Cava's 'next Chipotle' dreams face a harsh reality check

Fast-casual chain Cava (CAVA) rose to prominence on hype that it could become the “Mediterranean Chipotle” just as health-focused dining was taking off.

Those analogies have faded since, but analysts say the company can still take lessons from its Mexican counterpart if it can reignite growth.

On Cava’s Q2 earnings call, CEO Brett Schulman reaffirmed the company’s target of 1,000 restaurants by 2032, saying recent performance is inspiring confidence.

The chain added 16 net new locations during the quarter, keeping expansion on track.

Quarterly revenue climbed 20.2% to $280.6 million, but net income slipped 6.6% to $18.4 million. The biggest worry is that same-store sales rose just 2.1%, well short of Wall Street’s 6.1% estimate.

As InvestorsObserver reported, management had already warned of slowing sales this year, but that Q2 slowdown still caught many investors off guard.

🥑 Chipotle comparisons tested

The weak sales numbers sowed concerns about consumer demand and Cava’s staying power, dimming the Chipotle comparisons that was once the driving force of the stock.

But not everyone is writing it off. Alex Morris, founder of TSOH Investment Research, argued that Cava’s growth trajectory mirrors Chipotle’s early years.

His analysis compares Chipotle’s unit expansion from 2003–2012 with Cava’s projected buildout through 2032. The paths are similar, although Chipotle’s curve steepened dramatically later on.

The twist is that, Cava’s quarterly same-store sales have generally outpaced Chipotle’s since 2021. Aand the recent slowdown has actually been steeper at Chipotle, Morris pointed out.

📉 CAVA by the numbers

Wall Street hasn’t been forgiving. CAVA stock has dropped nearly 20% since the Aug. 13 earnings release, extending a brutal slide that’s left the stock down more than 39% year-to-date.

Much of the fall reflects a correction from last year’s highs when shares briefly topped $17. Today, the stock trades around $68, valuing the company at roughly $7.9 billion.

Author and analyst Dave Gretta remains skeptical, arguing that valuation is still a risk.

“Cava looks good on ‘paper,’ but the stock still suffers from a high valuation. Remember the ‘geniuses’ on FinTwit will tell you valuations don’t matter,” he said.