Chipotle’s traffic trends worsened in the second quarter—at least until they got better.
The company said Wednesday that same-store sales decreased 4% in the June 30-ended second quarter. That included a traffic decline of 4.9%, offset by a 0.9% increase in average check.
It was a continuation of bad news that had started during the preceding first quarter, when Chipotle’s same-store sales turned negative for the first time since the pandemic. First quarter same-store sales dropped 0.4%, with traffic down 2.3%, which was blamed at the time in part on softening consumer spending.
But Chipotle’s sales and traffic bounced back in June and July, thanks in part to various marketing efforts to jazz the summer slump, like the new Adobo Ranch sauce introduced in June, and a “Summer of Extras” program offering extra rewards that targeted lapsed loyalty members.
The Chipotle Honey Chicken limited-time offer also had the highest incident rate of any LTO and was included in one out of every four orders, said Scott Boatwright, Chipotle’s CEO.
More menu news is coming, including more possible dips, sides and even dessert, he hinted. The chain is also testing a new catering platform this fall in 60 restaurants. And a rewards program that targets college students is also coming—all of which will help Chipotle return to mid-single-digit comparable sales “in the near term,” Boatwright said.
Analysts, however, questioned whether Chipotle’s sales downturn in the first half wasn’t self-inflicted.
But Boatwright continued to blame the price-sensitive low-income consumer.
“Believe me, we’ve unpacked this thing 10 ways to understand, is this self-inflicted problem, or is this just more a macro problem?” Boatwright responded.
Though there are “opportunities” for Chipotle, he said, “There is nothing glaring. There’s no smoking gun here that says we’ve had a misstep and that gives us confidence that: stay on strategy, innovate where we can, try to meet the consumer where they are in our own unique Chipotle way.”
One of those opportunities, however, is convincing consumers that Chipotle isn’t as expensive as they appear to think it is.
Chipotle in most markets offers a chicken bowl or burrito for around $10, which is a 20% to 30% discount compared with fast casual, and often below comparable quick-service meals, he said. And that holds up to scrutiny, according to price data by Technomic’s Price Pulse.
Internally, Boatwright said the team is working on better communicating value in a way that isn’t targeted at competition or price.
“I think we’ve got to figure out a way we can communicate value for the consumer and showcase the value we are to QSR and fast casual,” he said.
The company downgraded expectations for the full year, saying same-store sales are expected to be flat. Earlier this year, the company had projected a comparable sales increase in the low single digits.
Revenue for the quarter increased 3% to $3.1 billion, driven by new openings. Chipotle opened 61 company-owned restaurants during the quarter, of which 47 had a Chipotlane drive-thru. The chain ended the quarter with 3,839 company-owned restaurants.
But net income declined to $436.1 million, compared with $455.7 million a year ago.
Chipotle has completed a rollout of new produce slicers, designed ease prep for restaurant staff. The slicers are part of an ongoing kitchen upgrade rolling out in phases that fundamentally will drive margin and throughput improvements as the chain pushes to reach 7,000 units in North America, Boatwright said.
Following the report, Chipotle’s stock price declined nearly 10% in after-hours trading to 47.65.
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