In this podcast, Motley Fool contributors Travis Hoium, Lou Whiteman, and Rachel Warren discuss:

  • Cava's big earnings drop.
  • Why Chipotle has struggled.
  • Restaurants as an economic warning.
  • One restaurant tech stock that's still growing.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on August 13, 2025.

Travis Hoium: Why have restaurant stocks gone south in 2025? Motley Fool money starts now.

Restaurant stocks like Chipotle, Darden and Starbucks have been some of the biggest winners for investors over decades, but are consumer tastes changing? I'm joined by Lou Whiteman and Rachel Warren to try to answer that question. Let's get to the news of the day, and that's Cava. There's been some really strange trends in a lot of the restaurant industry over the past few months, companies that were growing like crazy, suddenly reporting negative numbers. Cava reported after the market closed yesterday, as we're recording, and the stock is down 23% early in trading. Lou, what did we learn from Cava, and why is this such a huge reaction from investors?

Lou Whiteman: From the headline numbers were fine. But if you dig a little deeper, the traffic was flat, margins are down. They did warn of comp sales guidance. Comp sales are because these restaurant chains are growing so fast, you want to compare apples to apples. How many stores did you have last year? How many stores you have this year? Obviously, just getting more throughput through those stores. This is such a scale business that's so important. They lowered their comp sale guidance by 200 basis points to 4-6% growth. That's a bad sign. Now, some of this, I think, is the big macro. CFO Trisha Toliver said, "We're operating in a fluid macroeconomic environment and one that creates fog for consumers with things changing constantly." If there's fog for consumers, it's translating into fog for the business, which is fog for investors, and investors are heading for the exits.

Rachel Warren: I don't think we can really take a single quarter of Cava earnings and really make a holistic determination about the business. I think this is obviously one of those stocks that we look at as investors. The valuation is very high, and expectations, accordingly, are also quite high. The company has had one of the best financial performances recently across all comps leading up to this point. In Q1, that was definitely the case compared to other quick service competitors. But Q2 was more mixed. Cava same restaurant sales growth decelerated to 2.1%. That was quite a bit behind what analysts were expecting. They had been targeting more of the 6% range, but I will note this follows the first quarter. Where Cava's same restaurant sales growth was 10.8% up year over year. I think that there are some positive points to note, they also grew revenue by more than 20%, and restaurant-level profits grew about 20% as well in Q2. It's not all bad news.

Travis Hoium: Same-store sales numbers have been absolutely crazy at Cava. Over 20% for a lot of the last couple of years, which is almost unheard of in the restaurant industry. That's why this is a stock that was trading, I think, right now, it's about 70 times trailing earnings. But this is also, as you're scaling your business, you're growing, entering new markets. Lou, do they have the right menu for the American eater right now? Burritos is something that translates to everybody. Is Cava going to be able to do the same thing?

Lou Whiteman: I think that is a great question, and it has to be baked into the growth estimates. Full disclosure, Cava is my go-to. I love Mediterranean food, but we are a culture of pizza and burritos. I wonder they are only at 400 locations now. They have big plans to get, I think, 1,000 by 2032. Will they have success selling the Mediterranean diet versus pizza and burritos nationally? I think there's still a growth story here, but I don't know if the long-term trajectory, like if we compare it to some of these other big names, I don't know if it's going to turn out that way with their menu versus what you can do with a burrito place or a pizza place.

Travis Hoium: It's easy to put a huge growth multiple when you have those same store sales. We still don't have Cava where I live, so this is one I would like to.

Lou Whiteman: The American Heartland's a huge question, I think.

Travis Hoium: Pizza, burgers definitely translates here. Don't know if necessarily Cava does. Rachel, what's the growth thesis? The stock has taken a beating, down over 50% from its highs earlier this year, much less its highs last year. What are you looking for for this to be a buy?

Rachel Warren: I don't think the story is nearly as bleak as the market's reaction might have you think. I agree, the valuation is high, and I think one could even argue that a dropdown in shares have been warranted. But here's the value proposition you really need to be thinking about if this is a business that you're looking to invest in. This is a company with extensive growth plans. They're looking to reach 1,000 locations by 2032. That's up from 398 locations currently. Historically, this is a business that has boasted really strong unit-level economics, including high profit margins and average sales per restaurant. That's enabled them to fund that expansion with internally generated cash. Even if you look at the first half of Cava's fiscal 2025, you've got year-to-date free cash flow of about 22 million on about 612 million in revenue and 44 million in profits. Those top and bottom line figures were up 24% and 31% from one year ago. It's still a business with a really robust, addressable market, and they are still bucking that trend of same-store sales declines that we've seen from a lot of their competitors. I think that there's still a lot to like about Cava.

Travis Hoium: Speaking of same-store sales declines, we're going to talk about Chipotle next and see why there are so many struggles there. We will get to that. When we come back, you're listening to Motley Fool Money.

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Travis Hoium: Chipotle has been fascinating over the past couple of years. The stock's actually in its biggest drawdown, down 38% from its high in 2024. That's the biggest drop in shares since 2017. The big news over the past few weeks is that same-store sales, this number and concept that we keep talking about so important for restaurants, down 4% in the second quarter. The big change at Chipotle is that CEO Brian Niccol left for Starbucks. Is he a reason that Same Store sales are down, Lou, or is there something else going on?

Lou Whiteman: I don't think he's the reason that same-store sales are going down. I do wonder, though, about where you go from here. I'll be honest, I'm probably more bullish on this company, as far as remaining a growth story, than I am Cava, although I'd prefer to eat at Cava. But bottom line, Brian, I think there is a CEO question here. It's probably unfair to Scott Boatwright, Brian Niccol's replacement, because he seems to have the credentials, but Brian Niccol is special. That is what we've been told to believe. He did an amazing job here. He's well thought of what he's done at Starbucks. If he is special, then I think you do have to ask questions when someone new comes in. It's no guarantee that the next person will be as good, and it's no guarantee that you can get this performance with average if you had someone special. I think there's just a lot of question marks around the company because of that. It might turn out to be unfair. It might turn out that everything's fine, and I do probably think so. But I do think given the leadership change in a tough macro environment, I think it makes sense for investors to have questions here.

Rachel Warren: We know the market hates uncertainty, and that's certainly been, I think, a trend that's been reflected across a lot of stocks, including restaurant stocks. With Chipotle, specifically, I don't think that one can fairly attribute Chipotle's recent troubles to Brian Niccol's departure. Scott Boatwright is a veteran in the Quick Service restaurant space, long before Chipotle. I do think the ship is in good hands overall. Chipotle's performance within the fast casual segment is lagging peers right now. If you look at it at Q2, they had a roughly 6% drop in per-location traffic, and that was compared to a flat performance for the segment overall. They had a 4% decline, as you noted, Travis, and comparable restaurant sales, and that decline in comps was primarily driven by an almost 5% decrease in transactions. But ultimately, I do think that this is a consumer spending issue, not a fundamental weakness with the business. It's operating in a cyclical space. I think investors should not be surprised that the business is being impacted by the downtrend of that cycle right now.

Travis Hoium: This has been one of the companies that's grown their same-store sales almost like clockwork, really, since they had that E. coli outbreak. The stock obviously cratered when that happened. But this is another example of a stock that was priced for perfection. Still has a $57 billion market cap. We got 30 PE multiple on a forward basis. Is the growth story over? I think that's the big question for investors right now. You start to have negative same-store sales comps, and you're paying a pretty high price still for Chipotle. Can they get that magic back, or is something fundamentally changed for Chipotle, Rachel?

Rachel Warren: I do not think that the growth story for Chipotle is over. I want to take a step back for a minute. If you look back to last year, Chipotle essentially outpaced the growth of the restaurant industry, where a lot of key names were already experiencing sales and traffic declines, and that trend only really started to affect Chipotle's business at the end of December. If you go back to their Q1 earnings call, Boatwright said that diners' concerns about the economy had led them to skip restaurant visits and maybe save their money instead. You fast-forward Q2. May was a tough month for Chipotle, but by June, same-store sales began increasing again, and Boatwright said that by exiting the quarter, they had begun to return to positive comp and transaction trends, which continued into July. I do think that it is important to take a more nuanced view here. There could be some bumpy quarters ahead, but a solid market and leadership position, I think, still gives this company a long-term advantage.

Lou Whiteman: They're at under 4,000 stores. They hope to get to 7,000. As I said, the style of food. I'm more confident that they can get there. I think the Cava gets to 1,000. Maybe not 7,000, but at least big growth from here. I think it's easier to expand once you have that scale and critical mass, too. It is an easier ramp. I think there's also that lever of breakfast, which we've been joking about forever, but that makes more sense here as far as just expanding the comps.

Travis Hoium: Where are we going to get some breakfast burritos? McDonald's has that.

Rachel Warren: I'd be down for that. [laughs].

Lou Whiteman: That seems a lot easier here than it is for Cava again. Again, I don't want to be too hard on Boatwright. I think he's the right person for the job, but I do think the wildcard here, you're getting a much better valuation than Cava. Cava before trading this morning was, I think, 4x, the forward valuation, so you're getting a better valuation. But if you buy into the fact that they had a best of class CEO before, will there be some drop off? If so, how does that affect the business? I don't think that is a bare case, but it is at least a question for the bulls that we only time will answer.

Travis Hoium: We're going to take a bit more of a macro view of the restaurant industry and talk about a tech company you may be interested in. We'll get to that next. You're listening to Motley Fool Money.

Given that operating leverage, restaurants have been phenomenal winners for investors who have been able to buy at the right price and hold for a long time. Chipotle, McDonald's, going back decades, even Starbucks, if you want to add coffee into this. But we're seeing a huge pullback in a lot of restaurant stocks. We haven't even talked about Sweetgreen. That's down 70% this year. Lou, is there something specific with restaurant stocks? Is this a macro story? What do we need to take away? Because we've been hearing multiple things from different companies, and these consistent growers just aren't growing anymore. It seems like some canary in a coma.

Lou Whiteman: I think there's two related macro trends going on here. The first is I keep calling it the boiling frog economy. I think things seem better than they are because it's just slowly inflation is creeping up, and so I think it is affecting consumer habits.

Travis Hoium: By the way, inflation is one of these things that comes up on every one of these conference calls.

Lou Whiteman: Absolutely.

Travis Hoium: If prices are up; it gets very specific for us.

Lou Whiteman: It hits on both sides because it hits on their costs, and it also, I think, does influence consumer behavior and maybe bring down traffic. Also, I think it's interesting and maybe this is related. If you look at this quarter, full-service restaurants have outperformed fast food and fast casual in a big way. Talk about comp sales. Chilli's is out this morning, up 22%. Olive Garden comp sales, up almost 7%. Same with Longhorn. Texas Roadhouses up 6%. You compare that you mentioned Sweetgreens, which is fast casual down almost 8%, Wendy's down 4%, Jack in the box down 7%. I don't know exactly what is going on here. I suspect that maybe if people are eating out less, they are just one atmosphere, and they're like, instead it's just that incremental stop three times a day that's going away, and special occasions are holding on. But I do think that the restaurants are telling us something about just the state of the consumer. Travis, you're right. It's not something we're hearing universally. I do wonder if this is a canary.

Rachel Warren: I do think it's a really interesting dynamic we're seeing right now. We know, and we're witnessing the ways in which the macro environment is giving consumers pause. We're seeing consumer sentiment numbers that come out. We are seeing consumers shifting their spending behaviors, but they're not curtailing all discretionary purchases. Obviously, there's been a shift toward essential items like groceries, but then there's discretionary areas that have shown significant resilience, like spending on leisure travel and other big-ticket items. But it's been really interesting to see the ways in which some of those trends have and have not trickled down to restaurant spending. There seems to be a lot more nuance. I do think Lou's right. Consumers are becoming increasingly picky about where they want to put their money to work. I think that's a reality that a growing number of restaurants are contending with. I see a lot of consumers prioritizing value. Maybe if they're going to spend money to go out to eat, they'd rather have that sit-down experience than a quick grab-and-go. At least right now, I think that is a common through line that we are seeing in restaurant earnings.

Travis Hoium: It's so interesting that value has become the sit-down experience. Even going back to 2008, 2009, you would see pretty good numbers from McDonald's because people stopped going to sit-down restaurants and traded down to McDonald's. Now, it seems like prices have gone up at a lot of those fast casual, fast food places. You're right. If I'm going to go and take the family out to eat, do I want to spend 40 or $50 at McDonald's, or do I want to spend 60 or $70 to actually sit down and have full service? It seems like a lot more people are doing the full service choice, but we'll see how this plays out. This is going to be fascinating because Lou, restaurants really tell us a lot about what consumers are choosing.

Lou Whiteman: To me, I think you're still going out with the family to celebrate a birthday or something, and that's why you're still seeing it. But if you're racing home, you could either make a PB&J at home or grab a Big Mac. I think that's where maybe the little bit of cost creep and the pressure on the household budget, maybe that's where it's showing.

Travis Hoium: One company we haven't talked about, the real technology play in restaurants is Toast. Toast seems to be just benefiting from all trends, it's not only growing in some of these sit-down restaurants, which is where they're going to have a majority of their business, but also just adding more restaurants. They euro 24.8% in the quarter. We're talking about negative same-store sales comps for some of these companies, but Toast seems to just be crushing it. Is this something that can continue, Rachel, for the foreseeable future, for Toast?

Rachel Warren: I think that they are on a very impressive growth trajectory right now. I would expect, as the company becomes more mature for that to slow, but that doesn't appear to be something that's going to happen anytime soon. In Q2, they added a record 8,500 net new locations. Their enterprise international food and beverage retail segments passed 10,000 live locations. They onboarded another 1,300 unit chain to the platform. They even launched their first customer in Australia. Another thing that's key here is that Toast is expanding beyond restaurants. They're broadening their focus to include retail businesses, convenience stores, bottle shops, grocery stores. That allows them to offer their technology solutions to a much wider range of clients, and they provide that core infrastructure for these businesses. One final thing. They just signed one of the biggest deals in their company history with Applebee's. This is as they onboarded Top Golf as a new client. They inked a strategic multi-year partnership with American Express. There's a lot of good things going on for Toast right now.

Lou Whiteman: I think Toast is the winner here, and I think they've done a really good job. I guess my surprise is that I don't really get excited about any of these companies, even the winner. Just I don't like this category as a long-term investor. If you judge this as a FinTech, I see much better margin opportunities than other FinTechs. This strikes me as a commoditized business by its nature. If you judge it as a service business or it as a service business, Software as a Service or whatever, I just see much more stable TAM opportunities. You have a company, the share count going up, it's priced at more than 40 times earnings. I really like the company, but I fail to see the investor excitement about this. I feel like they're a winner here, and it's a pretty blah business, once it levels off from early stage growth.

Travis Hoium: Final question, you have to buy one restaurant stock today. We got some pretty good discounts from previous prices. Rachel, which one are you adding to your portfolio?

Rachel Warren: Honestly, I got to say Cava. I'm still really bullish on that business. I like it. If anything, I think I'm intrigued by the fact that it's trading at a discount right now because the business still looks good to me.

Lou Whiteman: It's cheaper than it was. I don't know if I'm ready to buy it yet. I might choose Cava just because just as a consumer, I wanted to go up, but I do think whether it's Brinker, whether it's Darden, just one of these tried and trues, that's probably where I would look to invest.

Travis Hoium: I would love to buy Toast. I can't get over the price. If we keep getting discounts for some of these stocks, that's the one I would love to add to the portfolio. As always, people on the program may have an interest in the stocks they talk about in the Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. All personal finance content follows the Motley Fool editorials standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. See our full advertising disclosure. Please check out our show notes. We have Lou Whiteman, Rachel Warren, and Dan Boyd behind the glass and the entire Motley Fool team. I'm Travis Hoium. Thanks for listening. Motley Fool money will see you here tomorrow.