(Bloomberg) -- Cava Group Inc. raised its full-year outlook for a third straight quarter and posted quarterly sales that beat market expectations, the latest example of a fast-casual company winning over diners while the rest of the industry struggles.
The Mediterranean fast-casual chain now sees sales at restaurants open for at least a year rising as much as 13% in 2024, up from previous guidance of as much as 9.5%. The company has consistently raised its projections this year as quarterly results come in ahead of Wall Street estimates.
The shares surged as much as 19% in New York trading on Wednesday. The stock has nearly quadrupled in value so far this year, far exceeding the Russell 1000 Index’s gain over the same period. At last five equity analysts raised their price targets for the stock following the earnings release.
Fast-casual chains such as Cava, Sweetgreen Inc. and Chipotle Mexican Grill Inc. have outperformed fast-food and sit-down restaurant operators this year as higher prices dissuade diners from eating out. Fast-casual chains are now seen by many consumers as offering better value for the money, helping to fuel growth while other companies report declines in traffic and sales.
Chief Executive Officer Brett Schulman said in an interview that diners “can get a fresh bowl of Mediterranean food as opposed to a traditional freezer-to-fryer fast food meal” for around the same price, or a few dollars more. He added the chain has expanded its customer base as “resilient and discerning” consumers search for healthier options and different flavors.
Cava said third-quarter same-store sales rose 18%, higher than the average analyst estimate of about 12%, with the gains fueled by higher traffic.
Third-quarter revenue of $241.5 million was above the average analyst estimate and was largely driven by high-performing restaurant openings. Cava opened 11 new locations during the quarter. Adjusted earnings per share of 15 cents also beat estimates.
Diners are consistently buying Cava’s pricier grilled steak offerings, which were added earlier this year, Schulman said, showing they’re not deterred by the higher price tag. The company doesn’t expect to raise its prices this year and is working to strengthen its customer loyalty plan by making its rewards more obtainable.
“Cava has notable tangible sales drivers including the recent loyalty program revamp, successful menu innovations (steak & garlic ranch pita chips) and speed of service enhancing tools,” wrote Andrew Charles, an analyst with TD Cowen. He added that “a significant factor is improved brand awareness that has a long runway to grow further.”
(Updates share trading and adds analyst voice in last paragraph.)
©2024 Bloomberg L.P.
