By Evie Liu
April 24, 2025, 3:57 pm EDT
Chipotle Mexican Grill on Wednesday posted its first comparable sales decline since the Covid pandemic, as inflation and recession fears pushed consumers to dine out less at restaurants. If the trend continues, the stock may be unable to maintain its expensive price tag.
Since the earnings report, nearly two dozen Wall Street analysts have lowered their price target for Chipotle stock, according to FactSet. Still, the consensus target is at $59 per share, 20% higher than the stock’s current level.
Chipotle stock has been trading at a higher valuation than many restaurant peers, as investors bet on its high growth potential and shareholder returns. In 2024, Chipotle’s same-store sales improved 7.4% from a year ago, while the number of restaurants grew by 8% to more than 3,700.
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, with a restaurant level margin approaching 30%.
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Weakness in the first quarter, however, has “thrown some doubt” on whether the firm can achieve its goals, wrote John Zolidis, president of Quo Vadis Capital, in a Thursday note. At a minimum, he wrote, the timeline has been pushed out.
“We won’t know whether Chipotle’s disappointing metrics are entirely macro driven or a combination of macro and company-specific factors until we have more results and more context,” wrote Zolidis, “However, we can say that negative comps and transactions are inconsistent with the stock’s premium valuation.”
Chipotle stock has tumbled 18% in 2025, but still trades at 38 times forward earnings, according to FactSet, much higher than McDonald’s 25 times and the S&P 500’s 20 times.
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The restaurant sector overall has been under pressure as consumers dine out less amid persistent inflation. Investors are also worried that policies from the Trump administration, such as tariffs, could drive the U.S. economy into a recession.
Chipotle said that the 25% tariffs on aluminum imports and 10% levies on all trade partners alone could boost its costs of goods by 50 basis points, largely due to higher prices of Australian beef and avocados from Colombia and Peru.
In the first quarter, Chipotle’s same-store transaction volume declined 2.3% from a year ago, even as prices per check went up. Management noted that the weakness was broad-based across different income cohorts and geography.
The softer sales have continued into April, management said on the earnings call, noting that same-store sales growth will likely remain negative for the first half of 2025.
Chipotle said it plans to drive traffic growth through increased advertising, elevated hospitality, and more limited-time offers at its restaurant, which has historically been an effective way to attract customers.
The burrito chain will need to see how consumers respond to those efforts, and there is very little room for error. Management expects things to turn positive again in the second half of the year, and comparable sales to grow by low single-digit for the full year.
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Some on Wall Street remains cautious about that outlook. “Such an assumption of a trend in this business seems aggressive at this point,” wrote JPMorgan analyst John Ivankoe on Thursday.
Write to Evie Liu at evie.liu@barrons.com
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