(Reuters) – Restaurant chain Cava’s stock soared nearly 17% to $169.40 in premarket trading on Wednesday, after it exceeded third-quarter earnings estimates on strong demand for its Mediterranean fare such as pita chips and grilled steak.
Fast-casual restaurants like Cava, Shake Shack and Sweetgreen, which offer salad bowls and cheeseburgers as well as dining space, have grown in popularity this year as customers traded up from fast-food chains amid runaway prices.
Cava has witnessed a 28.4% growth in traffic this year till September, while McDonald’s and Restaurant Brands-owned Burger King saw customer visits decline 0.4% and 0.9%, respectively, according to data from Placer.ai.
“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.
The chain raised its annual forecasts for the third time in 2024 when it reported third-quarter results after market close on Tuesday. Its stock has more than tripled in value this year.
The company’s percentage of sales contribution from a revamped loyalty program jumped 200 basis points in the reported quarter. It has also invested in improving its in-restaurant channels, which make up roughly 65% of the total guest count.
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 mix.
“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.
At least four brokerages raised their price targets on the stock following the results.
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 -83.07 for Sweetgreen.
(Reporting by Savyata Mishra in Bengaluru; Editing by Pooja Desai)
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