Brett Schulman has heard the comparison for years—but the CEO of Cava doesn’t mind. After all, his chain’s operating model is very similar to a certain famous burrito brand. Besides, Schulman says, it’s high praise if people want to call Cava “the Mediterranean Chipotle.” But he urges them to keep an eye on what his firm, known for its lamb meatballs, falafels, and pita chips, is going to do next.
“We have this massive white-space opportunity in front of us,” he told Fortune last Tuesday, shortly before the company released another blowout round of quarterly earnings.
The Street shares his enthusiasm. Investors all seemed to want a piece when Cava went public last June, and the shine has yet to wear off. The stock is up over 300% in the past year, even though shares fell 4% late last week. Some shareholders could be profit-taking—or scared off by a skyrocketing multiple—but many still appear confident they will get what they paid for.
Business has recently been tough for most of the restaurant industry, including both traditional dining and fast food. The fast-casual space, however, has had Wall Street licking its lips in 2024.
As the chart below shows, health-conscious brands like Cava and salad chain Sweetgreen have dramatically outperformed the broader market. Even Chipotle—founded in 1993, making it more than 20 years older than Cava—has produced a strong year despite having its star CEO poached by Starbucks in August. For comparison, shares of McDonald’s have lagged well behind the S&P 500.
The fast-casual players have become staples of the office lunch run in several major U.S. cities, but that’s far from the biggest factor driving their rise. Cava, for example, has 90% of its restaurants in suburban settings, Schulman said, and the lunch/dinner split is almost 50/50.
Sharon Zackfia, head of consumer equity research and a partner at investment bank William Blair, seconds the chief executive’s notion that Cava is capitalizing as some consumers trade down—or seek more affordable options—while others increasingly trade up from slightly cheaper fast-food options.
The former trend is nothing new, she told Fortune. Over the last 20 years, she explained, sit-down casual dining has lost ground to quick-service restaurants as consumers realize they can get an equally tasty burrito or salad at potentially a better price point and in a more convenient format.
The much more recent phenomenon, she explained, involves people willing to pay an extra few dollars to forgo their fast-food burger for a salad bowl, especially as the former has become more expensive amid rising prices. New entrants like Cava and Sweetgreen, she said, have been able to replicate their success across various regions and income cohorts.
“They're just so early in their growth trajectory,” she said.
Can Cava keep growing?
Analysts congratulating executives on earnings is hardly uncommon, but the tone felt especially effusive on Cava's Q3 call last week. That's not a surprise, as the chain's revenue grew for a 15th straight quarter, increasing 39% year over year to $241.5 million, while quarterly earnings per share came in at $0.15 for a 37% consensus beat, per Bloomberg.
Schulman said he’s most proud about foot traffic growing 12.9% at existing restaurants in Q3, which topped the Street’s estimates by 58%. The vision his team started to execute 14 years ago, he said, has reached a tipping point.
“[It] shows just how much momentum and appreciation folks have for the brand,” he said, “and how well our cuisine and our value proposition [are] resonating and meeting the moment for the modern consumer.”
Cava went public in June 2023 and is now on track to do over $11 billion in revenue this year, per estimates from Visible Alpha, and its early pace of growth has even eclipsed what Chipotle achieved in its early years as a public company. Cava’s market cap is currently around $16.2 billion, which roughly equates to $46 million for each of its 352 restaurants. By comparison, investors valued Chipotle at about $4 million per restaurant when the same amount of time had passed since its January 2006 IPO (the same year Cava's original three founders decided to launch their first restaurant).
Cava’s valuation is also lofty by more traditional measures, with the stock trading at a price 243 times forward earnings, according to estimates from S&P Cap IQ. That's high even compared to the likes of upscale burger joint Shake Shack, which has a forward P/E ratio of 117, let alone a long-established brand like McDonald's trading at 24 times forward earnings. Cava's CEO, though, is confident the valuation is warranted.
“They're increasingly confident in our opportunity,” Schulman said of the company's shareholders, “and the more we're able to continue to deliver on that opportunity, it's only growing their confidence.”
Cava hopes to operate 1,000 stores by 2032, but Schulman is the first to admit successfully scaling restaurants is no easy feat. The food-poisoning crises that rocked Chipotle in 2015 serve as a warning of what can happen when a chain gets too big too fast.
Cava has dealt with some food safety controversies of its own. In September, short-seller Hunterbrook published a report that found two Cava restaurants in Manhattan, including the Wall Street location, had received a grade of C from the New York City Department of Health.
Those restaurants have since received A's on their most recent inspections. The company's stock is up 14% since.
"Food safety is paramount to what we do, it is embedded in our culture, our policies, and our practices," Cava said in a statement.
Schulman said the company is ready to broaden and deepen its presence in the 25 states in which it operates. Beyond its mid-Atlantic roots, the chain has a heavy footprint in the Sunbelt, as well as in Texas and the Southwest. After launching in Chicago this year, the company is planning on expanding to South Florida and two new markets in the Midwest in 2025.
Along with its new locations, Zackfia said, the company has been adept at generating buzz on social media about menu innovations, fitting for a brand that identifies 58% of its customers as Gen Z and millennials. Her team’s projections for Cava’s earnings before taxes, depreciation, and amortization (EBITDA) over the next two years are now 80% to 90% above where they sat last summer.
“They're basically running at least a year ahead of schedule in terms of sales,” she said.
