Evie Liu
Fast-casual restaurants, once the darlings of the stock market, had a messy 2025 as cautious consumers and rising operating costs squeezed the chains. Still, the year wasn't a disaster.
Some brands are defending their margins better than others, and some are projecting a recovery in sales next year.
Salad shop Sweetgreen, which posted its latest results on Thursday, highlighted the challenges. In the fourth quarter, Sweetgreen's total revenue decreased 3.5% from a year ago even as it continued to open restaurants across the country. Same-store sales at existing restaurants tumbled 11.5% from a year ago, evidence that consumers are less willing to pay $16 for a bowl of salad.
The chain has yet to turn a profit since its initial public offering in 2021. In the fourth quarter, it posted a net loss of nearly $50 million, one third of its quarterly revenue and $20 million more than a year ago.
The stock tumbled 9.8% on Friday, continuing a fall that has sent the shares down by 76% in a year.
The company is seeking to turn itself around by offering more value -- recent moves have included offering wraps in selected markets at more affordable prices -- and by trying to burn through cash less quickly. Still, investors are on the fence for now.
"We will be patient for more favorable signs of sustainable inflection in headline trends before turning more constructive," wrote J.P. Morgan analyst Rahul Krotthapalli in a Friday note.
While some of Sweetgreen's problems are company-specific, fast-casual restaurants as a group are struggling to reposition themselves in an increasingly tough fight for consumers' cash. Fast-food brands, the chains' lower-priced rivals, are leaning heavily into discounts and value deals. And casual-dining restaurants, which are a bit fancier, are drawing customers by offering more services and amenities.
While total revenue for fast-casual chains has continued to rise as they have opened restaurants and expanded their geographic footprints, comparable sales at existing stores have been soft. Foot traffic has fallen and rising costs for labor and ingredients, especially beef, have eaten into margins.
The Mediterranean chain Cava exemplifies the challenge. For the December quarter, it increased its total revenue by 21.2%, but comparable sales edged up just 0.5%, the worst since the company went public in 2023. While prices on the menu were higher, guest traffic declined 1.4% from a year ago.
At Chipotle Mexican Grill, while revenue rose 4.9% in the latest quarter, comparable sales decreased 2.5% from a year ago. Wingstop's revenue jumped 8.6%, but domestic same-store sales declined 5.8%.
Investors are no longer willing to pay up for the stocks. Chipotle's shares have tumbled 31% over the past 12 months, bringing the ratio of the stock price to forward earnings to the lowest level in at least a decade.
Still, some chains were able to better protect their margins than others. Wingstop, for example, has seen its earnings grow from 93 cents a share a year ago to $1.00 per share in the fourth quarter, and the stock has gained 10% in the past 12 months.
The chain's reliance on franchises has helped because it is franchisees who bear most of the risk for costs and sales volatility. Even when same-store sales wobble, opening new restaurants, which brings in more royalty payments, can prop up profits.
Shake Shack is also doing relatively well. On Thursday, the burger joint posted fourth-quarter revenue that was 22% higher than a year ago, while comparable sales were up 2.1%. Adjusted earnings came at 37 cents a share, up from 26 cents a year earlier.
Increased productivity among the staff, a more efficient supply chain, and lower costs to build new restaurants are responsible, said CEO Rob Lynch. Management expects comparable sales to grow by a percentage in the low single digits in 2026. It believes profit margins at the restaurant level will continue to expand as well.
Raymond James analyst Brian Vaccaro said the forecast was "quite a bit stronger" than he anticipated even though bad weather hurt the chain during the first quarter.
"Longer term, we continue to view Shake Shack's growth runway as one of the strongest and most proven among emerging restaurant brands," wrote William Blair analyst Sharon Zackfia in a Thursday note.
Cava, too, is showing positive signs. Despite the latest slip, management expects comparable sales to grow 3% to 5% in 2026. The stock has gained nearly 69% over the past three months, but still trades 13% lower than a year ago.
"We're encouraged by the strong start to the first quarter and solid 2026 guidance, which appears to leave room for notable upside," wrote UBS analyst Dennis Geiger in a Wednesday note.
Not everyone agrees. The company's growth is already reflected in a valuation that is much higher than at rival chains, said Vaccaro, the Raymond James analyst. The shares are trading at 157 times forward earnings, according to FactSet.
Write to editors@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 27, 2026 16:43 ET (21:43 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments