CAVA Group (CAVA -1.4%) saw a dip following its Q1 report but has since rebounded. The Mediterranean fast-casual restaurant chain posted its largest EPS beat in three quarters. Revenue surged 27.5% year-over-year to $259 million, surpassing analyst expectations. CAVA also raised its FY24 adjusted EBITDA guidance significantly to $100-105 million from $86-92 million.
- Q1 same-restaurant comps were +2.3%, down from +11.4% in Q4 and +17.9% for all of 2023. This may have surprised investors as CAVA was lapping a +28.5% comp from last year, driven by IPO buzz in June 2023.
- The +2.3% comp was driven by a +3.5% increase from menu price/mix, offset by a -1.2% decline in traffic. Despite the traffic drop, CAVA raised its FY24 comp guidance to +4.5-6.5% from +3-5%, indicating Q1 comps were better than internal expectations.
- CAVA's new annual comp guidance suggests mid to high single-digit comps for the rest of the year. The guidance raise is fueled by current strength, the expected mix impact from a national steak launch in June, and potential traffic headwinds as CAVA anniversaries the IPO buzz from summer 2023.
- CAVA will launch steak on June 3, after testing it in Boston and Dallas since December. The steak, seasoned with sundried tomato, oregano, and Aleppo pepper, is expected to boost comps by filling a menu gap and enhancing dinner options, which now account for 46% of sales.
- The company opened 14 net new restaurants in Q1 and five more in Q2. In April, CAVA opened its first Chicago location, entering the upper Midwest. CAVA increased its FY24 net new restaurant openings guidance to 50-54 from 48-52, a solid growth trajectory from 309 locations at the end of 2023.
Why is the stock down? We believe the stock decline is due to multiple factors, including disappointment around comps and traffic decline. However, CAVA was lapping unusually high comps from last year and raised its full-year comp guidance, suggesting Q1 upside. The stock has also been a significant mover since its IPO, making it sensitive to any perceived weakness.
Looking ahead, CAVA aims to create the next large-scale cultural cuisine category. With a strong Millennial and growing Gen Z customer base, CAVA believes it is in the early stages of reaching its full restaurant potential. The company sees an opportunity for over 1,000 CAVA restaurants in the U.S. by 2032, up from 309 at the end of 2023. The acquisition of Zoes Kitchen in 2018 facilitated rapid expansion, with all locations now converted to the CAVA brand.
