Chipotle Mexican Grill missed Wall Street estimates for quarterly sales on Wednesday 26 July as a pause in months-long price hikes hurt its top line, sending the company's shares down nearly 9% in extended trading.
California-based Chipotle also projected current-quarter comparable sales to grow in the low- to mid-single-digit range, while analysts on average expected a 6.01% increase.
Like other restaurants, Chipotle has hiked menu prices to offset the impact of higher input costs of everything from beef to potatoes. Still, menu prices were only about 5.5% higher in the second quarter, a step down from roughly 10% in the prior quarter.
Chipotle was not seeing any weakness in the lower-income consumer despite high inflation, CEO Brian Niccol said in a post-earnings call.
However, an earlier start to vacations and traveling led to softer traffic in some outlets, particularly those in non-tourist locations, with the pressure expected to continue in the current quarter.
The company also expects an increase in food costs for the third quarter, but it is banking on automation and new menu item launches to boost sales.
Chipotle has invested heavily in technology at its stores - from testing robotic double-sided grills aimed at slashing cooking time sharply to an automated avocado peeler to help cut down on mundane tasks.
"What we want to do is remove the routine mundane tasks that really are super repetitive, that aren't enjoyable...We can reduce guacamole prep time by about 50% per restaurant and remove a task that is very routine and mundane," chief restaurant officer Scott Boatwright said in an interview.
Comparable sales at the fast-casual restaurant chain, known for its Mexican-inspired items, rose 7.4% in the three months ended 30 June, missing Refinitiv estimates for a 7.59% increase.
The sharp fall in shares "seems a little bit dramatic", said BTIG analyst Peter Saleh, noting that Chipotle's restaurant-level operating margin was healthy, expanding 230 basis points to 27.5%.
"There's probably a little conservatism built into the (Q3) guidance. And the stock has definitely rallied versus the broader restaurant space this quarter, so it's probably just a little bit of people taking some profits," said Sante Faustini, III, director of product intelligence at M Science.