Shares of Chipotle Mexican Grill (NYSE: CMG) rallied 5.9% in after-hours trading Wednesday after the company reported second-quarter results that surpassed analyst expectations and raised its full-year sales outlook. The gains came after the regular trading session had ended, with the stock closing at $34.24 before moving to $36.25 in extended trading.
The burrito chain posted comparable-store sales growth of 2.2%, significantly ahead of the 1.32% consensus estimate from LSEG. Revenue came in at $3.349 billion, topping the $3.33 billion forecast, representing a 9.3% increase year-over-year. Adjusted earnings per share were $0.33, one cent above the consensus estimate.
Despite the top-line beat, profitability metrics showed pressure. Adjusted net income declined 7% to $418.9 million, while operating income fell 6%. Restaurant-level margin contracted 220 basis points to 25.2%, with operating profit margin declining 250 basis points to 15.7%. Higher food costs — driven by beef, freight, and increased protein consumption — along with rising labor costs and performance bonuses, weighed on margins. Menu price adjustments and lower avocado prices provided only partial offset.
The company's diluted share count decreased by 5.3% year-over-year, a reduction that helped stabilize the EPS comparison. Without the buyback effect, adjusted EPS would have been approximately $0.31, compared to the reported rounded $0.33. Chipotle spent $1.355 billion on stock repurchases in the first half, up 36% from the prior year, and had an additional $1.7 billion authorized as of June 30, representing about 4% of its market capitalization.
"Our positive results reflect the momentum we're building," said CEO Scott Boatwright, citing new menu items, loyalty program engagement, and improvements in restaurant service. The company opened 100 new company-operated locations during the quarter, 80 of which featured Chipotlanes — dedicated digital-order pickup lanes. Chipotle maintained its full-year target of 350 to 370 new restaurant openings.
Morningstar analyst Ari Felhandler characterized the results positively, noting that "positive traffic and average check growth reflect a healthy print," while acknowledging that consumers remain selective in their spending. Comparable transactions rose 1.0% and average check increased 1.2%, while the digital sales mix remained elevated at 38.3%.
A fresh challenge emerged in July, as management reported a slowdown in restaurant traffic following widespread media coverage of a nationwide cyclospora outbreak. The FDA linked the outbreak to iceberg lettuce from Taylor Farms de Mexico, which has been recalled. Chipotle stated that the romaine lettuce it uses, sourced from California, was not affected.
The next key sector test arrives Thursday morning when Yum! Brands (NYSE: YUM) reports earnings. Analysts will watch Taco Bell's performance for signs that outbreak concerns may be affecting the broader fast-casual category. Risks for Chipotle include inconsistent July traffic, rising costs for beef, freight, and labor that could delay margin improvements, and the challenge of sustaining EPS support from buybacks if operating profit continues to decline.
