By Juveria Tabassum
(Reuters) -Chipotle Mexican Grill’s shares slumped 13% on Thursday, as weak consumer spending on dining out led to a bigger-than-expected fall in quarterly sales and caused the bowls and burritos maker to temper its annual sales target.
Consumers, particularly in the lower-income category, are increasingly cooking meals at home as economic uncertainty and sticky inflation prompt them to be more discerning in their spending patterns, driving some market share losses for the company in April and May.
Chipotle expects annual comparable restaurant sales to be about flat year-over-year, while its prior target was for growth in the low single-digit range.
“We believe Q2 sales miss and lowered annual guidance is reflective of macro headwinds… rather than executional missteps,” Andrew Charles, analyst at TD Cowen, said in a note.
Chipotle focused on ramping up digital and social marketing, as well as promotions through its loyalty program to attract demand, while the launch of a new dip and the extension of the honey chicken item on its menu helped claw back some losses, it said.
“The chain will need to invest more in marketing, menu innovation, and reward programs to fuel growth in traffic and spending,” Dan Su, analyst at Morningstar Research, said.
The company has also been more targeted with price hikes even as menu prices have risen steeply over the past two years as restaurants and fast-food chains took stock of higher supply-chain costs.
“We continue to believe Chipotle has pricing power in fast casual,” RBC analyst Logan Reich said in a note.
In the April-June period, more than a quarter of visits to fast-casual restaurants were captured by Chipotle, rising from 20.3% in early 2019, according to data from Placer.ai.
Chipotle’s forward price-to-earnings multiple — a common benchmark for valuing stocks — is 46.65, compared with McDonald’s 26.31 and Domino’s Pizza’s 27.25.
(Reporting by Juveria Tabassum in Bengaluru; Editing by Shilpi Majumdar)