Cava (CAVA) is offering attractive numbers to investors, sending the stock to new highs.
After the market closed Thursday, the Mediterranean fast-casual chain reported second-quarter results that beat expectations on all fronts: revenue, profit and same-store sales.
Net sales increased 35.2% year over year to $233.5 million, beating expectations of $219 million. Adjusted earnings per share were $0.17, compared with the expected $0.13.
Same-store sales increased 14.4%, beating Wall Street’s expectations of a 7.45% increase. The sales growth was driven by increased customer traffic (up 9.5% year over year), menu price increases, new stores, and the launch of Grilled Steak on June 3.
Cava shares hit a record closing price of $102.39 on Wednesday and hit an intraday high of $122.95 on Friday, their biggest intraday gain ever.
The steak launch far exceeded expectations, CEO Brett Schulman told Yahoo Finance, and the team is “committed to a deep pipeline of innovation” for the next few years. Schulman said the company’s “value proposition” is attracting customers as consumers downgrade from fine dining and upgrade from fast food.
The company raised its full-year revenue growth outlook to 8.5% to 9.5%, “reflecting the continued strength of the business,” he told Yahoo Finance, adding that he expects momentum to continue in the third and fourth quarters.
“This means low double-digit sales. [comparable same-store sales growth] That will continue for the rest of the year,” he said.
The stock is up 180% since the beginning of the year, compared with Chipotle (CMG)’s 20% gain and the S&P 500 (^GSPC)’s 18% gain.
Slow and steady expansion has been Cava’s go-to approach: The company plans to grow the number of Cava stores to 1,000 by 2032.
Citi analyst John Tower said in a client note that there’s still room to grow: “Increasing store density and margin tailwinds as stores move into lower-cost markets will drive store-level growth opportunities and continue to reposition opportunities for individual same-store sales, price and margin improvement.”
In the second quarter, Cava opened 18 new stores, bringing its total to 341.
TD Cowen analyst Andrew Charles is optimistic that Cava will hit its 2032 goal, citing widespread support. He expects 50% of new stores next year to have digital pickup lanes. There are 45 of them now.
Stifel analyst Chris O’Cull, who has a buy recommendation on Cava, projects long-term revenue growth in the 17% to 20% range, driven by 15% store count growth and low- to mid-single-digit same-store sales growth.
Schulman said there’s still room to further grow brand awareness in existing markets, and other upcoming growth drivers include the relaunch of its loyalty program in October and catering.
The story continues
The company aims to market test catering in major cities in 2025, before launching nationwide in 2026.
There are currently 10 digital kitchen hubs and 10 hybrid kitchen hubs in various locations, as well as regular Cava outlets that are testing catering.
Cava is also experimenting with AI technology in its kitchens to improve throughput and detect when ingredients are running low, and unlike its competitors, it has humans queue up customers to make their bowls.
“Our mission is to bring heart health and humanity to food, and if we take away the humanity, I think we’re failing in our mission,” Schulman told Yahoo Finance.
CAVA in Waldorf, Maryland, is introducing digital order pickup. (CAVA)
The company continues to thrive at a time when fast-casual dining appears to be bucking the overall food industry slowdown as consumers become more value-conscious.
“Kava was one of the few publicly traded restaurant brands that experienced traffic growth in the second quarter,” Schulman said in the earnings call.
He added that the company raised prices by 12% from 2019 to 2023, which is lower than the overall price increase for fast food and grocery based on CPI data.
“For just a dollar or two more, you can get a bowl of fresh Mediterranean cuisine at Kaba, from traditional fast food frozen options to fried options. We’re seeing people switching over to us and upgrading to our stores,” he told Yahoo Finance.
Chipotle reported strong beats in its report, reporting same-store sales growth of 11.1% year over year, beating Wall Street’s expectations of 9.23%. Shake Shack (SHAK) saw same-store sales increase of 4%, beating expectations of 3.2%.
Sweetgreen (SG) reported its strongest same-store sales growth in two years, rising 9%, driven by increased foot traffic and higher prices.
“We’re going to be very careful about how we spend it,” the company’s CEO, Jonathan Neman, told Yahoo Finance. [pricing power]Neman argued that the chain has increased prices less than its competitors since the pandemic.
“If you look at the relative price differential between Sweetgreen, its fast-casual competitors and its QSRs, the gap has really closed. At the QSRs, you can’t get in or out for under $15 now,” he told Yahoo Finance.
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Here’s how Cava’s report compares to Wall Street expectations, according to Bloomberg consensus data.
Revenue: $233.5 million vs. $219.5 million
Adjusted earnings per share: $0.17 vs. $0.13
Same-store sales growth: 14.4% vs. 7.45%
The company raised its fiscal 2024 outlook for new restaurant openings, sales growth and restaurant-level profit margins.
The company now expects sales growth of 4.5% to 6.5% in the first quarter, up from its previous forecast of 3% to 5% to 8.5% to 9.5%.
The number of new store openings is expected to increase from 50-54 to 54-57. Store-level profit margins are expected to increase from 23.7-24.3% to 24.2-24.7%.
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Brooke DiPalma is a senior reporter at Yahoo Finance. Follow @ on X.Brooke DiPalma Or email me at bdipalma@yahoofinance.com
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