Yahoo Finance

Chipotle reported its first same store sales decline in 2020 since 2020, while transactions decreased 2.3%, the largest drop since 2022. The CEO joined Yahoo Finance to break down the key drivers of this decline.

Uh as we look at our consumer visitation study, and we talk to consumers broadly about what is causing them to sit be on the sideline in this economy, it's really trying to save money, um uncertainty around what's going on with the global economy. We are not going to take price in this in this environment given where the consumer is. Uh until we understand what's actually happening with tariffs.

Chipotle shares are turning positive after initially dropping 4% after the report. Joining us now with the analyst reaction to Chipotle's earnings is our very own Brooke DiPalma, who, we should add, had the conversation with the CEO, Brooke.

Yeah, certainly lots of optimism coming out from Wall Street this morning, many reiterating their buy ratings on shares. If you take a closer look at the the ratings on the street, there are currently 27 buy ratings, nine holds and zero sells on the street right now. Many, once again, reiterating in their notes to clients this morning. Now, some key drivers that we're watching, some key takeaways based upon the notes that we're hearing this morning. First, many expect Chipotle to be a show me story before reflecting. That was from Danilo at Bernstein. He wrote that he expects Chipotle to trade at a discount to its historical valuation until we see these initiatives, as well as this macro environment rebound. He expects mid-single digit same store sales growth, likely even in the second quarter. But he expects lots of debate about whether Chipotle's same store sales growth will just be structurally lower or if its long-term fundamentals will support reacceleration. Now, TD Cowen out with a note saying that Chipotle softness is not necessarily brand related, but it's macro related. He said that the value perception, which CEO Scott Boatwright told Yahoo Finance, still at $10 burrito on a national level. He said that that's really outperforming those fast casual peers by a similar magnitude of the last six months and those new sale drivers. Those are really key for Wall Street here. They are looking at that marketing acceleration that Scott Boatwright mentioned, not only to us, but also in the call, as well as these limited time offerings. We know that Chipotle is taking up its marketing spend to nearly 3% of sales in 2025. That's up from 2.5 and investing in things like streaming, social, as well as loyalty offerings, especially during the slow points of the summer, as well as new LTO offering. They're ramping up to three new dips, new sides we can expect, as well as a protein offering this fall. Typically they do about two. Now they're ramping up to three and those tend to do really well for the business.

Brooke, we're a minute to end of show here, but I want to ask you a little bit of a curveball. Walmart, Target and Home Depot CEOs meeting with the White House. To what extent are you hearing from sources that there is an interest in the White House capitulating to some of these retailers? Just what have you heard generally?

Yeah, generally what we've heard when it comes to retailers meeting and really doubling down with tariffs is that these are going to impact these retailers the most. Walmart, for example, albeit lower, they still do ship from China. We know that. Uh Lowe's and Home Depot, they're going to be impacted by lumber getting imported from Canada. We want those home homes to be more built. We want people to invest in investing um to buy this, to redo their homes. We know that Lowe's and Home Depot's been struggling with that. So certainly this is top of mind and it'll be interesting to see how these conversations turn out, but largely we're still seeing the 10% at least still in place.

Absolutely. Brooke, thank you so much. Appreciate it.