What happened
Shares of Cava Group (CAVA 10.50%) fell last month as a solid earnings report wasn't enough to overcome broader valuation concerns around the recent restaurant initial public offering (IPO).
As a result, the stock finished the month down 22% according to data from S&P Global Market Intelligence.
As you can see from the chart below, the stock slipped through the first half of the month on concerns about the economy and the reaction to its first earnings report.
So what
Stocks dipped broadly in the first half of the month as concerns about a potential recession seemed to restrain the market. After a boom through the first half of the year, a number of companies pointed to an uncertain macro environment in their earnings report, and economic data showed that higher interest rates seem to be slowing the economy.
Cava, a Mediterranean fast-casual chain that went public in June, has traded mostly in line with the broad market since its debut as investors are still unsure how to value the company.
In its second-quarter report on Aug. 15, Cava actually delivered strong results, but the stock sold off as expectations for the stock may have been too high.
Same-restaurant sales were up 18.2% in the quarter, driving overall revenue up 62.4% as the company is aggressively opening new stores, adding 16 locations in the quarter, and updating former Zoe's Kitchen locations. Revenue of $172.9 million topped the consensus at $163.2 million.
On the bottom line, it continued to deliver strong results with a restaurant-level profit margin of 26.1%, up 400 basis points from the year ago, and it reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $21.6 million, or a margin of 12.5%.
On the bottom line, the company posted net income of $0.21 per share, according to generally accepted accounting principles (GAAP), much better than expectations of a loss of $0.02.
Cava stock rose after hours on the news but gained just 1% the day after the report. The following day, the stock fell 10% as the broad market fell on concerns about the weakening economy, which would impact a restaurant chain like Cava.
Now what
Guidance for the full year was solid as the company called for same-restaurant sales growth of 13% to 15% and a restaurant-level profit margin of 23%. It also sees adjusted EBITDA of $62 million to $67 million.
Cava is pricey, but it's hard to ignore its rapid growth and profitability. Given the macro-level challenges, investors seem to be treading carefully with the stock for now.
