Whether it's for a burrito, guacamole, or something else, diners have consistently gone out to eat at Chipotle Mexican Grill (NYSE: CMG) more and more over the last 10 years. Of course, there was an exception to this trend at the outset of the COVID-19 pandemic -- comparable sales were down nearly 10% in the second quarter of 2020. But that was understandable. After all, people were being told to stay home to slow the spread of the virus at the time.
Chipotle's comparable sales have increased year over year in every quarter since the second quarter of 2020. That is, they had increased until the first quarter of 2025, which is the most recent quarter. In Q1, comparable sales fell by less than 1%, which is small. But they did fall nonetheless.
Investors need to understand why sales are dropping for Chipotle in 2025. Only when they know what's happening can they figure out what to do about it.
What's going on at Chipotle?
On one hand, the recent drop in sales per restaurant location isn't unique to Chipotle. For example, Domino's Pizza reported financial results for the first quarter of 2025 on April 28, showing a similar drop in comparable sales. In short, consumers are increasingly stretched thin and they're cutting back on eating out.
On the other hand, Chipotle might have a problem of its own to deal with as well. In Q1, transactions at the company's restaurants dropped by more than 2% year over year. For perspective, they rose by more than 5% in 2024. In other words, Q1 sales fell less than transactions because the company is making up the difference by charging higher prices.
Higher menu prices in a sputtering economy could explain why Chipotle's transactions are quickly trending the wrong way. And it's a trend that's expected to continue, at least for a while.
Chipotle's management says that the second quarter had a tepid start from a transaction standpoint, but it hopes trends will improve late in the quarter before turning positive in the back half of the year.
What does this mean for investors?
Assuming that uncomfortably high prices are contributing to its sales struggles, Chipotle is in a challenging spot for the near term. If menu prices still rise, it could deter people from eating out at Chipotle. Outright lowering prices rarely happens in the restaurant world. But promotional activity is a common way to stimulate traffic. And if Chipotle chooses this approach, it could hurt the company's profit margins instead.
Either way, Chipotle's profits could face headwinds in 2025. If traffic is weak, profitability could slide. And if the company stimulates traffic with deals, that also impacts the bottom line.
When it comes to investing in stocks, profits are a big deal. They're extremely consequential to a stock's price. Therefore, unless Chipotle's profits rise in 2025, investors can expect the stock to be challenged.
However, investors shouldn't despair, because profits aren't the only thing that impacts stock prices. In fact, top-line growth is also a meaningful driver of shareholder returns, and Chipotle continues to have plenty of opportunity in this regard.
For starters, Chipotle is on track to open more than 300 new restaurant locations in 2025 to go along with the 3,700 it had at the end of 2024 -- management is shooting for 7,000 restaurants in the U.S. long term. This undeniably will provide a boost to revenue. The company has a budding international expansion opportunity as well. Investors were reminded of this on April 21 when it announced its entrance into Mexico for the first time.
As of this writing, Chipotle stock has dropped more than 25% from its all-time high, which is a relatively rare pullback. But for those interested in investing in Chipotle stock, I don't believe there's any reason to frantically rush to gobble up shares -- its profits could be challenged in 2025, which could keep Chipotle stock down and give investors time to buy if they're interested.
For what it's worth, however, Chipotle stock is likely still a good long-term investment. It has proven its popularity with consumers in the past. And it has an ongoing stellar growth plan for the future. That can translate to good long-term stock performance even if the company faces challenges in 2025.
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Jon Quast 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 June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
