An aggressive pricing strategy that helped Chipotle Mexican Grill shift the cost of inflation to its customers last year is beginning to cool off the company's robust growth.

On Wednesday, the famous Mexican dining franchise reported top and bottom financial results for the second quarter ended June 30, 2023, that missed analysts' estimates.

In addition, it gave lackluster guidance for the rest of the year. Comparable restaurant sales growth will be in the low to mid-single digits and in the high-single digits for the third quarter and the rest of the year, respectively.

These results confirm that Chipotle must take customers seriously in a competitive restaurant industry, where they have plenty of other fast-food choices, from burritos to hamburgers and pizzas.

As a result, restaurants that hike prices aggressively end up losing customers to restaurants that raise prices less aggressively. Nonetheless, management cheered the company's performance.

"Chipotle's second quarter results demonstrate our ability to drive strong performance by focusing on exceptional food and exceptional people,' said Brian Niccol, Chairman and CEO of Chipotle, in a statement following the release of the financial results.

"Additionally, our investment in our employees, technology, and innovation in our restaurants along with expanding access and convenience in North America and laying the groundwork for international growth, set us up for long term success."

But Wall Street was skeptical of the company's performance, sending its shares sharply lower after-hours trade.

"We can't think of a consumer company that has executed a more aggressive pricing strategy than CMG's 32% markup since Covid for the same product," said Quo Vadis President John Zolidis, a long-time critic of Chipotle's pricing, in a note on Thursday.

"This strategy has successfully reset the company's profitability to its highest-ever levels. Unfortunately, it's also an unsustainable way to grow a business. This was brought into sharp relief yesterday with commentary and guidance for 2H23."

Zolidis points to several metrics that confirm a considerable slow-down in the company's feverish growth, like the weakening of 2023 new unit revenues. Then there's the 2023 comps, which he expects to decelerate to around 4%, the weakest increase since Covid (when locations were closed).

And the fourth-quarter comps may increase only 2%-3%, even with incremental menu pricing. "This raises questions about the around 5% annual comps Wall Street is assuming for 2024 and beyond," he explained.

Still, there's one more factor that should worry Wall Street -- Chipotle's Economic Value Added (EVA), a measure of how effectively the company allocates capital (manages other people's money) is eroding.

According to, EVA has dropped from 20% a decade ago to low single-digits in the last five years, meaning that new stores are less profitable than older ones. Thus, the company generates less value (excess market returns) for its capital holders.

As with other popular franchises, Chipotle may be approaching the limits of its growth as competition closes in and market saturation is in the offing. And that means slower store openings and sales growth ahead, cooling off the enthusiasm of the momentum crowd on Wall Street for the company's shares.

Meanwhile, Zolidis is concerned about valuations. "At $1,900 per share (indicated pre-open), CMG is still trading at 23x EV 2024 EBITDA estimates that are probably too high," he added. "It's not that difficult to imagine the stock at mid-to-high teens multiple if comps are going to be in the LSD-MSD range."