Large-cap stocks in software, footwear, and casual dining struggle to keep pace as Sweetgreen and CAVA Group plummet.

Large-cap casual dining stocks, such as CAVA Group, Cheesecake Factory, and Shake Shack, have faced headwinds, with some experiencing significant declines. Starbucks and other high-profile names have also lagged, marking a departure from the buyout era of companies like Applebee's and Panera Bread. The sector has been unable to keep pace with other industries, such as software and footwear.

The casual dining sector has faced significant headwinds in recent quarters, with several large-cap stocks experiencing notable declines. Companies like CAVA Group, The Cheesecake Factory, and Shake Shack have struggled, while high-profile names such as Starbucks have also lagged. This performance marks a departure from the buyout era of companies like Applebee's and Panera Bread, where the sector was more robust.

Despite these challenges, the broader restaurant industry has shown resilience. According to a report by Zacks Investment Research [1], the Zacks Retail – Restaurants industry has benefited from increased sales driven by rapid menu price hikes, average check growth, and expansion efforts. Partnerships with delivery channels and digital platforms have also been a significant catalyst for growth.

One of the standout performers in the sector is CAVA Group. In Q2 2025, CAVA Group reported a 20.3% year-over-year (YoY) revenue growth to $278.2 million and a 26.3% restaurant-level profit margin [2]. The company expanded to 398 locations, a 16.7% YoY increase, and aims to reach 1,000 stores by 2032. CAVA's success can be attributed to its focus on digital innovation, AI-driven kitchen optimization, and health-conscious dining trends.

Another notable company is The Cheesecake Factory Incorporated (CAKE), which has seen its shares surge 69.1% in the past year. The company has benefited from higher consumer demand, restaurant openings, and strong performance from its Flower Child concept [1]. However, despite this growth, CAKE's stock has faced volatility, reflecting the broader challenges in the sector.

The industry's performance has been underwhelming compared to other sectors. The Zacks Retail – Restaurants industry has underperformed the Zacks S&P 500 Composite and its sector over the past year, growing 5.7% compared to the S&P 500's 20.3% and the sector's 25.7% [1]. This underperformance can be attributed to a challenging macroeconomic environment, high costs, and dismal traffic.

Looking ahead, the industry faces several headwinds, including persistent inflation, reduced consumer purchasing power, and intense competition. However, the sector's focus on digital innovation, off-premise sales, and operational efficiency presents opportunities for growth. Companies that can successfully navigate these challenges and adapt to shifting consumer preferences are likely to fare better.

References:
[1] https://www.theglobeandmail.com/investing/markets/stocks/CAKE/pressreleases/34081681/3-restaurant-stocks-that-keep-soaring-despite-industry-challenges/
[2] https://www.ainvest.com/news/cava-group-20-3-revenue-growth-26-3-restaurant-level-profit-margin-signal-strong-buy-opportunity-fast-casual-dining-2508/