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Chipotle (CMG -2%) is heading lower following its Q4 earnings results last night. The burrito restaurant chain reported modest EPS upside while revenue rose 13.1% yr/yr to $2.85 bln, which was in-line. Comps were a bit light and the 2025 guidance was lackluster. Importantly, this was the first earnings call since Scott Boatwright was promoted to CEO in November. He replaced Brian Niccol who stepped down to become Chairman and CEO of Starbucks (SBUX).

• CMG said on its Q3 call that it expected Q4 comps to modestly accelerate from Q3's +6.0% comp, but they were a bit lower at +5.4%, driven by higher transactions of +4.0% and a +1.4% increase in average check. The company was pleased with its Q4 results considering they were lapping a very successful Carne Asada limited time offer (LTO) from last year. Transaction comps were positive in all months in Q4, driven by the launch of Brisket and continued improvement in throughput. CMG also saw softer trends around the holidays as Christmas and New Year's fell in the middle of each week. Also, 0.2% was shaved off comps as CMG had to true-up its loyalty program at year-end.
• The 2025 low to mid-single digit comp guidance was a letdown after posting +7.4% comps in 2024. CMG said comps thus far in 2025 have been volatile with weather having a larger impact than last year. Also, in Q2, CMG will be rolling off about 90 bps of price increases implemented in April 2024, so that will impact comps. Furthermore, Easter will fall back into Q2, which will hurt Q2 comps by about 100 bps, with no net benefit in Q1 because of leap day in the prior year. Another thing to remember is that CMG will be lapping a very successful Braised Beef Barbacoa campaign from Feb 2024 and the second iteration of its popular Chicken al Pastor in March 2024. Q2 should be the low point for comps with improvement in 2H25.
• A key focus in 2025 will be on modernizing the kitchen to improve speed and simplicity of prep. For example, CMG is currently rolling out produce slicers to all restaurants, which should be complete by this summer. This is one of the most time-consuming tasks. CMG expects efficiencies from the produce slicer will help offset investments made last year to ensure generous portion sizes.
• In terms of the menu, CMG said its Chipotle Honey Chicken pilot was a success. That was its best-performing LTO, both in early sensory testing as well as the broader two market tests. CMG plans to roll out more broadly in the near future. In terms of new openings, CMG opened a record 304 new locations in 2024, including 257 Chipotlanes. CMG also reaffirmed plans to open 315-345 new locations in 2025, with at least 80% including a Chipotlane. CMG recently passed 1,000 locations.
• On the cost side, there have been concerns about how tariffs with Mexico might impact avocado prices. CMG responded that it has diversified its supply chain over the last two years. Today, CMG sources from Colombia, Peru, and the Dominican Republic. Only about 50% of its avocado supply today comes from Mexico.

Overall, this was a lackluster finish to 2024 with comps being light. Also, the 2025 comp guidance was a letdown, this seems to be the main reason for the weakness in the stock today. In fairness, CMG is lapping two successful LTO's and a price increase will roll off, but investors wanted a brighter picture on comps. Keep in mind that a new CEO is in place, it will take time to see if he is just being more conservative with guidance. However, CMG mentioning volatility in Dec/Jan comps makes us nervous.