``` Inflation causes a "sharp decline" in low-income consumers, income outlook downgraded for the third time this year, shares of US restaurant giant Chipotle plummet ```

``` Inflation causes a "sharp decline" in low-income consumers, income outlook downgraded for the third time this year, shares of US restaurant giant Chipotle plummet ```

Due to continued inflationary pressures leading consumers, especially low-income groups, to reduce dining out, American fast-food giant Chipotle Mexican Grill has lowered its sales forecast for the third time this year, raising investor concerns about its future growth.

In its latest outlook released on Wednesday, Chipotle stated that “ongoing macroeconomic pressures” have eroded its sales in the most recent quarter, prompting the company to lower its performance guidance. After this announcement, its stock price plummeted in after-hours trading, dropping as much as 16.5% at one point.

The company’s Chief Executive Officer Scott Boatwright said during a call with analysts: “Consumers are feeling the pressure, and we are feeling their pullback.” He added that Chipotle’s lost customers are turning to grocery stores rather than other chain restaurants, which means people are choosing to cook at home to save expenses.

This earnings warning comes from a benchmark brand in the U.S. restaurant industry, indicating that the pressure of consumption downgrade may no longer be limited to low-income groups, but is starting to affect middle- and high-income consumers as well. This also provides new evidence for the “widespread slowdown” in the restaurant industry since September, casting a shadow over the outlook for sectors dependent on discretionary consumer spending.

Stock Price Plunge and Pessimistic Outlook

The latest guidance released by Chipotle forms the crux of its bleak outlook. The company stated that it expects its comparable restaurant sales to see a “low single-digit decline” by 2025. This stands in stark contrast to its initial forecast in February this year, when it expected sales growth for the year to be “mid- to low-single digits.”

This is the third time Chipotle has lowered its sales expectations this year, and this series of pessimistic adjustments has hit investor confidence, with its stock price plunging as much as 16.5% in after-hours trading.

Behind Chipotle’s reduced performance guidance is a significant change in consumer behavior. Scott Boatwright revealed that the company observed a "sharp drop in spending" among households with annual income below $100,000, and these customers have been dining out less frequently. This detail shows that the budget-squeezing effects of inflation on families are becoming increasingly pronounced.

Although Chipotle’s comparable restaurant sales rebounded by 0.3% in the quarter ending in September, reversing the previous two consecutive quarters of decline, this modest growth was offset by a 0.8% drop in transaction volume. This means that the number of customers visiting the restaurants actually decreased, and the increase in sales likely came primarily from price hikes rather than increased foot traffic.

Industry-wide Slowdown and Intensifying Economic Uncertainty

Chipotle’s predicament is not unique, but rather a microcosm of a broader industry trend. Sharon Zackfia, an analyst at William Blair, pointed out that since September, the U.S. restaurant industry has experienced a “widespread slowdown.” According to data from mobile intelligence firm Placer.ai, foot traffic in fast-casual restaurants in the third quarter grew by only 0.7%, far below the 1% increase in the same period last year.

The clouds hanging over the consumer market include “ongoing economic uncertainty” and a four-week government shutdown that left over one million federal employees without pay, further undermining consumer purchasing power. This pessimism is spreading, as evidenced by a 7.5% drop in the stock price of Brinker International, owner of chains like Chili's, on Wednesday. Although the company maintained its full-year performance guidance, this move also suggests expectations of a sales slowdown ahead.

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