CAVA Group Earnings Preview – Stock Higher Leading In, Under Pressure YTD

CAVA Group Inc. (NYSE: CAVA), the fast-casual Mediterranean restaurant chain, is set to report its next earnings after this afternoon's market close, with profits expected to slow. Analysts are looking for earnings of $0.13 per share for the second quarter of 2025, down from $0.17 in the same quarter last year.

Despite the anticipated dip in profitability, revenue is forecast to climb to $285.23 million, representing a 22.2% year-over-year increase from $233.5 million. The projected top-line growth highlights strong consumer demand and continued expansion, though the markets will be watching closely to see how rising costs may be impacting margins.

The decline in margin has been priced in, with CAVA's stock price down 27.17% since the start of the year, and 6% lower on the 12 month. Early action on the day has the stock moving higher, up 2.3% on the day.

Looking to the most recent report, and Q1 was largely solid. Net sales surged by 28% to $332 million, fueled by a 10.8% increase in same-restaurant sales. This growth was attributed to a 7.5% rise in guest traffic and a 3.3% contribution from menu pricing and product mix adjustments.

The company also boasted a healthy restaurant-level profit margin of 25.1%, a notable improvement from the 22.4% recorded in the previous quarter. Furthermore, CAVA achieved a significant milestone, surpassing $1 billion in trailing twelve-month revenue.

The company's expansion strategy remains aggressive, with 15 new restaurants opened during the first quarter, bringing the total footprint to 382 locations across 26 states and the District of Columbia. Management has increased its forecast for new restaurant openings in fiscal 2025, now projecting between 64 and 68 new locations, up from the previous range of 62 to 66.

Analysts are providing mixed signals. While some remain optimistic, others have expressed concerns about valuation. Wedbush analyst Nick Setyan recently raised the price target on CAVA to $90, maintaining an “Outperform” rating, citing the company's realistic long-term revenue and unit growth targets.

Argus analyst Christine Dooley is even more bullish, increasing the price target to $105 and reaffirming a “Buy” rating, highlighting CAVA's innovation and expansion plans. However, JP Morgan downgraded the stock to “Neutral” from “Overweight,” maintaining a price target of $77, citing valuation concerns relative to the current price.

Adding to the complexity, UBS recently raised its price target dramatically from $112 to $196, while maintaining a neutral rating.

While the market seems focused on CAVA's expansion and revenue growth, a more critical eye might question the sustainability of its premium pricing strategy in the long term. As the fast-casual market becomes increasingly saturated, consumers may become more price-sensitive, potentially impacting CAVA's ability to maintain its current margins.

While the brand is strong, replicating the success of its best performing stores in new markets is not guaranteed, and operational challenges in scaling a rapidly expanding business should not be underestimated.