What To Expect From Cava Group (NYSE: CAVA) Earnings

The spotlight has been intensifying on Cava Group shares (NYSE: CAVA) in recent months, and with the stock price adding 6.87% on Friday shows no signs of slowing leading in to earnings. This marks another strong week for holders who have seen a steady ascent over the past 8 months, following the dip into September 25th.

Markets and food enthusiasts alike have closely watched the rapid ascent of Chipotle (CMG) in the fast-casual dining sector over the last five years, where shares have soared by an impressive 377.54%. Many are now wondering whether Cava could have a similar success story, or will fall by the wayside.

The Mediterranean counterpart operates with a similar business model to Chipotle, and seems ripe for expansion. With the CAVA share price having risen 155% from Sep 25th through the close on Friday, these new 52 week and all time highs could just be the beginning according to some analysts, but with earnings looming large tomorrow, we can expect movement based on operational delivery and guidance.

A couple of price target upgrades from analysts last week pegged NYSE:CAVA at the $90 mark, a little under 10% up from Friday's close. With the long weekend, this gives us a little extra time to take a look at some of the comments in advance of the release of data on Tuesday 28th May.

Stifel analyst Chris O'Cull indicated the belief that CAVA will “provide evidence of the organic flywheel effect created when a relevant brand offering craveable products begets growing consumer awareness and usage.” There is the anticipation of a strong quarter, with a price target raise to $90 (from $66) coming in ahead of the data on 28th.

Baird were another to come out ahead of earnings with a target raise, matching the $90 forecast of Stifel, up from their own previous mark of $72. The firm backed up their raise with commentary on stretching valuation assumptions as the expectation of upward revisions and strong fundamentals through 2024. They tempered this with an acceptance that the stock may be due for a breather, despite keeping the ‘outperform' rating.

The consensus price target on the street of $71 is down from the latest close, so a lot will depend on the data which so far at least has continued to deliver.

In 2023, despite widespread economic challenges facing the restaurant industry, Cava reported a notable revenue increase of 59.8%, reaching $729 million in sales. This reflects a staggering 518% rise from the figure reported five years earlier and marks a significant milestone for the chain.

Furthermore, 2023 heralded Cava's transition into profitability with $13.3 million in net income, a notable recovery from the prior year's $59 million net loss.

Setting its sights on substantial growth, Cava aims to balloon its presence to 1,000 locations across the United States by 2032, indicating a bold expansion from its 309 locations at the end of 2023.

Future forecasts for Cava suggest a more conservative outlook with the company planning to open a modest 50 new locations in 2024. Additionally, same-store sales are anticipated to exhibit a milder growth of 3% to 5%. The fiercely competitive restaurant sector places Cava amidst a challenging battleground, which requires distinctive strategies to differentiate itself and secure long-term success without a clear competitive advantage.

With earnings expectations of $0.05 EPS for the quarter, against revenues of $245 million, the direction of the stock at least in the short-term remains subject to the firm continuing to beat. With only 3 quarters of data to go on since the IPO, and 3 consecutive strong upward surprises, markets are likely expecting more of the same, with anything less expected to be poorly received.

While the fiscal journey of Cava is remarkable, it is always important to address the broader context within which its story unfolds. Competition remains intense and Cava's current growth forecast coupled with its premium stock pricing warrants further evaluation on the longevity and scalability of its business model in the evolving landscape of fast-casual dining.