Here's our initial take on Cava's (CAVA -0.07%) fiscal 2025 first-quarter financial report.

Key Metrics

Metric Q1 2024 Q1 2025 Change vs. Expectations
Revenue $256.3 million $328.5 million 28% Beat
Earnings per share $0.12 $0.22 83% Beat
Adjusted EBITDA $33.3 million $44.9 million 35% n/a
Restaurant count 323 382 18% n/a

Strong Headline Numbers but Margin Pressures

On the headline numbers, Cava's first-quarter earnings report looks great. The fast-casual restaurant brand reported revenue and earnings that both handily beat expectations. Revenue grew by 28% year over year, and even after backing out the effects of 15 net new stores, the company saw same-restaurant sales grow by nearly 11%, showing excellent momentum. Customer traffic grew by 7.5% during the quarter, so the increase wasn't just fueled by price inflation either.

The news wasn't all great. For example, Cava's restaurant-level profit margin declined by 10 basis points year over year to 25.1%, mainly due to higher food costs (specifically associated with the launch of grilled steak).

Looking ahead, Cava maintained its full-year guidance for same restaurant sales growth of 6% to 8%, representing a deceleration from this quarter's figure and lower than the 8.4% analyst consensus estimate. However, the company anticipates two additional new restaurant openings at the midpoint of its guidance range, and slightly raised its adjusted EBITDA forecast.

Immediate Market Reaction

The initial reaction to Cava's earnings report was slightly negative, which isn't a surprise given the better-than-expected top- and bottom-line results but also the margin pressures and expectations of decelerating same-store growth. As of 4:30 p.m. EDT, Cava shares were lower by a little more than 3% in after-hours trading.

It's worth noting that this move is before management's conference call, and it's entirely possible that the team's comments could move the stock in one direction or the other.

What to Watch

The key metric to watch will be same-restaurant sales growth, as the company's actual growth momentum can get distorted due to the revenue created by opening dozens of new restaurants. If the U.S. economy worsens as 2025 goes on, it could certainly cause customer traffic to decelerate. On the other hand, if the U.S. can avoid a recession and the economy generally stays strong, it's entirely possible that the double-digit growth reported in the first quarter could continue.

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