CAVA’s Revenue Growth Accelerates on New Restaurant Openings and Rising Traffic

A Cava restaurant in Pasadena, Calif., on Feb. 6, 2023. Mario Tama/Getty Images

CAVA’s revenue growth accelerated in the third quarter of 2024, driven by new restaurant openings and traffic. One analyst finds this performance “breathtaking.”

After the market closed on Tuesday, the fast-casual dining chain reported sales of $241.5 million for the third quarter ended Oct. 6, a 39 percent annual increase.

That’s up from a hefty 35.2 percent annual growth for the second quarter, which ended on July 14.

According to its mission, CAVA has made its foray into the crowded restaurant space as a delicious and healthy food provider.

“Taking care of the people and things that feed us: the earth, farmers, purveyors, and team members,” it states on its website.

The chain’s third-quarter sales acceleration was driven by higher same-restaurant sales, up by 18.1 percent compared with 14.4 percent in the second quarter.

Then, 11 new restaurants opened in addition to the 18 opened in the second quarter, bringing the total number of CAVA restaurants to 352, a 21.4 percent increase year over year.

CAVA and the rest of the restaurant industry have been experiencing a favorable macroeconomic trend for eating out, driven by a strong U.S. economy and resilient consumer spending. At the same time, the restaurant chain faces a couple of headwinds, such as rising labor and food materials costs that are cutting into profit margins.

Still, a rise in restaurant count helped the company “scale up” its operations, which translated into higher profits per restaurant. Restaurant-level profit for the third quarter was $61.8 million, a growth of 41.9 percent from the year-ago period, with a restaurant-level profit margin of 25.6 percent, up from 25.1 percent a year earlier.

That’s despite spending more on higher wages and acquiring resources needed to launch grilled steak.

Management interpreted the acceleration of the company sales as an endorsement of its Mediterranean menu and strategy execution.

“Our third-quarter results demonstrate the strength of our Mediterranean category-defining brand and the broad appeal of our unique value proposition, creating what is quickly becoming the next major cultural cuisine category,” Brett Schulman, the company’s co-founder and CEO, said in a statement accompanying the release of third-quarter financial results.

“Third-quarter traffic grew 12.9 percent, we opened 11 net new restaurants, and, driven by the power of our unit economic engine, we generated average unit volume of $2.8 million. In addition, we continued to execute across our strategic initiatives, completing the national launch of our reimagined loyalty program and rolling out our new labor model ahead of schedule.”

Wall Street joined management in cheering CAVA’s acceleration of sales, sending its shares up 16 percent in after-hours trade on Tuesday. CAVA’s shares are up by 235 percent for the year, compared to 25.5 percent of the benchmark S&P 500 Index.

Placer.ai, a site that monitors traffic for the restaurant industry, sees the opening of the new restaurants helping boost overall visits to CAVA’s restaurants.

“More restaurants mean more opportunities for diners to try a lemon chicken or harissa avocado bowl—CAVA’s locations are also drawing more traffic,” Bracha Arnold wrote in a blog on the site.

Arnold observed that the average number of visits to each CAVA restaurant was up almost every month throughout 2024, with August and September visits growing at an annual rate of 15 and 9.9 percent, respectively.

“These trends suggest that CAVA’s expansion strategy is leaning into robust demand—and has succeeded in generating excitement and visit growth in both new and existing markets,” Arnold said.

John Zolidis, Quo Vandis Capital president and a close follower of the restaurant industry, finds CAVA’s performance breathtaking.

“CAVA is having a moment, and there seems every reason to believe the moment is going to last for the foreseeable future,” he said in a research note.

However, Zolidis is concerned about the company’s valuation and what investors already pay for the company’s growth. He believes Cava’s stock was in “la-la land” before the third-quarter sales report.

“If the stock opens at pre-market indications (+17 percent) of $169, it will tack on another $2.7 billion of market cap (to $20 billion),” he said.

“Considering that full-year 2024 revenues will be just shy of $1 billion, the valuation may be even more breathtaking. CAVA food may be excellent and the growth opportunity fantastic, but it does not cure cancer despite the heartwarming anecdote in the company’s supplemental deck. ”

Zolidis has raised the same-store sales assumptions and unit growth rate based on third-quarter 2024 performance.

“These also drag up our new unit sales estimates modestly,” he said.

“However, our longer-term margin rate assumptions are pressured relative to our previous model (primarily on the RLM line) [i.e., how a company optimizes its revenue streams]. It still requires a >60x EV EBITDA multiple to be sustained to avoid losses from yesterday’s close,” he said

, referring to a ratio that compares a company’s enterprise value (EV) to its earnings before interest, taxes, depreciation, and amortization (EBITDA).