In case you missed it:

Cava is a quick-service restaurant chain that sells Mediterranean food, with a focus on strong value, quality ingredients and a warm, in-store ambiance.

My Cava Deep Dive can be found here.

RLM was pressured by a few items. Food, beverage and packing (FBP) costs rose very slightly as a percent of revenue due to chicken shawarma. 2% wage inflation also led to labor rising from 25.4% of revenue to 25.5% Y/Y. Notably, other operating expenses rose 80 bps as a percent of revenue and drove most of the RLM decline. This is due to elevated maintenance and repair expenses, which they’re exploring how to curb. Mix-shift towards 3P delivery, insurance costs and tariffs all weighed on the metric as well. Taken together, these factors powered the 100 bps of Y/Y deleveraging. EBITDA margin was still able to stay flat thanks to 140 bps of Y/Y corporate G&A leverage. This was fostered by lower legal fees.

Net income fell Y/Y due to a 28.5% effective tax rate compared to zero taxes paid last year. Earnings before tax (EBT) rose by 15.4% Y/Y.

Cava is currently trending above the midpoint of their guidance, but the team wanted to bake in an added layer of prudence amid dynamic macro and uncertainty pertaining to things like the government shutdown.

For 2026, they unofficially guided to 16%+ store growth. Analysts are expecting 21% Y/Y revenue growth for 2026, meaning Cava would need 5% comp store sales (CSS) growth to get there assuming minimum store growth. It didn’t offer CSS guidance, but it did have this to say:

“Our long-term algorithm targets low to mid-single digit same restaurant sales growth, and we will approach our 2026 outlook with appropriate discipline, taking into consideration our strong pipeline of traffic-driving initiatives.” -- CFO Tricia Tolivar

If we assume that means they’re not including traffic-driving initiatives in initial guidance (which would be wise), that leaves us with a 19.5% Y/Y revenue growth guide at the midpoint of this large CSS growth range (1%-6%). If we assume store growth is a bit faster and some of the initiatives do help with CSS growth, then guidance would be closer to inline or slightly ahead of expectations.

Cava trades for about 32x forward EBITDA and 87x forward EPS. EBITDA is expected to grow by 24% this year, 26% the following year and 25% the year after that. Each of those growth estimates could fall by somewhere around 100 bps following revisions.

Dissecting Macro, Comp Store Headwinds & Demand Trends:

The second consecutive reduction in annual comp store sales (CSS) growth guidance is not good, but not overwhelmingly disappointing given the backdrop. We’ve heard it from Chipotle, Wingstop and Apollo pulling its Papa John’s bid amid weak spending. Quick-service brands a step above the cheapest fast food options are struggling. The consumer, and especially the younger consumer, is hurting and creating what Cava called “the most intense discount environment since the Great Recession.” Certainly notable any time we’re comparing things to that period.

“As we exited the second quarter, we saw same restaurant sales re-accelerate and were encouraged by the sequential improvement. However, as the third quarter progressed, we experienced some moderation in trends reflecting broader macroeconomic pressures. Entering the fourth quarter, we're seeing further moderation.” -- CFO Tricia Tolivar

Cava is posting positive sales, avoiding traffic declines, outperforming the field and taking more market share. And while that’s nice, it’s still not the kind of expansion we’ve grown to expect from them. Macro is one of the reasons.

Beyond this, I think it’s clear that management underestimated the headwind from the “honeymoon effect” they described last quarter. As a reminder, this refers to their new stores from 2024 ramping to mature volumes way faster than expected. Whether that was from the steak launch, IPO-related buzz or just structural interest in Cava, it makes CSS growth for the 2024 vintage extremely challenged; they're comping from a base so much larger than expected. The highly successful steak launch also accelerated things even further, which led to faster growth during the 2nd half of 2024 while the rest of the sector slowed down. The company is now measuring Y/Y expansion vs. that CSS surge amid worsening macro... and that sets the stage for these results.

While I’m doing a bit of speculation by assuming a hard Y/Y comp is the main culprit for the muted growth numbers, there’s evidence to support the idea. The 2024 store cohort that dipped into negative CSS growth territory one year into existence accelerated back to positive CSS after another 6 months. This offers a clear sign that the Y/Y comp drag is mightily holding things back, with macro compounding this phenomenon. The company expects the same thing to play out for their 2025 store vintage, and they’re ok with that. It does lower CSS growth, but it also means stores are profitable and generating higher cash-0n-cash returns faster than expected. It sounds like this firm is settling into its steady multi-year growth curve, which I think should remain around 20% for a very long time. Specifically, new 2025 stores are already trending above $3M in AUV, which is above the franchise overall. I realize we want CSS growth to be faster, but this just about the most positive reason I can think of for why it's not.

Stores & Talent:

As a reminder, during the quarter, Cava fired their COO. The team was quick to say multiple times that their store experience is very strong. But? It does sound like there are a handful of stores where service quality is only good rather than great. Maybe this includes the unit @Citibeach in Discord went to where the manager was blasting music on a speaker... kidding. Service quality is certainly not bad at its worst store... but good isn’t good enough for these founders. It also sounds like the old COO was not building out the talent pipeline quickly enough to support great store expansion. They’re proactively looking to up-level leadership here to make sure they can rapidly scale stores in the years to come while experience remains stellar. They think they need a new operations leader to do that, and are making the change before they find out. Again… it does not sound like this was in response to any glaring issues. It sounds like this was to usher in a new era of growth while minimizing future bottlenecks.

Part of the new COO’s job (not named yet) will be building Cava’s new Assistant General Manager (AGM) program. This tweaks its General Manager in Training role, to make sure these people are getting more training in high-density stores, better experience and complete preparation for eventual promotion. They think they can fill about 70% of these new roles internally (with training needed for most), with the other 30% being external hires. This will very modestly pressure labor growth in 2026.

Value:

Cava threw a bit of shade at Chipotle and reminded everyone that its chicken bowls… with all the bells and whistles… are under $13 in New York City. They’ve raised prices at half the rate of the industry since 2019 and well under the rate of inflation. Schulman loves to tell us that, and rightfully so. This is their value proposition extending. They want to get more aggressive in messaging this unique bang for your buck during a time when customers care about it a lot. Leadership talked about accelerating marketing to accomplish this, and given how little they spend there today, I think they should.

Food:

The chicken shawarma limited time offer (LTO) is performing as expected. The company is also increasingly excited about learnings from salmon testing. That experiment is driving incremental visits and should be set to debut next year. The cinnamon-sugar pita chips also just launched and Cava has plans to expand this to more flavors next year.

Loyalty Program:

Cava’s revamped loyalty program delivered 36% Y/Y member growth one year after launching. They just added new status tiers, with varying levels of rewards and introduced a novel status matching program as well. This allows members of loyalty programs from participating airlines, hotel chains and other partners to immediately gain the same level of Cava status for the rest of 2025. They plan to really fixate on more ways to surprise and delight users like this one.

Technology:

The kitchen display system (KDS) is in 200+ locations vs. 95 Q/Q. They now expect to have it in 350+ stores by January vs. 270 previously. The digital display screen is replacing manual order triaging, simplifying multi-channel fulfillment, guiding optimal workflows and upgrading staff communication. All of this is enhancing order accuracy rates and customer service scores, which they know will lead to CSS tailwinds. Excitingly, KDS’s impact should allow Cava to raise its off-site order volume maximums, as the stores get better at handling more demand without creating chaos. This rollout should be another small source of traffic gains.

Summarizing 2026 Traffic-Driving Initiatives:

In the guidance section, I alluded to 2026 CSS growth initiatives. Those initiatives include salmon, KDS-enabled off-premise volume growth, and expansion of catering to a second market as they continue to learn. The company also plans to take marketing more seriously as the store footprint grows and more opportunities for valuable national ad placements surface. While all of these should help, I think the biggest boost will be getting beyond historically difficult Y/Y comps (Q2 2026).

I think this is the first underwhelming quarter this team has posted since going public. Macro is surely a main reason why, but I also think they underestimated just how strong of comp headwinds the steak launch and honeymoon effect would represent. These challenges turned out to be larger than expected while macro amplified the financial weakness. With that said, I view the mistake as understandable and reasonable to make. They’ve never dealt with new stores ramping up this quickly and would have been foolish to assume that would happen before it actually did. They've also never dealt with a food launch as needle-moving as steak was. This is the hangover from that fantastic success.

So what’s important? Cava’s CSS remained positive and accelerated from 16.5% Y/Y to 20.0% Y/Y on a 2-year basis. Their new stores are materially outperforming and leading the cash-on-cash returns well beyond expectations. They’re taking considerable market share still growing at a healthy 20% Y/Y clip amid a fragile backdrop. They’re doing all of this while maintaining roughly flat EBITDA margins despite several ephemeral cost headwinds. What matters is that they’re outperforming most of their peers while times are bad, and thus positioning themselves to look better than that pack when times are good.

With that said, I’m planning on dipping my toe tomorrow morning if I can scoop up shares around these levels. I want to take advantage of an EBITDA multiple now approaching 30x forward for what I still view as the highest-quality growth story in the space. The add is going to be small, because candidly, I don’t think there’s a rush to fire all of my remaining bullets here. I want to keep inching in slowly. Cava still has another quarter of dauntingly tough Y/Y comps to get through and will not enjoy easy comps until Q2 2026. I’m comfortable with this being a roughly 2.5% position (post add) and being patient to see if Mr. Market can give us an even better deal. Awful sentiment can always get worse before it gets better. I’m happy to make my risk here not owning quite as many shares as I’d like to if the stock starts working before I expect it to.

Cava is understandably down... but so far from out. That's how I see things.