Chipotle (CMG) is holding off on price increases despite weak consumer spending and rising costs due to tariffs and inflationary pressures.

Key Highlights:

• First Same-Store Sales Decline Since 2020: The chain reported a 0.4% drop in same-store sales, with transactions falling 2.3%, marking its first such decline since the pandemic.

• No Price Hikes for Now: CEO Scott Boatwright emphasized that Chipotle has no immediate plans to raise prices, despite higher costs from tariffs on avocados, tomatoes, and other ingredients. He stated that Chipotle is waiting to assess the permanence of the tariffs before adjusting prices.

• Strong Pricing Power: Boatwright pointed out Chipotle’s ability to raise prices when necessary, but the company’s strong balance sheet and economic model allow it to be patient for the time being.

Factors Behind the Sales Decline:

• Fragile Consumer Sentiment: Boatwright said the consumer is cautious, mainly due to economic uncertainty, and that dining-out frequency has decreased as people focus on saving money.

• Economic Uncertainty: Rising costs, particularly from tariffs and inflation, are contributing to slower growth for fast-casual chains like Chipotle. While fast food stocks have gained, fast-casual stocks like Chipotle have been hit hard, falling 19% year-to-date.

Chipotle’s Strategic Response:

• No Immediate Price Increases: The company is absorbing the impact of higher food costs and will only raise prices when it is right and appropriate.

• Commodity and Labor Costs: Labor inflation and commodity inflation are expected to increase by low single digits this year.

• Expansion Plans: Despite the slowdown, Chipotle is moving forward with an aggressive expansion plan, aiming to open 315 to 345 new locations this year. The chain’s long-term goal is to reach 7,000 locations in the U.S. and Canada.

Growth Outlook and Risks:

• Location Expansion: CEO Boatwright highlighted that Chipotle is not losing customers, but facing challenges in terms of convenience and restaurant accessibility, hence the need to expand rapidly.

• Risk of Overexpansion: Some analysts, like Baird’s David Tarantino, raised concerns about the challenges of executing a fast-paced growth strategy while maintaining quality operations and finding suitable locations and staff.