Chipotle (CMG)

Mexican fast-food chain Chipotle (NYSE:CMG) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 6.4% year on year to $2.88 billion. Its non-GAAP profit of $0.29 per share was 4.4% above analysts’ consensus estimates.

Company Overview

Born from a desire to offer quick meals with fresh, flavorful ingredients, Chipotle (NYSE:CMG) is a fast-food chain known for its healthy, Mexican-inspired cuisine and customizable dishes.

Modern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.

Some fast-food competitors with similar concepts include CAVA (NYSE:CAVA), Noodles & Company (NASDAQ:NDLS), Potbelly (NASDAQ:PBPB), and Sweetgreen (NYSE:SG).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $11.49 billion in revenue over the past 12 months, Chipotle is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost.

As you can see below, Chipotle’s sales grew at an impressive 14.8% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new restaurants and increased sales at existing, established dining locations.

This quarter, Chipotle’s revenue grew by 6.4% year on year to $2.88 billion, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 12.6% over the next 12 months, a slight deceleration versus the last six years. We still think its growth trajectory is attractive given its scale and indicates the market is forecasting success for its menu offerings.

Number of Restaurants

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

Chipotle opened new restaurants at a rapid clip over the last two years, averaging 7.9% annual growth, much faster than the broader restaurant sector.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Note that Chipotle reports its restaurant count intermittently, so some data points are missing in the chart below.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing restaurants and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Chipotle has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 6.2%. This performance suggests its rollout of new restaurants is beneficial for shareholders. We like this backdrop because it gives Chipotle multiple ways to win: revenue growth can come from new restaurants or increased foot traffic and higher sales per customer at existing locations.

In the latest quarter, Chipotle’s year on year same-store sales were flat. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if Chipotle can reaccelerate growth.

Chipotle has great unit economics for a restaurant company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 44.6% gross margin over the last two years. Said differently, roughly $44.57 was left to spend on selling, marketing, and general administrative overhead for every $100 in revenue.

In Q1, Chipotle produced a 70.8% gross profit margin, up 29.1 percentage points year on year. Chipotle’s full-year margin has also been trending up over the past 12 months, increasing by 7 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold

Chipotle has been an efficient company over the last two years. It was one of the more profitable businesses in the restaurant sector, boasting an average operating margin of 16.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Chipotle’s operating margin rose by 1 percentage points over the last year, as its sales growth gave it operating leverage.

In Q1, Chipotle generated an operating profit margin of 16.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Chipotle has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 13% over the last two years.

Taking a step back, we can see that Chipotle’s margin was unchanged over the last year, showing it recently had a stable free cash flow profile.

Chipotle’s free cash flow clocked in at $412.3 million in Q1, equivalent to a 14.3% margin. The company’s cash profitability regressed as it was 1.8 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Chipotle’s five-year average ROIC was 16.6%, beating other restaurant companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

Chipotle reported $725.6 million of cash and $4.63 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.33 billion of EBITDA over the last 12 months, we view Chipotle’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $74.53 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Chipotle beat analysts’ EPS and EBITDA expectations this quarter. On the other hand, its same-store sales and revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.4% to $47.07 immediately after reporting.

Updated: July 9, 2025 at 10:39 PM EDT

Are you wondering whether to buy Chipotle or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Chipotle is an amazing business ranking highly on our list. For starters, its revenue growth was impressive over the last six years. And while its declining EPS over the last six years makes it a less attractive asset to the public markets, its marvelous same-store sales growth is on another level. On top of that, Chipotle’s new restaurant openings have increased its brand equity.

Chipotle’s P/E ratio based on the next 12 months is 42.7x. Expectations are high given its premium multiple, but we’ll happily own Chipotle as its fundamentals shine bright. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany high valuations.

Wall Street analysts have a consensus one-year price target of $57.90 on the company (compared to the current share price of $56.00).