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CAVA Group (CAVA -16%) is under heavy pressure today after releasing its Q2 results last night, trading to a new 52-wk low. This Mediterranean fast-casual restaurant chain reported a narrow EPS beat, while revenue missed expectations for just the second time since going public in mid-2023. CAVA revenue grew 20.3% yr/yr to $278 mln. Although CAVA reaffirmed its FY25 adjusted EBITDA and Restaurant-Level profit margin guidance, the bigger headline was a cut in FY25 comps to 4-6% from 6-8%.

• CAVA reported Q2 comps of +2.1%, primarily driven by price mix while traffic remained relatively flat yr/yr. Comps have been trending lower in recent quarters, and this is a pretty sharp deceleration from the +10.8% comp in Q1, and +21.2% in Q4. Despite the macroeconomic pressures, management noted that CAVA entered the second quarter with strong comp sale momentum, but as it moved through June it saw a deceleration, driven in part by the timing of its steak launch last year.
• Management also cited a "honeymoon effect" as another headwind to comp sales. Its 2024 class of stores exceeded expectations in its first year. Now included in the comp base, these stores are having an impact from a comp perspective.
• There are some positives in this report to point out. The company continues to expand quickly, opening 16 net new CAVA restaurants, a 16.7% increase yr/yr, and bringing its total restaurant count to 398. It also raised its FY25 net new restaurant openings to 68-70 from 64-68, marking the second consecutive quarter it has raised this metric. Additionally, despite a more modest comp increase, its Restaurant-Level profit increased 19.6% yr/yr to $73.3 mln, reflecting the strength of its operating model and its ability to generate attractive returns regardless of near-term sales volatility.
• Moving forward, management noted that comp sales regained momentum in the latter part of the quarter, reaccelerating as it exited Q2, and has so far continued into Q3. Additionally, CAVA does not have a high marketing spend as a percentage of revenue and has seen positive results from tests around its media mix model. It notes that it is something it can lean into if the macroeconomic headwinds persist.

Overall, while CAVA had some positives this quarter, the deceleration in comp growth and lowered FY25 comp guidance are weighing heavily on shares. Additionally, while comps showed a modest increase, it is worth noting that traffic was relatively flat, which has been the main driver of comp growth in past quarters. Traffic accounted for +7.5% in Q1 and +15.6% in Q4.

More generally, we were a bit nervous heading into this report given that CAVA sits on the upper end of the price scale in the fast-casual space. As pointed out in yesterday's preview, fast-casual chains with more expensive menu items than peers have struggled in Q2, most notably Sweetgreen (SG). While CAVA's results were more favorable than SG's, it is clear that higher priced names are feeling the impact of the macro environment where consumers are becoming increasingly value oriented.