Prediction: Cava Stock Will Soar After Earnings

In a time when a lot of restaurant stocks are causing a bout of indigestion for shareholders, Cava Group (NYSE: CAVA) offers the potential of a winning recipe. The fast-growing chain offering fresh takes on Mediterranean and Greek-inspired food is cultivating a growing fan base. It's one of the few fast-casual concepts still posting positive store-level comps, for now.

That winning streak could end next week. Cava's historically positive year-over-year growth at the individual store level has been decelerating sharply over the past year. With economic and even dietary trends gnawing away at restaurant operators, the chain could be on the verge of posting its first decline in same-restaurant sales as a public company.

Image source: Cava Group.

It's going to be a feta finish

Cava reports its first-quarter results on Tuesday of next week, shortly after the market close. Momentum is not in its corner. Just check out how same-restaurant sales have played out over the past five financial updates.

• Q4 2024: 21.2%
• Q1 2025: 10.8%
• Q2 2025: 2.1%
• Q3 2025: 1.9%
• Q4 2025: 0.5%

The trend is problematic. Cava's customers keep tapping the brakes. After four consecutive periods of deceleration, there isn't a lot of air between its previous quarter's 0.5% uptick and zero. The restaurant operator has never posted negative comps since going public three years ago. Is it about to happen?

The market wouldn't be surprised if restaurant-level sales declined when Tuesday afternoon's report becomes official. It's not just the way popularity has slowed at the unit level. A lot of new trends are weighing on the industry.

Gas prices are sharply higher now than they were three months ago, making it cost more to head out to your local Cava or to pay a premium to have it delivered. It also means less disposable income to spend on things like eating outside of the home. Then you get to the GLP-1 boom. Cava falls under a healthier lifestyle category than many chains, but folks are eating less when they're on the weekly injectables. If there were ever a time for Cava to prove mortal it would have to be its upcoming financial update.

Looking at the bright side of the light side

There are some reasons to be hopeful on the comps front. Let's start with the math. The unimpressive 0.5% for the fourth quarter of last year didn't even keep up with inflation, but did you catch that comparable-restaurant sales soared 21.2% in the previous holiday quarter? Comps for the last quarter are still 21.8% higher than they were two years earlier. The year-over-year comparisons will get easier after the 10.8% step-up in the first quarter of last year. The burden will get even easier for the next three quarters of this year.

It's not just the math that will get more kind this year. Let's talk about Cava's core market and strong brand loyalty. At the time of its initial public offering (IPO) in the spring of 2023, Cava noted that its largest age bracket was diners aged 25 to 34, accounting for 28% of its traffic. GLP-1's stronghold is among middle-aged users aged 40 to 65. There is also the wealth factor to consider. A whopping 37% of Cava diners had household incomes above $150,000, with 59% above $100,000 -- and this was three years ago.

Expectations are also low. Analysts see earnings declining to $0.17 a share, with the 26% jump in sales fueled by the concept's heady expansion. The stock has bounced back sharply from its November lows, but it's still trading 56% below its year-earlier peak. With the year-over-year comparisons setting up the potential for positive comps and encouraging guidance, Cava could burst higher next week -- just as its offerings burst with flavor.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cava Group. The Motley Fool has a disclosure policy.