Chipotle's Q3 2025: Contradictions Emerge in Pricing Strategy, Digital Marketing, and Traffic Outlook

Date of Call: October 29, 2025

Financials Results

• Revenue: $3.0B, up 7% YOY (comparable sales +0.3%)
• EPS: $0.29 per diluted share, up 7% YOY (non-GAAP) and up 4% YOY (GAAP)
• Gross Margin: Restaurant-level margin 24.5%, down 100 basis points YOY

Guidance:

• Full-year comps now expected to decline in the low single-digit range.
• Current ~2 points of price will roll off in early December; any 2026 pricing will be slow/measured and tested.
• Inflation expected to step into the mid-single-digit range and will pressure margins; company will not fully offset near-term.
• Q4 cost of sales expected in the high-30% range; Q4 labor expected in the high-25% range; marketing ~3% of sales.
• 2026 openings anticipated at 350–370 restaurants, including international expansion.

Business Commentary:

• Comp Sales and Consumer Behavior:
• Chipotle Mexican Grill reported sales growth of 7.5% to $3 billion in Q3 2025, including a 0.3% increase in comparable (comp) sales.

• However, the company noted a 200-300 basis point step down in underlying transaction trends, particularly among low to middle-income guests and those aged 25 to 34, due to economic concerns and inflation.

• Menu Innovation and Consumer Engagement:

• New menu items like Adobo Ranch and Red Chimichurri were introduced to drive incremental transactions, with Red Chimichurri achieving low double-digit incidents post-launch.

• The company accelerated marketing spend and promotions, including events like the College Football BOGO, to offset consumer headwinds and drive guest engagement.

• Digital and Loyalty Programs:

• Digital sales accounted for 36.7% of total sales, and the Summer of Extras digital promotion contributed to loyalty comps accelerating versus non-loyalty comps.

• Plans are underway to enhance the digital experience and grow the rewards program, with upcoming initiatives aimed at increasing active members and engagement.

• Operational Improvements and Equipment Upgrades:

• The company is rolling out a high-efficiency equipment package (HEAP) to improve culinary execution and labor efficiency across restaurants.
• Initial feedback from HEAP has shown positive impacts on food quality, guest satisfaction, and yield savings, with plans to complete the rollout over the next three years.

Sentiment Analysis:

Overall Tone: Neutral

• Management noted results “fell short of our expectations” and expects full-year comps to decline low single digits, but repeatedly stated confidence in recovery: “we are confident in our path forward” and outlined targeted investments in operations, marketing and digital.

Q&A:

• Question from Zachary Ogden (TD Cowen): Is the pricing strategy for 2026 shifting to a 'learn and go' approach and are you prioritizing traffic growth over margin expansion; is a high-20s restaurant margin at $4M AUV still feasible?
  Response: Will take a slow, measured pricing approach in 2026, not fully offsetting mid-single-digit inflation; short-term priority is transactions, but long-term ~40% flow-through target remains.

• Question from Zachary Ogden (TD Cowen): You previously expressed confidence in returning to mid-single-digit same-store sales — is that still the case for 2026 and what is the timing?
  Response: Still the aim; timing depends on consumer backdrop — plan to drive return via operations, digital and marketing initiatives.

• Question from Lauren Silberman (Deutsche Bank): Where did you exit the quarter and what are you seeing from a traffic perspective?
  Response: Traffic stepped down ~200–300 bps in late July/August; marketing and LTOs helped but trends softened further; expect Q4 comps down low-to-mid single digits.

• Question from Lauren Silberman (Deutsche Bank): Are losses coming from customers trading down or from loyal customers reducing frequency?
  Response: Pullback concentrated in households < $100k and 25–34 age cohort; guests trading back to food at home, not to competitors; promotions can reengage them.

• Question from Sharon Zackfia (William Blair): What throughput and other results are you seeing from HEAP pilot locations?
  Response: Early HEAP pilots (175 stores) show labor efficiency gains, improved culinary and guest scores, and better throughput; rollout ongoing.

• Question from Sharon Zackfia (William Blair): Is it fair to assume you'll exit the year with no price in place?
  Response: Current ~2 points of price expected to fall off in December; may run small tests later in the quarter; plan remains fluid.

• Question from Danilo Gargiulo (Bernstein): What near-term operational actions are you taking to inflect traffic irrespective of the macro environment?
  Response: Executed a problem-detection study; retraining, redesigned incentives, COO-led operational fixes, plus accelerated digital, marketing and innovation initiatives.

• Question from Danilo Gargiulo (Bernstein): Any update on ROIC of incremental units, cannibalization, and whether long-term 8–10% net unit growth remains reasonable?
  Response: New-unit economics and cannibalization are consistent with historical levels; new restaurants still comp higher; ~100bp headwind to comps; long-term growth cadence remains achievable.

• Question from David Palmer (Evercore ISI): How should we think about near-term restaurant-margin basing given you're accepting margin pressure to drive transactions?
  Response: Willing to accept temporary margin pressure to drive transactions now; view this as a short-term dislocation and expect return to historical flow-through over time.

• Question from Andrew North (Robert W. Baird): Any guardrails for 2026 comps/traffic shape given comparisons, pricing dynamics and initiatives?
  Response: Not guiding for 2026 yet; baseline likely starts negative due to step-downs, but Recipe for Growth initiatives aim to drive recovery toward mid-single-digit comps.

• Question from Sara Senatore (BofA Securities): How does the view that fast casual is 'unaffordable' reconcile with stable share — any daypart differences?
  Response: Lunch vs dinner roughly 50/50; perception issue exists where some consumers lump fast casual as unaffordable; company will run new ad strategy to better communicate value beyond price.

• Question from Sara Senatore (BofA Securities): How will you communicate value without focusing on explicit price points (e.g., via social/app)?
  Response: Ad testing found culinary, innovation and abundance resonate more than explicit price messaging; new creative campaigns and agency work are underway.

• Question from Dennis Geiger (UBS): Any learnings from 2025 LTO launches to maximize impact for 2026 LTOs?
  Response: LTO proteins and dips drove transactions and raised buyer lifetime value; plan to increase cadence in 2026 with 3–4 protein LTOs plus dips/sides.

• Question from Dennis Geiger (UBS): Beyond pricing, what margin-investment levers might you use to drive top-line (e.g., portions, promotions)?
  Response: Levers include emphasizing abundant portions and targeted incremental ad spend (maintain ~3% baseline marketing but add strategic spend with >4x ROAS focus).

• Question from Christopher O'Cull (Stifel): Any concerning trends in customer metrics chain-wide, particularly speed or quality?
  Response: No major chain-wide divergence; digital order accuracy has slipped due to incentive focus on on-time vs accuracy — incentives being reset to prioritize accuracy.

• Question from Brian Bittner (Oppenheimer): How should we think about pricing scenarios when the current 2% rolls off into 2026 given mid-single-digit inflation?
  Response: Pricing rollout will be gradual and tested over months (4–12+), not an all-at-once increase; company will monitor consumer resistance and adjust.

• Question from Brian Bittner (Oppenheimer): Does accelerated openings in 2026 elevate risk to same-store sales?
  Response: Management is confident — new-unit cannibalization recovers in ~12–13 months, new units outcompete base stores, and development/talent pipeline supports openings.

• Question from Anisha Datt (Barclays): To what extent is comp softness Chipotle-specific vs macro, and what levers will reverse the trend?
  Response: Majority macro-driven pullback from the < $100k cohort; also some self-inflicted operational issues being fixed; response: better ops, marketing, digital and innovation to regain frequency.

Contradiction Point 1

Pricing Strategy and Consumer Sentiment

It reflects differing perspectives on the company's pricing strategy and its alignment with consumer sentiment, which are critical for maintaining market competitiveness and consumer trust.

Can you explain the pricing strategy shift from annual to "learn and go" approach? Will the company prioritize traffic growth over margin expansion? - [Zachary Ogden](TD Cowen)

2025Q3: We're taking a slow and measured approach to pricing in 2026, not fully offsetting incremental inflation due to elevated consumer uncertainty. The strategy aims to increase value, even if it temporarily affects margins. While we still plan to expand margins responsibly, it's a priority to provide extraordinary value to guests. - [Adam Rymer](CFO)

How does confidence in mid-single-digit comp growth relate to macro conditions? - [Dennis Geiger](UBS Investment Bank)

2025Q2: We're working on the pricing strategy right now, as you know, when you look at the year-over-year increase in overall pricing, which is north of 30%. As we look forward, we want to make sure we're consistent with the value that we're providing to the guest. And that will remain our focus as we look to the future. - [Adam Rymer](CFO)

Contradiction Point 2

Digital Marketing Initiatives and Consumer Engagement

It highlights differences in the company's approach to digital marketing strategies and their impact on consumer engagement, which are crucial for driving sales and maintaining market share.

For Q4, can you detail the comp performance, especially traffic losses and customer trading down? - [Lauren Silberman](Deutsche Bank)

2025Q3: Ended the quarter with a low to mid-single-digit decline in Q4 comps. Traffic challenges persisted, with worsening trends in October. Major pullback seen in low to middle-income cohorts and the 25-34 age group. We're not losing market share but dealing with a decrease in frequency. - [Scott Boatwright](CEO)

How did your digital marketing strategies impact the growth rate in the second half? - [David Palmer](Evercore ISI)

2025Q2: The Summer of Extras program was successful, leading to a 14% year-over-year increase in enrollments and increased frequency among low-frequency users. The focus is now on developing a win-back strategy for near-lapsed consumers, using AI to enhance the welcome journey with a goal of achieving three purchases within the first 90 days. - [Scott Boatwright](CEO)

Contradiction Point 3

Pricing Strategy and Consumer Sensitivity

It highlights a shift in Chipotle's pricing strategy, impacting consumer perception and financial forecasts.

Explain the pricing strategy shift from an annual to a "learn and go" model? Will traffic growth take priority over margin expansion? - [Zachary Ogden](TD Cowen)

2025Q3: We're taking a slow and measured approach to pricing in 2026, not fully offsetting incremental inflation due to elevated consumer uncertainty. The strategy aims to increase value, even if it temporarily affects margins. - [Adam Rymer](CFO)

Are you cautious about implementing further price increases due to price sensitivity and competitive pressures? - [Hyun Jin Cho](Goldman Sachs)

2024Q4: Our pricing strategy is to offset inflation only, not to drive margin growth. We have confidence in our current pricing level. - [Adam Rymer](CFO)

Contradiction Point 4

Traffic and Comp Sales Growth Expectations

It involves differing expectations regarding traffic and comp sales growth, which are critical for understanding the company's operational performance and financial outlook.

Can you explain the throughput improvements in HEAP and whether there's a step-function change? - [Sharon Zackfia](William Blair)

2025Q3: We're early in the rollout of HEAP, but seeing positive impacts, including labor efficiency gains, better culinary quality, and improved guest experience. - [Scott Boatwright](CEO)

What other drivers of comp growth are you focusing on this year besides LTOs? - [David Palmer](Evercore ISI)

2024Q4: Besides LTOs, our focus is on operational excellence, including throughput improvement, modernization of back-of-house, and digital experience enhancements. - [Scott Boatwright](CEO)

Contradiction Point 5

LTO Impact on Comps and Marketing Strategy

It highlights differing perspectives on the impact of LTOs on comp sales and marketing strategy, which are crucial for understanding growth potential and consumer engagement.

For Q4, how did comp performance handle traffic losses and customer trading down? - [Lauren Silberman](Deutsche Bank)

2025Q3: The upcoming LTO is not included in our guidance and will launch mid- to late March. We are excited about the marketing calendar and strategy for this year. - [Scott Boatwright](CEO)

What is the outlook for comps guidance this year, considering various factors? - [David Tarantino](Baird)

2024Q4: The upcoming LTO is not included in our guidance and will launch mid- to late March. We are excited about the marketing calendar and strategy for this year. - [Scott Boatwright](CEO)