Cava surges after annual sales forecast raise on steak, pita chips demand (updated)

Restaurant Brands International

13/11/2024 14:49

(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 surpassed
quarterly earnings estimates on strong demand for its pita chips
and premium grilled steaks.
    The company raised its annual forecasts for the third time
in 2024 after market close on Tuesday and its stock has more
than tripled in value this year. 
    Fast-casual restaurants like Cava, Shake Shack  SHAK.N  and
Chipotle Mexican  CMG.N , which offer salad bowls and
cheeseburgers along with a casual dining space, 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 200 basis points to sales in the
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)
 ((Savyata.Mishra@thomsonreuters.com;))