Cava Group shares fell on Thursday after the fast-casual Mediterranean eatery missed third-quarter financial projections because of higher operating costs and wary consumers after a summer outbreak of illness linked to lettuce.
Several analysts cut their price targets on the stock after the report, including DA Davidson, which shaved $15 off its price target, to $60, maintaining a Neutral rating. Cava shares ended down 3.2%, at $60.01 on Thursday but were down more during midday trading.
Visits to Cava restaurants open at least 12 months increased 1.7% in the quarter, according to Placer.ai, which tracks foot traffic.
Sales at restaurants open at least 12 months rose 3.1% during the quarter, including 3% from menu price, product mix, and positive guest traffic, but declined by about 1.5% because of "the impact of Cyclospora and broader concerns around fresh produce consumption," Cava said.
CEO and co-founder Brett Schulman told analysts on Wednesday that even after the outbreak ended, higher gasoline prices during the quarter affected customer traffic.
"Importantly, these factors do not change the structural strength of our business, the health of our brand, or our ability to execute against the long-term opportunity," Schulman added. "While we are not immune to the environment around us, we are focused on what we can control: running great restaurants, delivering differentiated value through high-quality Mediterranean food and hospitality, and continuing to invest with discipline in our teams and guests for long-term growth."
Bernstein analysts also cut their price target by $15, to $80 a share, saying traffic growth needs to settle more consistently in the low-single-digit range.
StoneX analyst Todd Brooks, who kept a $110 price target on the stock, noted management's comments that the business exited strongly out of the third quarter, adding that StoneX's data shows quarter-to-date same-store sales running up about 5%.
From July 6, when the outbreak made national headlines, through Sept. 11, when the Centers for Disease Control and Prevention said the Cyclospora outbreak had "ended," fast-casual chains like Cava, Sweetgreen, and Chipotle generally outperformed the broader category in visits per location, R.J. Hottivy, head of analytical research at Placer.ai, said at the time. Cava visits per location increased 3.7% year over year during that span.
For its fiscal third quarter ended Oct. 4, Cava reported revenue of $353.7 million, up 22.1% from a year ago, driven primarily by 102 net new restaurant openings. But Wall Street had expected $358.4 million.
Adjusted earnings of 11 cents a share also missed the 12 cents a share expected. Net income declined to $13.7 million, from $14.7 million in the previous third quarter, because of higher depreciation and amortization, including the impact of capital investments to "enhance the guest and team member experience," and higher equity-based compensation.
Cava updated its full-year outlook to reflect slightly higher expectations for same-restaurant sales, to between 6% and 7%, from 4.5% to 6.5% in the previous quarter.
But it also narrowed its adjusted earnings before interest, taxes, depreciation, and amortization to between $184.0 million and $189.0 million, from a previous range of $181.0 million and $191.0 million.
Barron's wrote in September that Cava stock was "too tasty to pass up."
The stock is down 2.9% this year, but up 22.3% over the past 12 months.
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