We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Chipotle's Margins Slip: Can $4 Million AUV Goal Stay on Track?
Read MoreHide Full Article
Key Takeaways
Chipotle's Q2 restaurant-level margin fell to 27.4% from 28.9% on higher costs and softer volumes.
New planchas, rice cookers, fryers and slicers aim to boost prep speed, consistency and throughput.
Chipotle sees growth potential in catering and 40% flow-through on incremental transactions.
Chipotle Mexican Grill, Inc. (CMG - Free Report) continues to face margin pressure even as efficiency initiatives gain traction. In the second quarter of 2025, restaurant-level operating margin declined to 27.4% from 28.9% a year ago. The decline reflected higher marketing costs and softer volumes. Despite the challenges, the company reiterated its focus on reaching the long-term target of $4 million average unit volumes (“AUV”) supported by recent operational investments.
Key to this effort is the rollout of new high-efficiency equipment, including dual-sided planchas, enhanced rice cookers and high-capacity fryers. Alongside the recently completed produce slicer installation, these upgrades are designed to improve prep speed, consistency and throughput. Early results suggest labor savings of two to thre e hours per day per restaurant, which could support stronger execution during peak hours.
Beyond cost savings, the company sees these tools as enablers for growth platforms such as catering, which remains underpenetrated relative to peers. Coupled with improved throughput and culinary consistency, the initiatives are expected to strengthen both customer experience and team productivity.
Chipotle’s strategy balances efficiency with reinvestment, aiming to capture incremental sales rather than just trimming costs. While near-term margins remain pressured by tariffs and promotional spending, the company believes its 40% flow-through on incremental transactions is intact.
The focus now is whether these operational gains can offset external headwinds and help Chipotle sustain its $4 million AUV goal over time. For investors, the pace of equipment rollout and the resulting impact on throughput will be key factors to watch.
Competing on Efficiency in the Fast-Casual Space
Chipotle’s focus on efficiency mirrors efforts underway at other fast-casual peers.
Shake Shack Inc. (SHAK - Free Report) is executing a parallel operational revamp, focused on margin expansion through process improvements, labor model redesign and supply-chain optimization. In the second quarter of 2025, Shake Shack reported a 200 basis points (bps) increase in restaurant-level margin to around 24%. For 2025, Shake Shack expects restaurant-level margins to be between 22-22.5%.
Sweetgreen Inc. (SG - Free Report) continues to bet heavily on automation through its Infinite Kitchen format. In the second quarter, Infinite Kitchens demonstrated strong unit economics. Sweetgreen plans to unveil this format in 20 of its 40 new openings in 2025. The company is also mitigating tariff risk on kitchen components, with about 15% of each Infinite Kitchen's cost exposed to Chinese imports. Sweetgreen anticipates achieving a restaurant-level margin of approximately 17.5% in 2025, down from the prior estimate of 19.5%.
CMG’s Price Performance, Valuation and Estimates
Chipotle’s shares have lost 22.4% in the past six months compared with the industry’s decline of 8%.
Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, CMG trades at a forward price-to-sales ratio of 4.3X, up from the industry’s average.
P/S (F12M)
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CMG’s 2025 and 2026 earnings implies a year-over-year uptick of 8% and 17.6%, respectively.
Image: Bigstock
Chipotle's Margins Slip: Can $4 Million AUV Goal Stay on Track?
Key Takeaways
Chipotle Mexican Grill, Inc. (CMG - Free Report) continues to face margin pressure even as efficiency initiatives gain traction. In the second quarter of 2025, restaurant-level operating margin declined to 27.4% from 28.9% a year ago. The decline reflected higher marketing costs and softer volumes. Despite the challenges, the company reiterated its focus on reaching the long-term target of $4 million average unit volumes (“AUV”) supported by recent operational investments.
Key to this effort is the rollout of new high-efficiency equipment, including dual-sided planchas, enhanced rice cookers and high-capacity fryers. Alongside the recently completed produce slicer installation, these upgrades are designed to improve prep speed, consistency and throughput. Early results suggest labor savings of two to thre e hours per day per restaurant, which could support stronger execution during peak hours.
Beyond cost savings, the company sees these tools as enablers for growth platforms such as catering, which remains underpenetrated relative to peers. Coupled with improved throughput and culinary consistency, the initiatives are expected to strengthen both customer experience and team productivity.
Chipotle’s strategy balances efficiency with reinvestment, aiming to capture incremental sales rather than just trimming costs. While near-term margins remain pressured by tariffs and promotional spending, the company believes its 40% flow-through on incremental transactions is intact.
The focus now is whether these operational gains can offset external headwinds and help Chipotle sustain its $4 million AUV goal over time. For investors, the pace of equipment rollout and the resulting impact on throughput will be key factors to watch.
Competing on Efficiency in the Fast-Casual Space
Chipotle’s focus on efficiency mirrors efforts underway at other fast-casual peers.
Shake Shack Inc. (SHAK - Free Report) is executing a parallel operational revamp, focused on margin expansion through process improvements, labor model redesign and supply-chain optimization. In the second quarter of 2025, Shake Shack reported a 200 basis points (bps) increase in restaurant-level margin to around 24%. For 2025, Shake Shack expects restaurant-level margins to be between 22-22.5%.
Sweetgreen Inc. (SG - Free Report) continues to bet heavily on automation through its Infinite Kitchen format. In the second quarter, Infinite Kitchens demonstrated strong unit economics. Sweetgreen plans to unveil this format in 20 of its 40 new openings in 2025. The company is also mitigating tariff risk on kitchen components, with about 15% of each Infinite Kitchen's cost exposed to Chinese imports. Sweetgreen anticipates achieving a restaurant-level margin of approximately 17.5% in 2025, down from the prior estimate of 19.5%.
CMG’s Price Performance, Valuation and Estimates
Chipotle’s shares have lost 22.4% in the past six months compared with the industry’s decline of 8%.
Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, CMG trades at a forward price-to-sales ratio of 4.3X, up from the industry’s average.
P/S (F12M)
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CMG’s 2025 and 2026 earnings implies a year-over-year uptick of 8% and 17.6%, respectively.
Image Source: Zacks Investment Research
Chipotle currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.