Chipotle Slips After Q4 Earnings: Should You Buy the Dip or Wait?

Core Viewpoint - Chipotle Mexican Grill, Inc. (CMG) has experienced a 13.2% decline in stock price following the release of its fourth-quarter 2024 results, despite exceeding earnings expectations due to rising revenues. Concerns arise from increased input costs linked to a proposed 25% tariff on imports from Mexico and conservative sales growth projections for 2025 [1][2]. Financial Performance - In Q4 2024, Chipotle's food, beverage, and packaging costs rose by 15.9% year-over-year to $866.3 million, accounting for 30.4% of total revenues, up from 29.7% the previous year. This increase is attributed to inflation in key ingredients like avocado and dairy [3]. - The company anticipates comparable restaurant sales growth in 2025 to be in the low to mid-single digits, a significant decrease from the 7.4% growth in 2024 [1]. Regulatory Environment - A 25% tariff on imports from Mexico is expected to impact Chipotle's operations significantly, as approximately 50% of its avocados and other key ingredients are sourced from Mexico, which constitutes about 2% of its sales [4]. - Additional tariffs of 25% on Canadian imports and 10% on Chinese imports may further exacerbate cost pressures, with an estimated 60-basis points impact on the 2025 cost of sales [5]. Growth Initiatives - Chipotle opened 304 new restaurants in 2024, with 257 featuring Chipotlane units, and plans to open 315-345 new locations in 2025, with over 80% including Chipotlane [9]. - Digital sales accounted for 35.1% of total food and beverage revenues in 2024, driven by the implementation of "Smarter Pickup Times" technology and increased customer engagement through marketing strategies [10][11]. Market Position - Despite the challenges, Chipotle's earnings estimate for 2025 indicates a 15.2% year-over-year growth, which is higher than some competitors like BJ's Restaurants, McDonald's, and Darden Restaurants [12][15]. - Chipotle is currently trading at a premium compared to industry peers, reflecting strong market potential despite the overvaluation concerns [16]. Return on Equity - Chipotle's trailing 12-month return on equity (ROE) demonstrates its growth potential and commitment to shareholder value, outperforming industry averages [18].