CAVA Group (NYSE: CAVA) saw its shares jump 12% in after-hours trading on Tuesday, as the fast-casual Mediterranean chain reported second-quarter results that showed robust customer traffic growth, which more than offset a slight contraction in restaurant-level margins.
The stock, which closed the regular session at $60.81, down 1.3%, surged to around $68.30 in extended trading. The move erased the stock's decline of about 8% over the prior week, reflecting investor optimism about the company's operational momentum.
Traffic Leads Sales Growth
Same-restaurant sales rose 9.0% during the fiscal second quarter, driven primarily by a 5.3% increase in guest visits. That traffic contribution represented 59% of the comparable-sales growth, with price and product mix accounting for the remaining 3.7 percentage points. This split is particularly encouraging for investors, as it suggests that demand is growing organically rather than relying on price increases, which is especially notable given the broader slowdown in restaurant spending.
Total revenue reached $365.4 million, up 31.3% from $278.2 million a year earlier, and exceeded the FactSet consensus of approximately $360 million. Net income came in at $23.0 million, or 19 cents per share, beating analyst expectations of 18 cents. Adjusted EBITDA rose 30% to $54.7 million.
Margin Dip Explained
Restaurant-level margin declined by 60 basis points to 25.7%, down from 26.3% in the prior-year period. The compression was attributed to the introduction of Pomegranate Glazed Salmon, which increased food costs, as well as higher delivery order volumes and increased wage investment. Management noted that both the salmon offering and delivery channel remain profitable, citing higher guest price points that help offset the margin impact.
Despite the margin rate decline, restaurant-level profit dollars grew by 28.1%, underscoring the strength of the underlying business.
Expansion on Track
CAVA added 17 net new locations during the quarter, bringing its total to 476 restaurants, a year-over-year increase of 19.6%. CEO Brett Schulman said, "Our newest restaurants continue to outperform our expectations," highlighting the success of the company's expansion strategy.
The company maintained its full-year guidance, which some analysts viewed as cautious given the strong quarterly performance. The outlook includes same-restaurant sales growth of 4.5% to 6.5%, restaurant-level margin of 23.7% to 24.3%, and adjusted EBITDA of $181 million to $191 million. Management also reaffirmed plans to open 75 to 77 net new restaurants in fiscal 2026.
Market Reaction and Analyst Sentiment
Prior to the earnings release, analysts held a broadly positive view on CAVA, with a consensus rating of Moderate Buy and an average price target of $93.04. Of the 28 analysts covering the stock, 64.3% rated it a Buy, 28.6% a Hold, and 3.6% a Sell. The strong after-hours move could prompt upward revisions to price targets.
Investors will be watching Wednesday's regular session to see if the momentum continues. The company also noted that sales were temporarily impacted by food-safety concerns in the broader industry following the quarter, but management said they have since recovered to mid-single-digit growth.
Looking Ahead
Key risks include potential increases in food and labor costs that could outweigh traffic gains, as well as execution risks associated with rapid expansion. The company's ability to maintain traffic momentum while managing margins will be crucial. With the stock now trading near $68, well below the average analyst target, there may be room for further upside if the company continues to deliver on its growth strategy.
