Cava (CAVA) is offering attractive numbers to investors.
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.
The company’s shares rose 9% in early premarket trading on Friday, putting them on track to hit a new all-time high.
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.
CEO Brett Schulman said on the earnings call that the steak launch far exceeded expectations, and the company is at the “center of consumer convergence” as consumers downgrade from fine dining and upgrade from fast food.
“At a time when consumers are increasingly feeling the pressures of a shaky economy and becoming more cautious about where and how they spend their money, they are choosing to dine at Cava,” he said.
“Deal activity will accelerate over the next two years, with steak launches being the most significant driver,” Wedbush analyst Nick Setian said in a statement.
Kava shares hit a record closing price of $102.39 on Wednesday and closed at $101.98 after hitting an intraday high of $104.84 on Thursday. Shares soared to $111 in premarket trading on Friday.
The stock is up 137% since the beginning of the year, while Chipotle (CMG) and the S&P 500 (^GSPC) are both up 17%.
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.”
Cava opened 18 new locations in the second quarter, bringing its total to 341 locations. This compares to 14 new locations in the first quarter.
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 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.
The story continues
Cava continues to thrive at a time when consumers are becoming more value-conscious and fast-casual dining appears to be bucking the overall food industry slowdown.
“Cava was one of the few publicly traded restaurant brands to experience traffic growth in the second quarter,” Schulman said. “We believe our performance reflects our unique and compelling value proposition.”
He added that the company raised prices by 12% from 2019 to 2023. He stressed that this is lower than the overall price increase for fast food and grocery, according to CPI data.
“Now, for a dollar or two more, you can get fresh Mediterranean food for the same price as a traditional fast-food frozen-deep-fry meal,” he said.
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 careful about how we use our pricing power,” CEO Jonathan Neman told Yahoo Finance. 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.
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 guidance 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%.
—
Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Find all the latest retail stock news and events here to better tailor your investment strategy.
