CAVA Group’s Next Earnings Report on Aug. 11 Could Send the Stock Soaring. Here’s Why. | The Motley Fool
Cava Group (NYSE: CAVA) has been one of the brightest stories in the restaurant industry.
The Mediterranean fast-casual chain is similar to Chipotle in a number of ways, with a minimalist design and a customizable menu that features both bowls and handheld pitas, similar to burritos. Cava also benefits from having Ron Shaich, the founder of Panera, as one of its early investors.
Since its 2023 IPO, the company has reported explosive growth, often posting comparable sales growth in the double digits. However, in more recent quarters, its momentum has slowed in line with a broader pullback in the fast-casual industry as inflation wears on consumers, and the impact of the “K-shaped economy” has put more pressure on young adults.
Cava is due up to report second-quarter earnings after hours on Tuesday. Let’s take a look at what to expect and why the stock could gain on the news.
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Is Cava ready for a comeback?
Year-to-date, Cava stock is up just 6%, trailing the S&P 500. However, the stock has fallen sharply from its high this year in April, even as the broad market has soared, due to pressure on the industry amid fears of rising interest rates and inflation.
For the second-quarter report, analysts are expecting 28.3% revenue growth to $360.1 million, and generally accepted accounting principles (GAAP) earnings per share to improve from $0.16 to $0.18.
Cava delivered strong first-quarter results, and the stock briefly popped on that earnings report before sliding through most of June and July.
The company is one of the last in its sector to report earnings, so its peer group offers some guidance as to what to expect. Chipotle, for example, reported its strongest comparable sales growth in six quarters in the second quarter, though it was up just 2.2%. The improvement seemed to stem from menu innovations, more catering opportunities, and deeper engagement with its rewards program.
Some economists have begun referring to the current economy as the “little treat economy,” a trend that could favor Cava. The term refers to Gen Z and millennials spending on low-cost indulgences, like a meal out, since they can’t afford larger expenses like buying a home.
One risk to watch out for
Food safety concerns are back in the news following a cyclospora outbreak that began in mid-July and was linked to iceberg lettuce from Taylor Farms used at Taco Bell locations, as well as a salmonella outbreak linked to jalapeños used at Chipotle stores in Minnesota.
Sweetgreen slashed its full-year guidance due to the cyclospora outbreak, even though its operations weren’t directly affected, as it doesn’t even use iceberg lettuce.
According to location intelligence firm Placer.ai, there is evidence that the cyclospora outbreak weighed on foot traffic at Cava for at least a few days; however, Placer.ai also said that foot traffic to Cava stores, including new locations, rose 24.6% in the quarter, boding well for its results.
Today’s Change
(-1.25%) $-0.77
Current Price
$60.81
Key Data Points
Market Cap
Day’s Range
$60.15 – $62.62
52wk Range
$43.41 – $98.79
Volume
5.1M
Avg Vol
3.3M
Gross Margin
18.60%
Why the stock could pop
Trading near its year-to-date low, Cava appears to offer a good entry point, as the business is still growing rapidly and has significant long-term potential.
Now trading at less than six times sales, the stock looks well-priced, especially if it can continue to deliver strong comparable sales growth, as there’s ample room in the market for the company to expand. If it delivers another beat-and-raise report, the stock is a good bet to pop on Wednesday.