Cava's Stock Decline: A Calculated Entry Point for Long-Term Investors?

Cava Group (NYSE:CAVA) has seen its stock price drop 3.23% on August 11, 2025, amid concerns over slowing same-restaurant sales growth and rising costs. This decline, coupled with a year-to-date drop of 25%, has sparked debates about whether the pullback reflects overcorrection or a warning sign. For long-term investors, the question is critical: Does Cava's current valuation and business fundamentals justify a strategic entry point, or is the market overestimating its resilience?

The Numbers Behind the Decline

Cava's Q2 2025 earnings report, scheduled for August 12, is expected to show revenues of $286 million (up 22% YoY) but a 18% contraction in adjusted EPS to $0.14. The revised same-restaurant sales growth target of 5.9% for Q2 2025—down from 14.4% in the prior year—has raised red flags. However, these figures mask a more nuanced story.

Cava's unit economics remain robust:
- Average Unit Volume (AUV) hit $2.9 million in Q1 2025, up from $2.6 million in 2024.
- Restaurant-level profit margin stood at 25.1% in Q1 2025, slightly down from 25.2% in 2024 but still impressive for a fast-casual chain.
- Digital sales now account for 38% of revenue, driven by a loyalty program with 8 million members.

The company's expansion runway is equally compelling. Cava plans to open 64–68 new locations in 2025, bringing its total to 382 restaurants. With a target of 1,000 locations by 2032, the unit economics—where each new store generates $2.9 million in AUV—suggest a scalable model. Even with a 25.1% profit margin, each new unit contributes ~$727,500 in profit annually. At scale, this could drive significant revenue growth.

Resilient Consumer Demand: A Key Differentiator

Cava's ability to retain customers and drive repeat visits is a standout strength. Its loyalty program has grown to 8 million members, with tiered rewards incentivizing frequent dining. In Q1 2025, same-restaurant sales grew 10.8% YoY, driven by a 7.5% traffic increase. This resilience is partly due to digital engagement—38% of sales now come from apps, websites, and delivery—alongside menu innovation (e.g., harissa pita chips, steak bowls).

Moreover, Cava's “Project Soul” redesign—featuring warm aesthetics and inviting seating—has enhanced in-store experiences, encouraging diners to linger and return. CEO Brett Schulman's emphasis on “hospitality” has translated into a 26.3% restaurant-level profit margin in Q2 2025, outperforming many peers.

Valuation: Overpriced or Misunderstood?

Cava's forward 12-month price-to-sales ratio of 7.63 is higher than the S&P 500's 5.21, raising concerns about overvaluation. However, this metric fails to capture the company's expansion potential and unit economics. At $2.9 million AUV and 25% margins, each new store generates ~$727,500 in profit. If Cava opens 66 new units annually (midpoint of guidance), that's an incremental $48 million in profit per year.

The stock's 25% YTD decline has also brought its valuation closer to historical averages. While the Zacks Rank #4 (Sell) reflects short-term pessimism, long-term investors should focus on Cava's 1,000-store vision and its ability to maintain margins amid inflation.

Risks and Realities

Cava faces headwinds:
- Rising labor and food costs could pressure margins if pricing increases are limited.
- Tough comparisons in 2025 (e.g., 14.4% growth in Q2 2024) may weigh on sales.
- High valuation remains a hurdle if growth slows further.

However, Cava's $369.4 million cash balance and zero debt provide flexibility to navigate these challenges. The company's focus on digital innovation and unit-level profitability also positions it to outperform in a competitive fast-casual landscape.

Investment Thesis: A Calculated Bet

For long-term investors, Cava's stock decline presents a compelling entry point if the company can:
1. Maintain margins above 24.8% despite cost pressures.
2. Deliver on expansion targets without sacrificing unit economics.
3. Sustain digital growth and loyalty program engagement.

While the near-term outlook is cautious, Cava's 1,000-store vision and strong unit economics suggest a path to $1.5 billion in annual revenue by 2032. At a 7x P/S multiple, this would value the company at ~$10.5 billion—a 150% upside from current levels.

Final Verdict: Cava's stock is not a “buy” for risk-averse investors, but for those with a 5–7 year horizon, the pullback offers a strategic opportunity to invest in a scalable, high-margin business with a clear growth runway. Just monitor Q2 earnings and margin trends closely.