Cava Group Earnings Disappoint, Veteran Trader Finds Balance Sheet "Investable"

Veteran trader reviews Cava Group's earnings, noting a 20% share drop after missing revenue estimates and lowering its full-year forecast. The CFO discussed the challenging macroeconomic environment, which has led to weaker sales growth in the US restaurant industry. Despite this, the trader finds the company's balance sheet to be strong, making it investable with a decent entry point.

Cava Group (CAVA) reported its fiscal 2025 Q2 earnings on August 13, 2025, with mixed results that saw a 20.2% revenue growth to $280.62M, driven by 16 new units and a 2.1% same-restaurant sales increase. Despite this, earnings per share (EPS) declined 5.9% year-over-year to $0.16, and net income fell 7.0% to $18.37 million. However, the reported net income marked the highest for Q2 in the past four years, highlighting the company’s operational resilience [1].

Following the earnings release, CAVA Group's stock experienced significant volatility, with shares rising 5.46% during the latest trading day but declining significantly over the subsequent trading week and month, with drops of 18.23% and 21.60%, respectively. This volatility reflects investor uncertainty and potential market skepticism regarding the company's long-term growth trajectory [1].

The post-earnings investment strategy of buying CAVA Group shares on the reporting date and holding for 30 days yielded no return over the past three years, with a compound annual growth rate (CAGR) of 0.00%. This strategy underperformed the broader market, generating an excess return of -46.32% compared to a benchmark return of 46.32%. The strategy exhibited a maximum drawdown and volatility of 0.00%, suggesting a cautious approach that failed to capture market gains [1].

Citigroup has lowered its price target on CAVA Group Inc. (NYSE: CAVA) to $88, while maintaining a Neutral rating. The price target reduction follows CAVA’s second-quarter results, which revealed softer same-store sales momentum. The company faced challenges from lapping steak offerings introduced in 2024 and the impact of newer locations entering their second year in the comparable store base. Despite these challenges, CAVA maintains strong financial health with a current ratio of 3.0x and operates with moderate debt levels [2].

Cava CEO Brett Schulman expressed confidence in the company's growth trajectory, highlighting the 16 new restaurant openings during the quarter, which brought the total to 398 locations. He emphasized the company's 26.3% restaurant-level profit margin, a key metric reflecting strong operational performance. Schulman also underscored the brand's leadership position, particularly with new units expected to deliver average unit volumes (AUVs) exceeding $3 million. His remarks reflected optimism about CAVA Group's expansion plans and long-term financial stability [1].

The trader finds the company's balance sheet to be strong, making it investable with a decent entry point. Despite the challenging macroeconomic environment, CAVA's strong financial health and operational resilience make it an attractive investment opportunity for those seeking a stable, long-term growth prospect.

References:
[1] https://www.ainvest.com/news/cava-group-2025-q2-earnings-net-income-hits-year-high-eps-decline-2508/
[2] https://www.ainvest.com/news/citigroup-lowers-cava-group-pt-88-maintains-neutral-rating-2508/