Chipotle Mexican Grill Inc (CMG.N) said on Thursday that restaurant sales growth would cool in 2013 and some analysts said that might signal the end of the hyper growth investors had come to enjoy.
The chain's shares tumbled more than 12 percent in after hours trading on Thursday.
The Denver-based burrito chain has been one of the restaurant industry's best-performing names, but shares have been weak since this summer - when Chipotle surprised investors with news that the sluggish U.S. economy had slowed growth in its formerly industry-leading sales at established restaurants.
Earlier this month, influential hedge fund manager David Einhorn ratcheted up the pressure. He called the chain's stock an attractive "short," saying Chipotle will face significant competition and additional costs.
Chipotle gave investors more to worry about on Thursday, saying diners have been spending cautiously, buying fewer drinks and cutting back on big to-go orders.
It forecast flat to low-single digit same-restaurant percentage sales growth for next year. That would be a deceleration from this year, when the company sees mid-single-digit percentage growth.
Investment Technology Group restaurant analyst Steve West said the sales forecast might mark the end of an era for the popular chain.
"They're still a growth company, but they're not the hyper growth company that the valuation would indicate," West said.
Company shares fell 12.4 percent to $250.50 in extended trading on Thursday, their lowest since May 2011. The stock hit an all-time high of $442.34 in April.
Chipotle, which has more than 1,350 restaurants, directly competes with Jack in the Box Inc's (JACK.O) Qdoba burrito chain and other upstarts.
Earlier this year Yum Brands Inc's (YUM.N) Taco Bell chain, which boasts about 50 percent market share in the Mexican fast-food category, debuted its "Cantina Bell" menu across the United States. That menu is similar to Chipotle's, but costs less.
Einhorn, who runs $7.7 billion fund Greenlight Capital, said competition from "a resurgent Taco Bell" is a major problem for Chipotle, due to Taco Bell's cheaper menu and its roll-out of new and popular food selections.
"There was a lot of noise during the quarter about somebody taking market share away from us. They did a lot of very, very heavy advertising," Chief Financial Officer Jack Hartung said on the conference call with analysts. "We are not seeing any kind of loss whatsoever ... to any other competitor."
While it is possible to copy Chipotle's menu, West said it would be very difficult to match the company's operating efficiency - which has allowed it to crank more sales out of its restaurants without adding labor costs.
"They do almost twice the sales of Qdoba out of each store," West said. "Nobody can touch that."
Net income for the quarter was up 19.6 percent to $72.3 million, or $2.27 per share - missing analyst estimate by 3 cents per share, according to Thomson Reuters I/B/E/S.
Third-quarter revenue increased 21.5 percent to $2.03 billion.
Sales at restaurants open at least 13 months rose 4.8 percent, just missing analysts' call for a gain of 4.9 percent, according to Consensus Metrix.
Chipotle's customers spent a bit less during each visit, ordering fewer high-margin drinks and placing somewhat fewer large iPhone, online and fax orders, CFO Hartung said.
The company does not have any specific plans to increase menu prices next year, but with higher drought-related costs for dairy products and meat looming, "we remain up to the possibility of a price increase," Hartung said.
Restaurants are in a tough spot when it comes to higher food costs since increases can backfire and keep price-sensitive customers away.
Immigration issues continue to hang over the company, adding to uncertainty.
Chipotle fired hundreds of workers in 2010 and 2011 after audits by the U.S. Department of Homeland Security's Immigration and Customs Enforcement (ICE) arm turned up undocumented workers on payrolls in Minnesota, Virginia and Washington, D.C.
The U.S. Securities and Exchange Commission, Homeland Security and the federal prosecutor's office for Washington, D.C., are investigating the company's compliance with immigration laws.
(Reporting by Lisa Baertlein in Los Angeles.; Editing by Matthew Lewis, M.D. Golan, David Gregorio and Andre Grenon)