Chipotle Stock Nosedives 18% in 24 Hours After Earnings Announcement

Chipotle Mexican Grill (NYSE: CMG) has been one of the best-performing restaurant stocks, but after its third-quarter earnings report, which was released on Wednesday night, the stock now seems to be in full-on crisis mode.

The stock was down 17% on Thursday in response to another disappointing earnings report and a warning that its burritos and bowls were getting too pricey for its core customer.

With the sell-off, the stock is now down 50% from its peak last December, the biggest drawdown the stock has experienced since the E. coli crisis a decade ago.

Image source: Chipotle.

What's wrong with Chipotle?

Much of the fast-casual sector is struggling as a weakening labor market and poor consumer confidence seem to be impacting discretionary spending, at least at Chipotle and its peers.

In the third quarter, its seasonally strongest period of the year, comparable sales ticked up just 0.3%, and revenue rose 7.5% to $2.99 billion, which missed estimates at $3.02 billion.

Costs also increased faster than sales as restaurant-level operating margin fell from 25.5% to 24.5%, and its operating margin dipped from 16.9% to 15.9%, showing the business is still highly profitable even if it's moving in the wrong direction.

Adjusted earnings per share rose from $0.27 to $0.29, which matched estimates. Management also said it expected comparable sales to fall in the low-single-digit range for the year after slipping in the first half of the year.

The biggest challenge for Chipotle

In the earnings release, CEO Scott Boatwright acknowledged the company was facing "persistent macroeconomic pressures," and elaborated on that on the earnings call, noting a key customer demographic, 25- to 35-year-olds, is particularly challenged and has been hit hard by some of the economic headwinds like inflation and a weakening labor market. Additionally, lower-income customers have continued to pull back on spending at Chipotle, a trend that has strengthened from earlier in the year.

What's next for Chipotle

Chipotle is likely to struggle to return to growth as long as its customer base is challenged, and management said it expected the situation to get worse into the first quarter of 2026.

The company has introduced new menu additions like red chimichurri, but that doesn't seem to have neutralized the macro headwinds.

In other words, any recovery will likely take time. The good news for investors is that the stock looks much more reasonably priced now than it did a year ago, trading at a price-to-earnings ratio of 28, and the business is still growing as Chipotle is rapidly opening new stores.

While investors should temper their expectations for the near term, there's no reason for long-term investors to give up on the stock.

Jeremy Bowman has positions in Chipotle Mexican Grill. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends the following options: short December 2025 $45 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.