Cava raised its full-year outlook late Tuesday after easily surpassing a high earnings bar for the third quarter. Cava stock soared on Wednesday to a post-IPO high, then sharply trimmed gains.
The Cava earnings report beat expectations on all key metrics, including adjusted EBITDA, revenue, comparable sales and margins. Notably, the quarter marked "Cava's strongest traffic gain in a year and a half" amid rising brand awareness, menu innovation and revamped loyalty program, said William Blair analyst Sharon Zackfia in a note to clients on Wednesday.
After making its stock market debut in June 2023, Cava is now poised to achieve full-year 2024 EBITDA nearly 40% higher than its original guidance, Zackfia said, while noting that the company's sales momentum continues so far in the current quarter.
"Looking forward, our new adjusted EBITDA projections for both 2025 and 2026 are now 80% to 90% ahead of our initial expectations" in the summer 2023 Cava stock initiation note, she added. Zackfia has an outperform rating on shares.
Cava Earnings Beat High Expectations
For Q3, Cava earned 15 cents per share, more than doubling from six cents a year earlier, and smashing analyst estimates for 11 cents.
Revenue surged 39% year over year, to $241.5 million, coming in well ahead of views for $233.1 million. That marked the second straight quarter of accelerating growth.
Same-store or comparable sales grew 18% during the quarter, quickening from Q2's 14.4% pace, and topping expectations for a 12% gain as well. Traffic grew 12.9%, above Q2's 9.5% clip. Average ticket rose 5.2%.
Late Tuesday, Cava said it is now targeting full-year adjusted EBITDA of $121 million-$126 million, up from $109 million-$114 million previously. The company also guided same-store sales and new restaurant openings higher.
Going into the Q3 report, Wall Street was expecting Cava to post full-year adjusted earnings before interest, taxes, depreciation and amortization of $116.7 million. They now expect $122.9 million, a 66.5% increase from 2023, FactSet shows.
Cava Stock Surges To Post-IPO High
The restaurant retail stock rose 1.6% to 147.34 on Wednesday, paring intraday gains to 172.43. Shares shed 1.8% in Tuesday's stock market action after hitting a record 151.56 Monday.
Cava stock rallied into the Q3 earnings report, finding support at the 21-day exponential moving average. It remains well above longer-term support levels.
On the back of Wednesday's surge, Cava has more than tripled from both an early February breakout and a July 2023 breakout from an IPO base.
That steep ascent leaves Cava without a new buy point for now, according to MarketSurge.
Fast-casual restaurant rival Sweetgreen slumped on Wednesday, undercutting a buy point. Chipotle Mexican Grill also fell, near a 61.25 early entry from a handle that's slightly too low to be proper.
Chipotle Investment May Pressure Cava: Analysts
Last Thursday, Sweetgreen raised full-year guidance after narrowing Q3 losses. But revenue growth decelerated for a third straight quarter, reaching 13%.
Meanwhile, Chipotle invested in Mediterranean food chain Brassica about a month ago. Cava stock dipped on the news on Oct. 15 but has since rallied to fresh highs.
Though similar to Cava, Brassica currently has just six restaurant stores. However, Chipotle said its minority stake funding should help Brassica open more locations.
Citi analysts said it was too early to size the Brassica threat. But they feared Chipotle's move could pressure Cava shares in the near term given their current rich valuation, according to TheFly.com.
All three retail stocks rallied after president-elect Donald Trump's Nov. 5 win. Investors expect his proposed tax cuts to boost consumer spending, though his economic plans could be a mixed bag overall.
