Chiptole: As Same-Store Sales Stall, Should Investor Run for Hills or Buy the Dip?

Chipotle Mexican Grill's (NYSE: CMG) struggles continued in the third quarter -- on Wednesday, it delivered a report that revealed another quarter of lackluster same-store sales, and management lowered its guidance for the year. That sent the stock plunging. It's now down by about 45% year to date.

But is that decline a buying opportunity or should investors run for the hills?

Struggles continue

After two straight quarters of falling comparable-restaurant sales, Chipotle did see same-store sales tick up slightly by 0.3% in Q3. Transactions edged down 0.8%, but its average check size rose 1.1%.

The company said that people from low- to middle-income households have significantly reduced the frequency of their visits to Chipotle, and it estimates that those demographics account for about 40% of its customers. It said consumers between the ages of 25 and 35, in particular, have cut back on their discretionary spending. It also said that promotions and discounting across the industry have intensified, as has menu innovation among its competitors.

Towards the end of July and into August, the chain saw a marked step down in transactions. An increase in marketing spending and the introduction of carne asada and red chimichurri in early October helped a bit, but it has seen softness increase in recent weeks.

As a result, Chipotle is now expecting its same-store sales to be down by a low single-digit percentage for the year. That compares to an earlier outlook of flat comparable-restaurant sales. Management also walked back its guidance that it would return to mid-single-digit same-store sales growth in 2026, saying that its outlook now will depend on the consumer landscape. Instead, it will focus on getting the number of transactions up while keeping price increases to a minimum.

Overall, Chipotle's revenue rose by 7.5% to $3 billion in the quarter, while adjusted earnings per share (EPS) increased by 7.4% to $0.29. That was pretty much in line with analysts' expectations.

Restaurant-level operating margins slipped by 100 basis points to 24.5%. This is an important metric, as it measures how profitable the individual restaurants are. This metric could remain under pressure next year, as the company does not anticipate price increases to keep up with inflationary pressures, which will cut into its gross margin.

The company continued to add new locations. It now expects to open between 315 and 345 restaurants this year, and between 350 and 370 in 2026. Between 10 and 15 of the new locations next year will be in international markets with partners, as it slowly begins to expand outside of North America.

Image source: Getty Images

Is it time to buy the dip?

Chipotle continues to face a difficult environment, but from my own recent experiences, it also continues to not help itself. It has ballooned in size, and now, it needs to keep better track of how some of its locations are being run. This is especially true if Chipotle indeed wants to become more guest-centric.

It still should have levers to pull to eventually help drive same-store sales back upward. These include finally coming up with some strong dessert options, as well as perhaps offering breakfast items. For now, management seems content to focus on using technology to help improve efficiency.

Meanwhile, it still has plenty of opportunity for expansion. Management sees the potential to have as many as 7,000 locations in the U.S., versus the around 4,000 restaurants it has today. Meanwhile, it's still just dipping its toe into international markets.

From a valuation standpoint, the stock now trades at a forward price-to-earnings (P/E) multiple of about 24 based on 2026 estimates. That's one of the cheapest valuations it has been at in years. However, I wouldn't say it's in the bargain bin yet.

All in all, I think Chipotle can be turned around, but it may take some time. Considering its current valuation, I think investors can start accumulating shares on this dip, but I'd be ready to buy more on any further decline.

Geoffrey Seiler has no position in any of the stocks mentioned. 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.