Build-Your-Bowl Battle: CAVA, Chipotle, and Sweetgreen Face Off
Fast food and dine-in restaurants struggled in 2024 as inflationary pressure caused consumers to tighten their spending habits in 2024. However, “build-your-bowl” (BYB) format fast casual restaurants in the retail/wholesale sector had a stellar year. These types of restaurants had an almost elastic halo around them, as their higher prices didn't stop consumers from spending. The addition of steak and beef to their menus also bolstered revenues. Heading into 2025, investors are curious to see if the spending trend continues for the top three BYB fast-casual restaurants. Here's how they performed in their recent results and what it bodes for their future results. Is there a clear winner that is outpacing the rest? Yes.
CAVA: The Mediterranean Chipotle Continues to Break Records
With shares rising 189% in 2024, CAVA Group Inc. (NYSE: CAVA) made a huge splash with investors and consumers. The restaurant offers a healthier option for its bowls with proteins ranging from grilled chicken, lamb meatballs, falafels to steak, along with 38 fresh Mediterranean toppings like pickled cabbage slaw, roasted eggplant, feta cheese, hummus and sauces like tzatziki, spicy mayo, harissa, and lemon herb tahini. There are 17 billion potential combinations. Customers can also order their meals in pita sandwiches. The company has grown to over 350 locations, with plans to open 56 to 58 new locations in 2024.
Firing on All Pistons to Take the Crown With 18.1% YoY Comps Growth
CAVA reported Q3 2024 EPS of 15 cents, beating analyst estimates by 4 cents. Revenues surged 39% year-over-year (YoY) to $243.82 million, beating consensus estimates for $233.05 million. Its same restaurant sales comps rose 18.1% YoY as guest traffic surged 12.9% YoY. While around a 5.2% increase came from menu pricing and product mix, the surge in guest traffic is a solid sign of organic growth. Restaurant-level profit margin rose to 25.6%. Average unit volume (AUV) rose to $2.8 million. The company seeks to enter the South Florida and Midwest markets in 2025. The Mediterranean could be the next major cultural cuisine category.
CAVA Issues In-Line 2024 Revenue But Raises Comps and Margin Guidance
Incidentally, CAVA appears to have taken a conservative approach to forecasts, with full-year revenue expected between $675 million and $680 million versus $678.56 million consensus estimates. CAVA raised its guidance for sales-store sales comps to between 12% and 13%, up from 8.5% to 9.5%. CAVA raised its restaurant-level profit margin forecast to 24.5% to 25%, up from 24.2% to 24.7%.
Sidestepping the FOMO
While the results were spectacular, it's important not to rush in head first on the stock. FOMO investors found that out the hard way after earnings. Shares shot up as high as $172.43 the following morning from $145.03, only to "sell the news" after the price gap fell to a low of $133.00 several days later.
Was the profit-taking justified on a 200% run-up? Insiders thought so, as top executives unloaded shares shortly afterward. The stock still trades around the $115.08 level with a P/E of 250 but near its $110.00 pre-earnings support level, which is much cheaper than the $172.43 peak that someone bought the day after earnings.
Chipotle: The Incumbent Grinds Along While Comps Slow Down
The incumbent and trailblazer of the BYB-style fast casual restaurant model Chipotle Mexican Grill Inc. (NYSE: CMG) made big headlines when its iconic CEO Brian Niccol was poached by Starbucks Co. (NYSE: SBUX) for over $100 million in total compensation.
The company scored double-digit comps in its previous quarter with the limited-time Chicken Pastor. However, that momentum has slowed as the company reported Q3 2024 revenue growth of 13% YoY to $2.79 billion, falling short of the $2.82 billion consensus estimates. Comp restaurant sales growth also fell by nearly half sequentially to just 6%. The company says Smoked brisket drove another quarter of strong results.
Chipotle Reaffirms Guidance and Gains More Chipotlanes
Chipotle reaffirmed full 2024 comp guidance of mid to high-single digits. It reaffirmed the outlook for full-year 2024 company-operated restaurant openings of 285 to 315 units. For 2025, Chipotle expected 315 to 345 new company-operated restaurant openings, with over 80% having drive-thru Chipotlanes.
Sweetgreen: Sweet Growth But Sour Profits
Health-conscious BYB newcomer Sweetgreen Inc. (NYSE: SG) had a stellar 2024, with shares rising 220%. The addition of caramelized garlic steak was a game changer as it widened its audience beyond vegetarians. Its caramelized garlic steak quickly grew in popularity as it was selected in one out of every five dinner orders. After coming off a stellar Q2 2024, momentum has slowed down.
Sweet Green posted a Q3 2024 EPS loss of 18 cents, missing estimates by 5 cents. Revenues rose 13% YoY to $173.43 million, missing the consensus estimates of $175.46 million. Same-store sales comps rose 6% YoY, up from 4% the prior year. Restaurant-level profit was $34.9 million, and restaurant-level profit margin was 20.2%, which was an improvement from the prior quarter of $29.1 million and 19%, respectively.
Sweetgreen Issues In-Line Guidance
The company expects full-year 2024 revenues of $675 million to $680 million versus $678.56 million. Same-store sales growth is expected to be between 6% and 7%. Restaurant-level profit margin is expected to be between 19.5% and 20%.
Sweetgreen Co-CEO Johnathan Newman commented, "Our expanded menu, together with the performance of our 2024 class of new restaurant openings, growth in emerging markets and our successful deployment of the Infinite Kitchen, gives us confidence in the reacceleration of our 2025 unit growth."
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