Shares of Cava Group(NYSE: CAVA) got a small lift after the operator of fast-casual Mediterranean-themed restaurants once again reported outstanding same-store sales growth. As of this writing, the stock is up more than 220% year to date.
Let's dive into the company's fiscal 2024 third-quarter results to see if the stock's momentum can continue.
Same-store sales shine
For its fiscal Q3, which ended Oct. 6, Cava's revenue climbed 39% year over year to $241.5 million. The growth was aided by the company having more than 20% more locations versus the year-ago period as well as a big jump in same-store sales growth. Same-restaurant sales climbed 18.1% in the quarter, with guest traffic growing 12.9%. Price increases and product mix, meanwhile, contributed 5.2% to its same-store sales growth. The growth came on top of a 14.4% increase in same-restaurant sales a year ago, showing the company is performing well against very tough comparisons.
The company said new menu introductions, such as its limited-time offering of garlic ranch pita chips, have been helping sales and increasing brand awareness. It also relaunched its new loyalty program to good early success.
Cava ended the quarter with 352 locations, after opening 11 new locations in the quarter. It ended the year-ago quarter with 290 restaurants.
Image source: Getty Images.
Its restaurant-level margins (RLM) improved 50 basis points to 25.6% from 25.1% a year ago. RLMs measure the profitability of restaurants before corporate costs, and this metric is right in line with top-tier operators such as Chipotle Mexican Grill(NYSE: CMG), which had RLMs of 25.5% last quarter.
On the profitability front, Cava's earnings per share (EPS) jumped to $0.15 versus $0.06 a year earlier, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 69% year over year to $33.5 million. The company produced $43.9 million in operating cash flow in the quarter and free cash flow of $23.4 million. For restaurant operators in expansion mode, free cash flow is important as it allows them to build out new locations without having to take on debt.
Cava yet again increased its full-year guidance. It raised its same-store sales guidance to growth of between 12% to 13% from a prior range of 8.5% to 9.5%. Meanwhile, it also bumped up its adjusted EBITDA guidance from a range of $109 million to $114 million to a new range of $121 million to $126 million.
Below is a chart of the changes Cava has made to its 2024 guidance throughout the year:
| Metric | Current Guidance | Guidance From Q2 | Guidance From Q1 | Guidance From Q4 2023 |
|---|---|---|---|---|
| Same-store sale growth | 12% to 13% | 8.5% to 9.5% | 4.5% to 6.5% | 3% to 5% |
| New restaurant openings | 56 to 58 | 50 to 57 | 50 to 54 | 48 to 52 |
| Adjusted EBITDA | $121 million to $126 million | $109 million to $114 million | $100 million to $105 million | $86 million to $92 million |
Data source: Cava.
For 2025, the company said it expects unit growth of at least 17% and for RLMs to be consistent with 2024 levels. It plans to enter several new markets next year including South Florida and new Midwest markets.
Can Cava's momentum continue?
At a forward price-to-earnings (P/E) ratio of nearly 294 times and a price-to-sales ratio of 153 times next fiscal year's analyst estimates, Cava stock is not cheap by traditional measurements.
CAVA PE Ratio (Forward 1y) data by YCharts
That said, the company is demonstrating many similarities to a young Chipotle in the restaurant space. Similar to its Tex-Mex cuisine counterpart, Cava uses a limited number of ingredients that can be customized through an assembly line-type process. This leads to a lot of efficiency, which can be seen in its RLMs, which currently match those of Chipotle. Meanwhile, its average unit volume (AUV) of $2.8 million isn't that far behind Chipotle's current $3.2 million AUV.
Also similar to Chipotle in its early growth days, Cava is seeing just astounding same-restaurant growth. Importantly, Cava's free cash flow also allows it to expand within its means and not overextend itself. This combination is a huge recipe for future success.
With just 352 locations versus 3,615 for Chipotle at the end of last quarter, Cava looks like it has an opportunity to potentially increase its footprint by 10 times over the next 10 to 15 years. If it can do that, you can throw traditional valuation metrics out the door, as the stock is going to be a lot higher compared to where it trades today.
As such, it looks like the momentum in the stock can continue and that investors with a long-term time horizon can consider the stock at these levels.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
