Cava surges after annual sales forecast raise on steak, pita chips demand
Updates shares, adds Stifel comment in paragraph 7
By Savyata Mishra
Nov 13 (Reuters) -Restaurant chain Cava CAVA.N touched a fresh record high as its shares rose more than 16% at $167.50 in early trading on Wednesday, after it surpassedquarterly earnings estimateson strong demand for its pitachips and premium grilledsteaks.
The company raisedits annual forecasts for the third time in 2024 after market close on Tuesday and its stock hasmore than tripled in value this year.
Fast-casual restaurants like Cava, Shake Shack SHAK.N and Chipotle Mexican CMG.N, whichoffer salad bowls and cheeseburgers along with a casual diningspace, have grown in popularity this year as customers traded up from fast-food chains amid runaway prices.
"Cava also continues to benefit from the consumer preference shift from quick service to fast casual as middle income consumers increasingly view fast casual as a better value for money," TD Cowen analyst Andrew Charles said in a note.
Cava witnessed 28.4% growth in traffic this year until September, while McDonald's MCD.N and Restaurant Brands-owned Burger King QSR.TO saw customer visits decline 0.4% and 0.9%, respectively, according to data from Placer.ai.
At least six brokerages raised their price targets on the stock after the results, with Stifel increasing it the most, to $175 from $118.
"In our view, the stock's lofty valuation can be justified by its unit growth opportunity and the potential for solid operating momentum," Stifel analyst Chris O'Cull said.
Cava benefited from a revamped loyalty program launched in early October, contributing 200basis points to sales inthe reported quarter.
Its same-restaurant sales rose 18.1%, driven by a 12.9% increase from guest traffic and a 5.2% increase from menu prices and product mixes.
"CAVA is at a clear tipping point as the leader of fast-casual Mediterranean," CEO Brett Schulman said in a post-earnings call.
After expanding into Chicago, Cava plans to enter South Florida early next year and also expand its Midwest presence, with at least two additional new markets in 2025, Schulman said.
Cava's forward price-to-earnings ratio for the next 12 months, a common benchmark to value stocks, was 283.86, compared with 117.80 for Shake Shack and 46.69 for Chipotle.
Reporting by Savyata Mishra in Bengaluru; Editing by Pooja Desai
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