggling to maintain customer counts.
The stock has lost 34% of its value over the past 12 months. Shares now trade at historically low valuations.
Consumer Spending Pressures Mount
Lower-income households are tightening their budgets. Customers earning under $100,000 annually make up 40% of Chipotle’s sales base. This group is cutting back on restaurant visits.
Chipotle’s typical meal costs $10 to $12. That price point looks expensive compared to McDonald’s value deals and other competitors’ promotions.
Finance chief Adam Rymer warned that margins will stay pressured in 2026. The company plans menu price increases of 1% to 2% this year.
Those modest hikes won’t fully offset inflation. Beef prices hit record levels as drought shrunk cattle herds to their smallest size in 75 years. Labor costs continue climbing too.
Flat Sales Growth Expected
Management expects comparable restaurant sales to remain flat throughout 2026. Analysts had forecasted 1.86% growth for the year.
The company declined to provide specific revenue or earnings guidance for 2026. This unusual move signals uncertainty about near-term performance.
Chipotle plans to open 350 to 370 new restaurants this year. The expansion strategy continues despite traffic challenges at existing locations.
The chain is upgrading kitchen equipment to improve service speed and consistency. Marketing investments are increasing, with emphasis on loyalty rewards and time-limited promotions.
Data shows loyal customers ordering more frequently than occasional diners. Converting casual customers back into regulars remains the core challenge.
Wall Street Watches for Turnaround
Deutsche Bank analyst Lauren Silberman expects customer traffic to improve in 2026. She noted Chipotle will likely avoid major price increases until late in the year, helping it stay competitive.
Oppenheimer analyst Brian Bittner views the stock as positioned for a potential comeback. About 66% of analysts rate Chipotle a Buy, with an average price target of $45 representing 18% upside.
Morningstar’s Ari Felhandler said the conservative pricing approach should strengthen Chipotle’s value perception with consumers. However, margins will suffer in the short term as price increases lag behind cost inflation.
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