Story Stocks^®

CAVA Group (CAVA -6%) is lower despite upside Q1 results last night. This Mediterranean fast-casual restaurant chain beat on EPS and revenue. CAVA also increased its FY25 adjusted EBITDA outlook a bit to $152-159 mln from $150-157 mln and reaffirmed FY25 same restaurant comps of +6-8%. However, Q1 comps were lower than Q4.

• CAVA has a history of reporting impressive comps. CAVA has been opening lots of new restaurants, but the comp number filters that out. These comps are solely from locations open a year or more. CAVA reported strong Q1 comps of +10.8%, comprised of guest traffic growth of +7.5% and +3.3% from menu price and product mix. These comps are down from +21.2% in Q4 and +18.1% in Q3 but are still quite impressive given the macro landscape.
• In terms of the menu, CAVA said it's leaning into flavor and relevance this summer with the launch of its Spice World campaign, a celebration of bold, spicy offerings. As part of this campaign, it debuted Hot Harissa Pita Chips, a bold, spicy take on its fan favorite chips. At the same time, it's launching two new chef-curated bowls, Steak + Harissa and Spicy Lamb + Avocado.
• CAVA opened 15 new locations in Q1, bringing its total to 382. It also increased its FY25 outlook to 64-68 from 62-66 and said it's well on its way to its goal of at least 1,000 restaurants by 2032. In Q1, it entered Indiana for the first time. It also deepened its presence in Florida, marking its entry into the Greater Miami area. Looking ahead, it plans to continue expanding across the Midwest to Mid-Atlantic with new market entries in Detroit and Pittsburgh.
• In terms of the macro, CAVA knows consumers are feeling pinched, but nothing in its data suggests that its consumer is challenged. Its premium attachment continues to be high. Pita chips, for example, continue to increase in incidence, as does some of its other premium items, including steak. Its per person average continues to increase and CAVA is seeing positive traffic across all geographies, all income strata, all formats and all dayparts.

In terms of why the stock is lower, there may be a little disappointment that Q1 comps were a good bit lower than Q4 and Q3. Also, CAVA did not raise full year comp guidance despite upside to the full year trend in Q1. However, CAVA will be lapping its popular steak launch in 2H25, so that will likely be a comp headwind.

More generally, and as we said in our preview, we were cautious going into this report considering the very weak results from Sweetgreen (SG) last week. Both restaurant chains are on the upper end of the price scale. However, CAVA was notably more positive than Sweetgreen, which surprised us. What really stands out is that CAVA's traffic comp was strong. Some chains boost comps with price increases, but we prefer to see traffic increases.