CAVA Stock Dips Post Q4 Earnings: Buying Opportunity or Warning?
The restaurant industry has been experiencing significant growth in recent years, with Mediterranean cuisine emerging as a major player. One of the leaders in this space is CAVA Group, Inc. (CAVA), which reported its fourth-quarter 2024 results earlier this month. Despite missing earnings estimates, the company’s revenue exceeded expectations, and its top and bottom lines increased year over year.
Fourth-Quarter Results
In fourth-quarter 2024, CAVA’s revenues increased by 28.3% year over year. This growth was primarily fueled by 77 net new restaurant openings during or after the fourth quarter of fiscal 2023. Additionally, the company recorded a robust 21.2% increase in same-restaurant sales, supported by a 15.6% rise in guest traffic and a 5.6% contribution from menu pricing and product mix.
CAVA’s revenue growth can be attributed to its unique value proposition, which has allowed it to resonate with a broad audience. The company has positioned itself as a leader in this emerging cuisine category, leveraging its distinctive brand and menu innovation to drive growth. CAVA’s ability to redefine cultural dining trends and establish Mediterranean cuisine as a major player in the restaurant industry is a testament to its success.
CAVA Stock Performance
CAVA stock has rallied 54.2% in the past year, outperforming the industry’s growth of 6.8%. In the same time frame, CAVA has outperformed other industry players like Chipotle Mexican Grill, Inc. (CMG), Domino’s Pizza, Inc. (DPZ), and Restaurant Brands International Inc. (QSR). However, the company’s stock has declined 9.3% post fourth-quarter 2024 results.
The recent decline can be primarily attributed to weaker-than-expected same-store sales guidance and softness in the global market. CAVA expects same-restaurant sales growth of 6-8% for 2025, a sharp deceleration from the 13.4% rise reported in 2024. Despite the recent decline, the company’s fundamentals remain strong.
Price Performance
CAVA’s price performance has been volatile in recent months. The company’s stock has declined 9.3% post fourth-quarter 2024 results. However, its long-term growth potential remains intact, driven by its strong revenue growth, robust same-restaurant sales, and successful expansion efforts.
Key Growth Catalysts
CAVA continues to push forward with its expansion strategy, building on its recent entry into South Florida. The company is gearing up to strengthen its presence in the Midwest, with plans to open locations in Detroit and Indianapolis later this year. CAVA is set to expand its reach in the Mid-Atlantic region by establishing its first restaurants in Pittsburgh, PA.
As it broadens its footprint, the company remains focused on fostering strong connections with guests, whether through in-restaurant dining experiences or digital engagement platforms. The company anticipates opening 62-66 restaurants in 2025, ensuring at least 17% unit growth.
CAVA continues to leverage menu innovation as a key driver of growth, with its steak launch in early June 2024 marking a significant addition to its offerings. While the introduction of steak led to a temporary increase of approximately 100 basis points in food, beverage, and packaging costs as a percentage of sales, the company expects this impact to subside by the summer of 2025.
Valuation Concerns
CAVA’s valuation looks expensive compared with its industry on a forward 12-month P/S basis. Its forward 12-month price-to-sales ratio stands at 8.31, significantly higher than the industry’s 4.32 and the S&P 500’s 5.21.
Conclusion
CAVA has demonstrated strong revenue growth, robust same-restaurant sales, and successful expansion efforts, reinforcing its position as a leader in Mediterranean cuisine. The company’s menu innovation, technological advancements, and expansion into key markets highlight its long-term growth potential. However, the recent stock decline following the weaker-than-expected same-store sales guidance, combined with a premium valuation relative to industry peers, suggests that near-term upside may be limited.
While CAVA’s strong fundamentals make it a solid long-term hold, new investors may want to wait for a more attractive entry point, given the current valuation concerns and potential for market corrections.