Should Investors Buy Into the Chipotle Turnaround?
Chipotle Mexican Grill(NYSE: CMG) continued its recent turnaround with its third straight quarter of comparable-store sales growth. The solid results lifted the stock nearly 9% on Oct. 29, although its shares are still down more than 15% on the year.
Let's dig into the fast-casual Tex-Mex restaurant operator's quarterly results and prospects to see if the stock's rebound can continue.
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Building momentum
After seeing declining same-store sales growth throughout much of last year, Chipotle has now turned in positive same-store sales growth each quarter of 2026. This started with a modest 0.5% increase in the first quarter, and then a 2.2% rise in the second. It followed those gains with a 2.1% comparable-store increase in the third quarter.
Transactions rose 0.6%, while it said pricing was up about 2.7%. It started to see industry headwinds in mid-July that slowed its momentum, but trends normalized in late August. It then saw solid momentum pick up after the launch of Pollo Asado and Chili Lime Chips in September, although October trends have softened.
Chipotle also saw a boost from its reward program, which it revamped in April. It now has over 24 million active members, and it is seeing strong in-store sign-ups. It said over 33% of its sales now come from loyalty members.
Importantly, the company said that it expects its same-store sales momentum to pick up starting next month. It is looking for comparable-store sales to climb by 2% or more in the fourth quarter, with an exit rate for the year around 3% to 4%. The growth is expected to be fueled by a combination of marketing initiatives and the November launch of its popular brisket limited-time offering.
Overall, Chipotle's revenue climbed by nearly 10% to $3.29 billion in the quarter, while its adjusted earnings per share (EPS) fell 7% to $0.27. That was generally in line with analysts' expectations for EPS of $0.29 on sales of $3.29 billion, according to LSEG.
Restaurant-level operating margin fell by 120 basis points to 23.3%. This is one of the most important metrics in the restaurant industry, as it shows how profitable individual restaurants are. The company has been feeling pressure from wage inflation, higher labor usage, and increased prices, and as such, it plans to raise prices by 3% in Q4.
Chipotle continues to add new restaurants, opening 84 company-owned locations in the quarter and five international ones with partners. During the quarter, it opened restaurants in Mexico, Saudi Arabia, and South Korea. It said Mexico has exceeded expectations, while Saudi Arabia opening volumes set a new record.
It plans to add between 350 and 370 new restaurants in 2026, with between 10 and 15 of them in international markets with partners. It ended the quarter with 4,267 restaurants.
Looking ahead, Chipotle plans to add another 340 to 360 U.S. and Canada company-owned locations and 15 to 25 international company-owned and partner-operated restaurants in 2027.
Is the stock a buy?
Chipotle continues to show signs of turning around its business with solid same-store sales growth. However, inflation continues to run high, and its sales growth has not yet reached a level to help it stabilize its restaurant-level margins. This is leading to reduced earnings power.
A 3% price increase set for the end of 2026 and 2027, combined with increased traffic, could be a recipe for improvements in this area, which is what you really want to see to get excited about the stock. Until then, an investment in the company is more about its turnaround potential than its growth.
With the stock trading at a forward price-to-earnings (P/E) multiple of 23 times 2027 analyst estimates, Chipotle's stock looks appropriately valued in my book. Whether it is a buy is all going to come down to execution. At this time, given the uncertainties, I'd prefer not to chase this recent rally.
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Geoffrey Seiler 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 December 2026 $38 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy .
Should Investors Buy Into the Chipotle Turnaround? was originally published by The Motley Fool
