UPDATE 2-Chipotle shares plunge as tariff pressures and demand troubles mount

Chipotle Mexican Grill CMG.N shares tumbled about 19% on Thursday, after the burrito chain's third sales forecast cut this year fanned concerns around how restaurants are navigating tariffs, inflation and shifting spending habits. Uncertainty around tariffs in the U.S. and steep prices are making Americans rethink everyday purchases, and many businesses are in turn having to update their strategies to capture and retain demand.

President Donald Trump's levies on imports of beef - Chipotle's most bought ingredient - have pushed up costs for the burrito chain, but its executives promised a "slow and measured" approach to price hikes in 2026. "In an environment with traffic declining, it is unlikely that consumers will give Chipotle the authority to raise menu prices. We expect this dynamic to result in significant margin contraction, not just for Chipotle, which can reasonably afford it, but for many of its competitors," BTIG analyst Peter Saleh said.

'NOT JUST A CHIPOTLE PROBLEM' Chipotle executives also pointed to a sharp pullback from U.S. households earning less than $100,000 a year, a cohort that accounts for about 40% of its sales and which the company categorizes as low- to middle-income.

Its customers aged 25-35 years are also under pressure from rising unemployment, resumed student loan payments and sluggish wage growth. "We believe it's more of a category problem, not just a Chipotle problem," Stifel analyst Chris O'Cull said, while acknowledging some issues were self-inflicted such as the company's inconsistencies in digital order accuracy and ingredient availability.

Meanwhile, Starbucks, which posted its first quarter of comparable sales growth after more than a year, also indicated soft consumer spending and margin pressure due to rising coffee bean costs. Its shares slipped 1% on Thursday. "Progress is coming at the expense of significant margin erosion though, so while encouraging, it's also pushing the earnings recovery further (and further) to the right," Saleh said.

In a reflection of the difficulties Chipotle and Starbucks face in balancing muted demand with rising costs, their shares have dropped 34% and nearly 8% so far this year. The S&P Composite 1500 Restaurants sub index is down about 1% in 2025, underperforming a gain of about 17% in the broader S&P index. At least 19 brokerages cut their price targets on Chipotle, which trades at a 12-month forward price-to-earnings ratio of about 30.08, while at least three cut their targets on Starbucks, whose PE ratio stood at 32.13.