Key Takeaways
- Shares of CAVA climbed over 10% during after-hours trading Tuesday following second-quarter results that exceeded forecasts
- Revenue from restaurants increased 31.3% year-over-year to $365.4 million, surpassing the $360 million consensus estimate
- Comparable restaurant sales advanced 9%, fueled by 5.3% customer traffic increases and 3.7% pricing contributions
- Restaurant-level profitability margin declined to 25.7% from 26.3%, impacted by salmon product introduction, delivery channel shifts, and labor investments
- Annual projections remained unchanged: 4.5%-6.5% comparable sales growth and adjusted EBITDA of $181M-$191M
Shares of Cava Group rallied over 10% in extended trading Tuesday following the Mediterranean fast-casual restaurant operator’s second-quarter financial report, which exceeded Wall Street projections for both top-line growth and profitability.
The equity finished regular Tuesday trading down 37% from its April high before the after-hours surge. The prior selloff had mirrored investor apprehension regarding decelerating expansion and profitability challenges ahead of the quarterly report.
During the period ending July 12, revenue generated by restaurants totaled $365.4 million, representing a 31.3% year-over-year increase. Overall company revenue hit $368.4 million, exceeding the approximately $360 million consensus from analysts.
Net profit grew to $23 million compared to $18.4 million in the prior-year period. Diluted earnings reached $0.19 per share, beating the $0.18 analyst consensus. Adjusted EBITDA increased 30% to $54.7 million.
Comparable restaurant sales expanded 9%, driven by customer traffic gains of 5.3% combined with a 3.7% boost from pricing actions and product mix changes.
The company added 17 net new locations during the quarter, finishing the period with 476 restaurants spanning 29 states plus Washington, D.C. Expansion included entry into Indiana and Ohio. Management outlined plans to launch in Las Vegas during the second half of 2026 and the Bay Area in 2027.
System-wide average restaurant volumes hit $3.1 million, while new location productivity remained above 100%.
Profitability Faces Headwinds
Restaurant-level earnings increased 28.1% to $93.8 million, though the profit margin compressed to 25.7% from 26.3% in the year-ago quarter.
Food, beverage and packaging expenses climbed 50 basis points to represent 30% of revenue, primarily connected to the April introduction of Pomegranate Glazed Salmon. Labor expenses increased 30 basis points to 25.3% of revenue after a 3% wage increase investment. An expanded proportion of third-party delivery transactions drove other operating costs up 40 basis points to 12.8% of revenue.
CFO Tricia Tolivar indicated food costs are projected to continue increasing as a revenue percentage throughout the remainder of the year due to fuel surcharge pressures and the implementation of pre-marinated chicken products.
CAVA kept its full-year restaurant-level margin forecast of 23.7% to 24.3% intact and reaffirmed its adjusted EBITDA guidance range of $181 million to $191 million.
Sales Rebound Following Cyclospora Concerns
The company disclosed that early third-quarter performance was negatively affected by consumer anxiety surrounding a Cyclospora contamination outbreak associated with leafy greens. While Cava does not purchase leafy greens from Mexico and does not offer iceberg lettuce, it experienced collateral impact.
Tolivar noted that comparable restaurant sales have subsequently rebounded to mid-single-digit percentage growth.
Management also clarified the company has not experienced direct consequences from a separate Salmonella outbreak and does not source products from the implicated farms.
Cava concluded the quarter with zero debt, holding $435.6 million in cash and investment securities and maintaining an untapped $150 million revolving credit line.
Operating cash flow totaled $134.5 million through the first six months, up from $98.9 million in the comparable prior-year period. Free cash flow for the year-to-date period reached $44.8 million.
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