The detailed ServiceNow earnings review will be published on Saturday with granular commentary on the conference call, other investor materials and my take. That will come alongside Intel and Deckers coverage. For now, here’s the brief snapshot:

For Q3, subscription revenue guidance beat estimates by 1.5%. Total revenue estimates for the quarter haven’t yet moved, considering the best was modest. Q3 30.5% EBIT margin guidance missed 31.5% margin estimates; EBIT dollar estimates fell by 5% following the call as a result of this. It also guided to 18% Y/Y FXN cRPO growth for Q3.

For the full year, NOW raised subscription revenue guidance by 1% and raised FXN growth guidance from 19.5% to 19.75%, showing the strength wasn’t solely related to currency favorability. Total revenue estimates (NOW doesn’t guide to that number) rose very modestly following the call, which tells us this guide was slightly above consensus. It reiterated EBIT and FCF margin guidance, which both met estimates. When paired with the very modest revenue outperformance, profit estimates should subtly tick higher in the coming days.

NOW trades for 46x forward FCF. FCF is expected to compound at a 20% clip for the next two years. It also trades for 56x forward EPS. EPS is expected to compound at a 20% clip for the next two years.

Cost of sales improved 50 bps Y/Y, which was slightly better than expected thanks to favorable avocado pricing. That favorability and price hikes both alllowed food, beverage and packaging as a percent of revenue to fall from 29.4% to 28.9% Y/Y. Better-than-feared tariff impacts and general cost efficiency gains also helped drive cost of sales leverage. These efficiency gains have now more than offset the headwind from larger portion investments last year. They’re getting better at lowering food waste, optimizing supply chain costs and making their employees more efficient. This is great news for restaurant-level margin trajectory, which has been a recent concern for Chipotle. Now that concern is flipping to comparable sales, as I’ll discuss below. Labor costs were 24.7% of revenue vs. 24.1% Y/Y due to wage inflation. Finally, G&A was 5.6% of revenue vs. 5.9% Y/Y via lower compensation and bonuses.

Chipotle trades for 42x forward earnings. For now, EPS is expected to rise by 8% Y/Y this year and by 18% Y/Y next year. Despite meeting expectations on EPS, I think the demand guidance and EBIT miss could lead to modest negative estimate revisions.

Comparable Store Sales Trends:

The disappointing comparable sales guidance revision was hurt by lapping its toughest comps of the year, but most of the blame was given to macro. Folks shifted buying habits to $5 value meals, which fostered a slowdown in May performance. Chipotle’s slowdown drove negative market share trends and “correlated pretty heavily with consumer sentiment bottoming around then.” And as you’d therefore expect, that slowdown reverted into June, as market share gains resumed and comp sales growth flipped positive through this week. Encouragingly, that wasn’t a byproduct of price hikes, as transaction growth also turned positive during that period. This is key.

For now, despite the brightening patterns, Chipotle chose to lower its expectations due to “ongoing volatility in our trends and the consumer environment.” Candidly, I didn’t like hearing that. The company just lowered their guidance last quarter, and if anything, the macro backdrop has improved since that Q1 earnings call. Nevertheless, leadership is confident in a comparable store sales growth recovery and operating leverage “in the coming months” based on the improving backdrop.

It isn’t relying on this uncontrollable improvement to find better results. The company is determined to make internal improvements to support better overall growth.

Ways to Improve Comparable Store Sales Trends – Run Great Stores:

The first part of improving throughput is optimally running stores. While we didn’t get much color on new COO Jason Kidd is trying to shape and influence operations, they did say he’s off to a “tremendous start.” Beyond that, 70% of its stores now have expos in place as it marches towards its 80% goal (some regions are already there). These expos serve as a conduit between food prep and checkout; they routinely cut wait times, enhance throughput, improve overall service scores and support more transaction growth. Stores without these team members routinely fall behind on prepping fresh food and meeting peak demand. 

Improving food processes and convenience provides the same benefits that expos do, which is another focus area for Chipotle reigniting transaction growth. Their produce slicers have been very popular with employees, as they make prep easier and faster. They’re improving on-time preparation rates and working as planned. Aside from these slicers, its “high-efficiency equipment package” is now being added to stores. This includes its dual-sided grill, its new rice cooker (prep it right in the make line) and its higher-capacity chip fryer. In testing, all three items are improving speed of service and food consistency. By the end of 2025, it plans to have this bundle in “hundreds of stores.” 

It’s hard for Chipotle to test new workflows and hardware in stores. It naturally means disturbing day-to-day operations and creating some level of disorganization within the locations. Knowing this, Chipotle debuted a new restaurant innovation space. This will allow it to more freely test new ideas and learn in a lower stakes environment. In this facility, it’s already testing the aforementioned equipment package, a new digital makeline process and its autocado (automated avocado peeler).

Ways to Improve Comparable Store Sales Trends – Improve Guest Engagement Through Marketing:

Chipotle is getting more international and aggressive with brand marketing and customer outreach. They’ve fallen into a pattern of slowing trends throughout summer months as it generally pulled back on marketing and accepted that this was simply their slow period. They’re changing that mindset. This summer, they leaned into marketing and “doubled social media and streaming reach.” Part of this outreach acceleration entailed its very first seasonal rewards test – called Summer of Extras. This turned engaging with Chipotle into a competitive game, with new prizes and perks for members. Gamification has worked historically well for other consumer-facing brands like Duolingo, and I think it can work well here. Turning buying your products into a competition is generally positive for overall engagement. The campaign has already boosted rewards member enrollments by 14% and should feed overall transaction growth. This event will likely become an annual staple going forward.

And again, this effective marketing allowed transaction and comp store growth to materially improve and flip positive in June and July. This improvement got them back to 8% stacked 2-year comparable store growth in June, which is their goal. For July, that growth has hovered just below 8%. Easier comps are also helping, but so is this. The company plans to build on this momentum with a college student campaign in September.

Along similar marketing lines, it ran a social media campaign, which doubled 3:00-4:00 hour sales volume for eligible stores. And generally speaking, it will get much more vocal about its consumer value proposition through marketing. It thinks its reputation of being expensive is very unfair, considering it’s routinely 25% cheaper than substitutes. Leadership is dedicated to making that crystal clear in its consumer messaging, as it thinks the consumer perception of its value proposition is erroneous. They know it’s fully within their control to fix that and are determined to do so.

Ways to Improve Comparable Store Sales Trends – Improve Guest Engagement Through Food:

Chipotle is also looking to improve engagement and transaction growth through more food-based innovation. As previously covered, Chipotle Honey Chicken was its best limited time offer (LTO) ever, with a record-high 25% order attach rate. They plan to increase LTO frequency, as these offers continue to be highly incremental to revenue and outperform expectations. Its Adodo Ranch launch (first dip since 2020) is also “offer to a great start driving incremental transactions.” They see an opportunity to do a lot more with dips, perhaps in response to seeing how well Cava is currently doing in that area. This also drove 100M consumer impressions, which had a positive impact on digital channel growth as well. These campaigns are why marketing as a percentage of revenue rose from 2.1% to 2.7% Y/Y. It will likely stay around 2.7% going forward.

“As we start to think about 2026 and beyond, I believe we have a lot more opportunity to add incremental menu innovation that drives consumer relevance and love for the brand all year long.”

CEO Scott Boatwright

The final part of optimizing guest engagement for Chipotle is making it easy for consumers to order however they want… in as reasonably large quantities as they want to. And that’s why catering is becoming a larger focus. They’re testing workflows and throughput optimization (with the new equipment package) as we speak, with plans to launch a new campaign in the coming quarters with a significant marketing budget. As they rightfully pointed out, peers enjoy 5%-10% of total revenue from catering and Chipotle is under 2% as of today. This is a big opportunity and it will launch the new catering platform in 60 stores this quarter.

“When you layer all these opportunities within the flywheel, we are confident in getting back to mid-single-digit comps and surpassing $4 million in AUVs longer term.”

CEO Scott Boatwright

Global Store Expansion:

Unit economics in Europe continue to progress nicely to set the stage for future growth acceleration. In the Middle East, its store in Kuwait collected more revenue than a typical USA store. It will open 5 more locations in Kuwait and Dubai this year. Finally, it’s on schedule for its first Mexico location. I realize selling Americanized Mexican food to Mexicans may sound like a tough endeavor, but as I’ve said before, Taco Bell does very well there.

AI and More on Marketing:

Chipotle is using AI to improve its “welcome journey.” This is making engagement more convenient, rewarding and intuitive, which is already boosting consumer engagement by 46%. They will use these learnings to optimize the “win-back journey,” or attracting dormant customers back to its restaurants.

Disappointing quarter. Consecutive negative comp store sales revisions are not good and I think this company is entering “prove it mode.” Many do not believe this is truly related to sentiment, and instead is Chipotle not properly executing. I tend to think this is mainly macro, which is why things looked so much better in June and July as the consumer started to feel better about things and its stacked comparable sales growth recovered back to 8%. I think their financial performance will materially improve for the rest of the year and into 2026, as in-store efficiency gains, more meaningful marketing spend, easier comps, stable economic health and a focus on value proposition all resonate. And? That’s necessary for this bluechip darling to keep earning a lofty valuation.

While I’m cautiously optimistic here, this still trades for 40x forward earnings and now carries a bit more execution risk than it has in a long time. For this reason, I’m refraining from adding to my stake. I’d be interested if we see the multiple fall closer to the mid-30s. As I said in the earnings season preview, “I still haven’t been able to meaningfully build out this position and I’d love to see some multiple contraction to commence more meaningful share accumulation.” That is beginning to play out.